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Health Savings Accounts (HSAs) are one way people can pay for unreimbursed medical expenses (deductibles, copayments, and services not covered by insurance) on a tax-advantaged basis. HSAs can be established and funded by eligible individuals when they have a qualifying high-deductible health plan (HDHP, i.e., high-deductible insurance) with a deductible in 2012 of at least $1,200 for self-only coverage and $2,400 for family coverage. Qualifying HDHPs must also limit out-of-pocket expenses for covered benefits to certain amounts. With some exceptions, eligible individuals cannot have other health insurance coverage. HSA tax advantages can be significant for some people: contributions are deductible (or excluded from income that is taxable if made by employers), withdrawals are not taxed if used for medical expenses, and account earnings are tax-exempt. Unused balances may accumulate without limit. HSAs were first authorized in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA, P.L. 108-173 ). However, other tax-advantaged accounts for health care expenses have existed for some time. Flexible Spending Accounts (FSAs), which many employees can use, began spreading in the 1980s once the Internal Revenue Service (IRS) established clear guidelines. Archer Medical Savings Accounts (MSAs), a precursor of HSAs, became available for a limited number of people starting in 1997. Health Reimbursement Accounts (HRAs), made available by some employers, were approved for tax-exempt status in 2002. For an overview of the similarities and differences of these accounts, see CRS Report RS21573, Tax-Advantaged Accounts for Health Care Expenses: Side-by-Side Comparison , by [author name scrubbed]. Also see Internal Revenue Service publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. When coupled with high-deductible health plans, these accounts are part of what some call "consumer-driven health plans." One objective of these plans is to encourage individuals and families to set money aside for their health care expenses. Another is to give them a financial incentive for spending health care dollars prudently. Still another goal is to give them the means to pay for health care services of their own choosing, without constraint by insurers or employers. Since HSAs are still relatively new, the extent to which they will further these objectives is not yet known with any assurance, notwithstanding some early data. However, many individuals and employers are interested in HSAs, and additional information about them is emerging continuall. This report provides a summary of the principal rules governing HSAs, covering such matters as eligibility, qualifying health insurance, contributions, and withdrawals. It will be updated as the rules change, either by legislation or regulatory action. Rules governing HSAs are laid out primarily in Section 223 of the Internal Revenue Code and guidance issued by the Department of the Treasury and the IRS. Section 223 of the Code was enacted by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ( P.L. 108-173 , Section 1201(a)). The section has been amended three times: first by the Gulf Opportunity Zone Act of 2005 ( P.L. 109-135 , Section 404(c)); second by the Tax Relief and Health Care Act of 2006 ( P.L. 109-432 ); and finally by the Patient Protection and Affordable Care Act (PPACA; P.L. 111-148 ). HSAs are affected by other rules as well. For example, whether an expenditure is a qualified medical expense is governed by Section 213(d) of the Internal Revenue Code and IRS guidance on it; aside from exceptions pertaining to the purchase of health insurance, Section 223 does not change these rules. The summaries of the principal HSA rules that follow do not provide all details or cite supporting documentation. Further information might be obtained by referring to the statutory provisions cited above, to IRS and other government publications, or to a growing body of secondary analyses. An HSA is a tax-exempt trust or custodial account established for paying qualified medical expenses of the account beneficiary. Accounts may be established with banks and insurance companies or with other entities approved by the IRS to hold Individual Retirement Accounts (IRAs) or MSAs. In addition, other entities may request approval to be an HSA trustee or custodian. Insurance companies that offer qualified high-deductible health plans (HDHPs) often also establish HSAs for the policyholders. However, there is no federal requirement that HSAs be established by the entity that provides the health plan. Individuals interested in establishing an HSA must locate an entity that accepts the accounts; they cannot simply deem an ordinary savings account to be an HSA. Individuals are eligible to establish and contribute to an HSA if they have a qualifying HDHP and no disqualifying coverage, as discussed under the next two headings. Whether someone has a qualifying HDHP is determined as of the first of each month; thus, a person might be eligible to contribute to an HSA in some months but not others. For example, if someone first enrolled in an HDHP on September 15, their HSA eligibility period would begin on October 1 of that year. Individuals cannot be enrolled in Medicare (a form of disqualifying coverage), which generally occurs at age 65. They cannot have received Veterans Administration medical benefits (another form of disqualifying coverage) within the past three months, other than benefits for preventive care or from disregarded coverage (for the latter, see exceptions to disqualifying coverage in the section on " What Is Disqualifying Coverage? "). On the other hand, individuals can be eligible even if they have access to free or reduced price health services at an on-site employer clinic, provided the clinic does not offer significant benefits. Individuals are not eligible if they may be claimed as a dependent on another person's tax return. Tax dependency is determined on a yearly basis; this might not be known until the end of the year. Individuals may keep their HSAs once they become ineligible. Thus, individuals do not lose their HSA (or the right to access it) by turning age 65 or by obtaining insurance with a low deductible. However, they could not make contributions until they become eligible once again. Individual members of a family may have their own HSAs, provided they each meet the eligibility rules just described. They can also be covered through the HSA of someone else in the family; for example, a husband may use his HSA to pay expenses of his spouse whether or not she has qualifying coverage and whether or not she has her own HSA. The husband might use his HSA to pay the spouse's expenses even if she has disqualifying coverage. Individuals may have more than one HSA account. A health plan must meet several tests to be qualified: it must have a deductible above a certain minimum level, and it must limit out-of-pocket expenditures for covered benefits to no more than a certain maximum level. These two tests are described immediately below. In addition, a qualifying health plan must provide general coverage: substantially all of its coverage cannot be through what the statute calls "permitted insurance" (e.g., coverage for only a particular disease) or certain other coverage (e.g., vision care). This rule prevents individuals from making HSA contributions when the only insurance they have is high-deductible coverage for a narrow class of benefits. (More details on permitted insurance and these other forms of coverage are provided under the heading " What Is Disqualifying Coverage? ".) For self-only coverage, the annual deductible in 2012 must be at least $1,200; for family coverage, it must be at least $2,400. These amounts will be adjusted for inflation (rounded to the nearest $50) in future years. Only usual, customary, and reasonable charges for covered benefits are taken into account in determining whether deductibles are met. Premiums are not included in meeting the deductible, though copayments may be at the option of the HDHP. The minimum deductible requirement does not apply to preventive care. The exception is established in the statutory language, which does not define the term. However, IRS regulations provide that preventive care includes but is not limited to periodic health evaluations (including tests and diagnostic procedures ordered in connection with routine examinations), routine prenatal and well-child care, immunizations, tobacco cessation programs, obesity weight-loss programs, and various screening services. Drugs and medications can be included when taken by a person who has developed risk factors for a disease, or to prevent its recurrence. In general, preventive care does not include services or benefits intended to treat existing illnesses, injuries, or conditions; an exception is allowed when the treatment is incidental to the preventive care service and it would be unreasonable or impracticable to perform another service. Prescription drugs are not exempt from the minimum deductible, whether they are treated like other benefits in the high-deductible insurance plan or have different deductibles and copayment requirements. Prescription or other discount cards do not disqualify individuals from meeting the minimum deductible requirement. Similarly, individuals are not disqualified by coverage under an employee assistance program, disease management program, or wellness program, provided the program does not provide significant benefits in the nature of medical care or treatment. For self-only coverage, the annual limit on out-of-pocket expenditures for covered benefits must not exceed $6,050 in 2012. For family policies, the limit must not exceed $12,100. These amounts will be adjusted for inflation (rounded to the nearest $50) in future years. These limits should not be interpreted as ceilings on all out-of-pocket expenditures for health care. Premiums for the HDHP and other insurance would be extra, as would payments for benefits not covered by insurance. Even for covered benefits, the limits would apply only to payments for usual, customary, and reasonable charges. On the other hand, both deductibles and copayments must be taken into account in determining whether the limits are exceeded. The out-of-pocket limit rule does not preclude HDHPs from imposing reasonable lifetime limits (for example, $1 million) on plan benefits. While covered by a qualifying HDHP, individuals generally must not have other coverage that is not high deductible and that provides coverage for any benefit under their high-deductible plan. For example, individuals with a qualifying HDHP are not eligible to establish or contribute to an HSA if they are also covered under a spouse's low deductible policy for the same benefits. (If the spouse's policy were high deductible, the individual could contribute to his or her own HSA.) However, eligible individuals may have "permitted insurance," which is insurance under which substantially all coverage relates to liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of property (such as automobile insurance); insurance for a specified disease or illness; or insurance that pays a fixed amount per day or other period of hospitalization. In addition, eligible individuals may have coverage (through insurance or otherwise) for accidents, disability, vision care, dental care, or long-term care. As mentioned above, the permitted insurance and other coverage described here do not provide the general form of coverage to be considered a qualifying health plan for purposes of HSA eligibility. Eligible individuals may also have Flexible Spending Accounts and Health Reimbursement Accounts, provided these accounts are for limited purposes (for example, dental services or preventive care), provide reimbursement for services covered by the HDHP only after the qualifying deductible is met, or are used in retirement. However, coverage under any Flexible Spending Account is allowed during the account's 2½-month grace period after the end of the year (leeway, which employers may allow), provided the balance in the account is zero or is transferred to the HSA. Contributions to HSAs may be made by eligible individuals, as well as by other individuals or entities on their behalf. Thus, individuals may contribute to accounts of eligible family members, and employers may contribute to accounts of eligible employees. Contributions can also be made by state governments. Contributions by one individual or entity do not preclude contributions by others, provided that the total of all contributions (aside from those classified as rollover contributions) does not exceed annual contribution limits. Contributors cannot restrict how HSA funds are to be used. For example, employers may not limit HSAs just to certain medical expenses (let alone just to medical expenses alone), even for funds they contribute. Account owners always can make withdrawals for any purpose, though nonqualified withdrawals are subject to taxation, as discussed below. Contributions to HSAs may be made at any time during a calendar year and until the filing date (without extensions) for federal income tax returns, normally April 15 of the following year. Thus, contributions could occur over a 15½ month time span (e.g., from January 1, 2012, through April 15, 2013), provided they do not exceed the allowable annual limit described below. HSA contributions may be made through cafeteria plan salary reduction agreements, that is, benefit arrangements established by employers under which employees accept lower take-home pay in exchange for the difference being deposited in their account. The IRS has determined that salary reduction agreements must allow employees to stop or increase or decrease their HSA contributions throughout the year as long as the changes are effective prospectively; however, employers may place restrictions on these elections if they apply to all employees. The IRS has also determined that these agreements allow employers to contribute amounts to cover medical expenses that exceed employees' current HSA balances (subject to maximum amounts the employees had elected to contribute), provided the employees repay the accelerated contributions before the end of the year. Individuals may make one-time contributions to their HSAs from their traditional or Roth individual retirement accounts (IRAs), subject to the annual contribution limits described below, and limited, one-time rollovers from balances in each of their Flexible Spending Accounts and Health Reimbursement Accounts, which are not subject to those limits. Contributions to HSAs must be made in cash; contributions of property are not allowed. Two types of contributions may be made to HSAs, regular and catch-up. Both have annual limits that are calculated on a monthly basis: for each month during the year when individuals are eligible, they may contribute (or have others contribute on their behalf) up to one-twelfth of the applicable annual limit. For example, an individual who is eligible for January through July could contribute seven-twelfths of the annual limit for that year. However, individuals who are eligible during the last month of the year are treated as if they were eligible for the entire year, thus allowing them to contribute up to the annual limit. Contributions need not actually occur monthly; one contribution can be made for the entire year, provided it does not exceed the sum of the allowable monthly limits. The annual contribution limit in 2012 for self-only coverage is $3,100. The annual limit for family coverage is $6,250. The limits will be adjusted for inflation (rounded to the nearest $50) in future years. In the case of a married couple, if one spouse has family insurance coverage both will be treated as if they have only that coverage; the monthly contribution limit will be divided equally between them unless they agree on a different division. These contributions may be made by individuals who are at least 55 years of age but not yet enrolled in Medicare. In 2012, they may contribute an additional $1,000. This amount is not indexed for inflation. Account owners may rollover balances from one HSA to another without being restricted by the annual contribution limits or affecting new contributions. If the owner withdraws funds and deposits them in another account, only one rollover is allowed each year. Deposits must be made within 60 days in order for the transfer to be considered a rollover. If instead an HSA trustee transfers funds to another, there is no limit on the number of rollovers allowed each year. HSA trustees are not obligated to accept either owner or trustee rollovers. One-time, limited rollovers are also allowed of termination balances in Flexible Spending Accounts and Health Reimbursement Accounts. The rollovers must be made by employer transfers. The annual limitations just described are reduced by the amount of any contribution individuals make to their MSAs in the same year. (MSAs are precursors to HSAs that were authorized under the Health Insurance Portability and Accountability Act of 1996, P.L. 104-191 . Eligibility was limited to people who either were self-employed or were employees covered by a high-deductible insurance plan established by employers with 50 or fewer workers.) Individuals are permitted to rollover MSA balances to their Health Savings Accounts. Contributions exceeding annual limits might occur for a number of reasons, including failure of employees to take account of employer contributions, early deposits that incorrectly anticipated continuing eligibility, and mathematical errors. If an excess contribution and any earnings on it are withdrawn by the filing date (without extensions) for the federal income tax return for the year, the individual will not be subject to a penalty. Otherwise, the excess contribution will be subject to a 6% excise tax each year until it is withdrawn. Employers are not required to contribute to employees' HSAs, but if they do the contributions must be comparable. Generally, contributions must be the same dollar amount or the same percentage of the HDHP annual deductible, adjusted to reflect the proportion of the year the employees have worked. Varying employer matching contributions (which might differ by how much an employee puts in) satisfy the comparability requirement only if employee contributions are made through a cafeteria plan. If employers allow some employees to transfer Flexible Spending Account or Health Reimbursement Account balances to their HSAs, they must allow any eligible individual covered under their HDHPs to do so. Employers may accelerate part or all of their contributions for employees who have incurred qualified medical expenses that exceed the employer's cumulative contributions to that point in the year. Accelerated contributions must be available on an equal and uniform basis to all eligible employees. Employers may limit contributions just to employees who participate in the employers' HDHPs; however, if they make contributions to employees who participate in other HDHPs they must make comparable contributions to all employees with HDHPs. Different treatment is allowed for full-time and part-time employees, and for self-only and several types of family coverage. Larger contributions may be made for non-highly compensated employees than for highly compensated employees (as defined by the Internal Revenue Service). Employees covered by collective bargaining agreements may be disregarded. The comparability requirement does not apply to HSA contributions to people who are not considered "employees," including independent contractors, partners in a partnership, and sole proprietors. Individuals who contribute to their HSAs may claim a deduction on their federal income tax. The deduction is "above-the-line," that is, it is made in determining adjusted gross income; it may be taken by all taxpayers, even those who claim the standard deduction instead of itemizing deductions. No deduction may be claimed for a one-time contribution from an IRA (though the IRA distribution is not taxed, as it otherwise might be) or for rollovers from MSAs, other HSAs, or a Flexible Spending Account or Health Reimbursement Account. Contributions made by employers are excluded from gross income of employees in determining their income tax liability. In addition, employer contributions are exempt from Social Security and Medicare taxes for both employers and employees. In addition, employer HSA contributions are exempt from federal unemployment insurance taxes. If employees contribute to their HSAs through salary reduction cafeteria plans, the contributions are considered to be made by the employer and are exempt from these three employment taxes. State income taxes generally follow federal rules with respect to deductions and exclusions. However, some states may elect different treatment. Withdrawals from HSAs are exempt from federal income taxes if used for qualified medical expenses described in Section 213(d) of the Internal Revenue Code, except for health insurance. Beginning in 2011, over-the-counter medications that are not prescribed by a physician are no longer considered a qualified medical expense. While payments for health insurance are considered qualified expenses under Section 213(d), they generally are not qualified for purposes of HSAs withdrawals. Thus, accounts cannot be used to pay some or all of the premiums of the associated HDHP. However, payments for four types of insurance are considered to be qualified HSA expenses: (1) long-term care insurance, (2) health insurance premiums during periods of continuation coverage required by federal law (e.g., COBRA), (3) health insurance premiums during periods the individual is receiving unemployment compensation, and (4) for individuals age 65 years and older, any health insurance premiums (including Medicare Part B premiums) other than a Medicare supplemental policy. Withdrawals not used for qualified medical expenses are included in gross income in determining federal income taxes and are subject to a penalty. Beginning in 2011, the penalty will be 20% (raised from 10% in prior years). The penalty is waived in cases of disability or death and for individuals age 65 and older. There is no requirement, as there is for qualified retirement plans, that individuals begin to spend down account balances at a certain age. There is no time limit on when HSA withdrawals are made to pay (or reimburse payments for) qualified expenses, provided adequate records are kept. However, HSAs may not be used to pay expenses incurred before the HSA was established. HSA withdrawals are not subject to nondiscrimination provisions applying to self-insured medical reimbursement plans. If a surviving spouse is the designated beneficiary of an HSA, it becomes an HSA for that widow or widower. If someone other than a surviving spouse is the designated beneficiary, the HSA is terminated as of the date of death and the fair market value becomes taxable income to that person. If there is no designated beneficiary, the remaining assets become part of the estate and the fair market value becomes taxable income to the deceased individual on the final return. In these instances, amounts included in gross income are reduced by qualified expenses incurred by the deceased before death and paid within one year. The IRS has proposed model forms that banks, insurance companies, and other approved entities can use as trust or custodial agreements with eligible individuals. The proposed agreements, which are not mandatory, provide a safe harbor definition of these institutions' responsibilities. Among other things, the proposed forms clarify that trustees and custodians may rely on account owners' representations about their age, that they are covered by a HDHP, and that their contributions do not exceed the maximum allowed. In addition, the proposed forms state that trustees and custodians are not responsible for determining whether distributions are used for medical expenses. HSA funds may be invested in investments approved for IRAs, such as bank accounts, annuities, certificates of deposit, stocks, mutual funds, and bonds. However, trustees and custodians need not make available all of these options. There is no requirement that funds be invested in vehicles that do not lose value. HSA funds may not be invested in life insurance contracts or most collectibles (i.e., tangible property). Administration and account maintenance fees may be withdrawn from the HSA (in which case they will not be considered taxable income) or paid separately (in which case they will not be taken into account with respect to contribution limits). Trustees and custodians may place reasonable restrictions on the frequency and minimum amount of HSA distributions. The Employee Retirement Income Security Act (ERISA) establishes requirements for employee benefit plans. Among other things, it establishes reporting, disclosure, and fiduciary standards for employers, superseding state laws on these matters. Benefit plans with minimal employer involvement are exempted. The U.S. Department of Labor (DOL) has determined that HSAs generally will not be considered ERISA plans, even if employers open and make contributions to the employees' accounts, provided employer involvement is otherwise limited. For the exemption to apply, employers must not limit employees' ability to move funds to another HSA, impose additional conditions on using HSA funds, make or influence investment decisions regarding HSAs, represent that HSAs are employee welfare benefit plans established by the employer, or receive any payment or compensation in connection with HSAs. The DOL has also determined that certain cash contributions offered by HSA trustees or custodians as an incentive to establish an HSA are not a prohibited transaction under ERISA. | Health Savings Accounts (HSAs) are one way people can pay for unreimbursed medical expenses (deductibles, copayments, and services not covered by insurance) on a tax-advantaged basis. HSAs can be established and funded by eligible individuals when they have a qualifying high-deductible health plan and no other health plan, with some exceptions. For 2012, the deductible for self-only coverage must be at least $1,200 (with an annual out-of-pocket limit not exceeding $6,050); the deductible for family coverage must be at least $2,400 (with an annual out-of-pocket limit not exceeding $12,100). The annual HSA contribution limit in 2012 for individuals with self-only coverage is $3,100; for family coverage, it is $6,250. Individuals who are at least 55 years of age but not yet enrolled in Medicare may contribute an additional $1,000. The tax advantages of HSAs can be significant for some people: contributions are deductible (or excluded from income that is taxable if made by employers), withdrawals are not taxed if used for medical expenses, and account earnings are tax-exempt. Unused balances may accumulate without limit. HSAs and the accompanying high-deductible health plans are one form of what some call "consumer-driven health plans." One objective of these plans is to encourage individuals and families to set money aside for their health care expenses. Another is to give them a financial incentive for spending health care dollars prudently. Still another goal is to give them the means to pay for health care services of their own choosing, without constraint by insurers or employers. Since HSAs are still relatively new (they have been authorized for less than six years), the extent to which they will further these objectives is not yet known with any assurance, notwithstanding some early data. This report is limited to a summary of the principal rules governing HSAs, covering such matters as eligibility, qualifying health insurance, contributions, and withdrawals. The major changes to HSAs in 2011 were a result of provisions in the Patient Protection and Affordable Care Act (PPACA). These include changes to the definition of qualified expenses and increases to the penalty for distributions for non-qualified expenses. These are discussed in greater detail in this report. This report will be updated as the rules change, either by legislation or regulatory action. |
Administrations have frequently asked Congress to give the Department of Defense flexibilityin allocating funds to cover costs of military operations. Most recently, on May 12, 2004, the WhiteHouse requested $25 billion in a "contingent emergency reserve fund" for FY2005 to cover costs ofoperations in Iraq and Afghanistan during part of the fiscal year. Although the request setsillustrative ceilings by appropriation accounts within the total, as written, DOD could transfer the$25 billion for DOD's expenses for Iraq and Afghanistan to any appropriation account and in anyamount after notifying Congress five days in advance. The issue for Congress is to determine howmuch flexibility the Defense Department may need to carry out operations Congress intends tosupport, while also ensuring that funds are used in amounts and for purposes that Congress hasapproved. Faced with the challenge of balancing DOD's need for flexibility to respond to the uncertainties of military operations with congressional oversight responsibilities, Congress has responded tosimilar requests for DOD in different ways in recent years. Before the September 11, 2001, terroristattacks, Congress generally balked at proposals to provide blanket authority for the DefenseDepartment to finance military operations without specific, advance congressional approval. Since9/11, however, Congress has been more willing to provide the Administration with considerableflexibility to allocate funds for the "global war on terrorism" without detailed congressionaloversight. Since then, Congress has continued to provide the Administration with fundingflexibility, but it has gradually pared back the amount of funding placed in flexible accounts, and ithas also imposed a variety of reporting requirements. This report (1) briefly reviews the Administration's request for flexibility in the $25 billion contingent emergency reserve fund that it has requested forFY2005; (2) discusses options Congress has to provide flexible funding for military operations based on precedents discussed in more detail later in thereport; (3) reviews standard peacetime procedures governing reprogramming of defense funds as a benchmark against which to assess flexibility Congress hasoften provided for wartime or contingency operations; (4) reviews congressional responses to Administration requests for funding flexibility from the first Persian Gulf War in 1990 through post-9/11 wartimeappropriations to date; and (5) analyzes congressional action and current issues. Although Congress has provided most of the DOD funding requested by the Administration for the "global war on terrorism," Congress has not provided most of that funding in flexible accountsdespite Administration requests. Of the $173 billion that the Administration has requested for Iraq,Afghanistan and enhanced security for defense installations since the 9/11 terrorist attacks, theAdministration requested $104 billion in flexible funds and the remaining $69 billion in regularappropriation accounts. In response, Congress appropriated a total of about $165 billion including$40 billion in flexible accounts and $124 billion in regular accounts (see Appendix A ). The current request for $25 billion in a flexible account is larger than any amount that DOD has received thus far. Since 1990, DOD has received between $2 billion and $14 billion in monies in any individual bill that can be moved after enactment for war and war-related funding, with theremainder of the funding placed in regular appropriation accounts. (1) In the most recent FY2004Emergency Supplemental, Congress provided $2 billion in flexible funding requested by DOD, orabout 3% of the total in the bill. (see Appendix A ). Appendix A includes tables comparing the amounts that Congress has provided for military operations since 9/11 in flexible spending accounts and in regular appropriations accounts. Appendix B provides a list of legislation with flexible accounts. The discussion below and Table 1 analyze the Administration's request and congressional action on the FY2004 Administration request. Both the authorization and appropriation bills rejectthe Administration's request for broad discretion and set allocations for most of the $25 billionrequested, as well as require additional reporting of how funds are spent, with advance notificationof spending of unallocated funds and after-the-fact reporting of funds allocated in appropriationaccounts or titles. Congress is likely to vote on the conference version of the FY2005 DOD Appropriations bill, H.R. 4613 , before going on recess on July 26, 2004 but is not likely to address theFY2005 DOD Authorization until after the recess. See the section on congressional action belowfor an update of provisions on funding and monitoring of the $25 billion for Iraq and Afghanistanin the conference version of H.R. 4613 and a comparison of the House and Senate versionof the authorization bills. On May 12, 2004, the White House sent Congress an amendment to its FY2005 budget request,asking Congress to appropriate $25 billion as "contingent emergency funds" in the Iraq FreedomFund (IFF), a transfer account that Congress established in the FY2003 Emergency Supplemental,to be available until expended (see text in next section). (2) Within the total in the IFF, theAdministration proposed the following illustrative ceilings by appropriation account: $14 billion for Operation and Maintenance, Army; $1 billion for Operation and Maintenance, Navy; $2 billion for Operation and Maintenance, MarineCorps; $1 billion for Operation and Maintenance, Air Force; $2 billion for Operation and Maintenance, Defense-Wide;and $5 billion for other appropriations or DOD funds or classifiedprograms. After consultation with the Director of the Office of Management and Budget (OMB), however, the Secretary of Defense could transfer funds to other accounts or to classified programs aslong as thedefense authorizing and appropriations committees were notified five days in advance. If enacted, this language would give the Secretary of Defense complete discretion to transfer $25 billion among appropriation accounts to fund operations in Iraq and Afghanistan, or relatedactivities. Although the language sets illustrative ceilings by appropriations account within the $25billion total, the Secretary of Defense could alter those ceilings, with the approval of OMB and fivedays after notifying the defense committees. The language also provides that up to $5 billion ofappropriations could be transferred to any appropriation account or classified activity, presumablyincluding intelligence agencies. The language also permits the Secretary of Defense to transfer anyfunds not needed back to the IFF, to be available for subsequent retransfer. There is no time limiton the availability of the funds. Once transferred, funds would be available for the same purposes and for the same periods of time as the accounts to which they were transferred, and these transfers would not count againstDOD's overall annual limits on general transfer authority -- standard language for transfer accounts. The request requires the White House to submit an official budget request to Congress for the fundsand designate the funds as emergency. Other than the five-day notification to congressional defensecommittees before transferring funds, no reports to Congress are required either before or aftertransfers take place (see below). The Administration does not plan to submit any justificationmaterials for the $25 billion until that official budget request is submitted. (3) The specific language of the request is as follows: For additional expenses, not otherwise provided for, necessary to support operations in Iraq or Afghanistan, $25,000,000,000, available October 1, 2004,and to remain available until expended: Provided , That the funds made available under this headingshall be available only to the extent that an official budget request for all or part of the funds istransmitted by the President to the Congress and includes designation of the amount of that requestas an emergency and essential to support activities and agencies in Iraq or Afghanistan: Providedfurther , That funds made available under this heading, may be available for transfer for the followingactivities: Up to $14,000,000,000 for "Operation andMaintenance, Army"; Up to $1,000,000,000 for "Operation and Maintenance,Navy"; Up to $2,000,000,000 for "Operation and Maintenance,Marine Corps"; Up to $1,000,000,000 for "Operation and Maintenance,Air Force"; Up to $2,000,000,000 for "Operation and Maintenance,Defense-Wide; Up to $5,000,000,000 may be used to reimburse otherappropriations or funds of the Department of Defense and classifiedprograms: Provided further , That in addition to the transfersauthorized in the previous proviso, after consultation with the Director of the Office of Managementand Budget, the Secretary of Defense may transfer the funds provided herein to any appropriationor fund of the Department of Defense or classified programs, to be merged with and available forthe same purposes and for the same time period as the appropriation to which transferred: Providedfurther, the Secretary of Defense shall notify the Committees on Appropriations and the AuthorizingCommittees five days prior to the transfer of funds made available under the previous proviso: Provided further , That upon a determination that all or part of the funds transferred from thisappropriation are not necessary for the purposes provided herein, such amounts may be transferredback to this appropriation: Provided further , That the transfer authority provided under this headingis in addition to any other transfer authority available to the Department ofDefense. (4) Before submission of the request, congressional concerns about funding for Iraq and Afghanistan centered on DOD's initial plan to wait until January 2005 to submit a supplementalrequest, and rely on peacetime funding to finance or "cash flow" occupation costs for the first sixmonths of FY2005. During hearings, members have also asked about the full amount of fundinglikely to be needed in FY2005. While submission of the amendment responds to that initial concern, members have continued to ask about the total funding likely to be needed in FY2005. In its transmittal letter, theAdministration states that the contingent emergency reserve fund is requested at a time when "wedo not know the precise costs for operations next year" but that "developments on the ground in Iraqindicate the need to plan for contingencies..."; the letter also states that "we plan to pursue a fullFY2005 supplemental request when we can better estimate precise costs." (5) In testimony on May 12,2004, Secretary of Defense Rumsfeld stated because of the recent upsurge in violence in Iraq andthe decision to keep an additional 20,000 troops in Iraq, the Administration decided to submit arequest for $25 billion to ensure "there's no disruption in the resources for the troops." (6) In a hearing on May 13, 2004 about the request itself, both majority and minority members of the Senate Armed Services Committee voiced considerable concern about the amount of discretionin the request -- some legislators characterized it as a "blank check." (7) In response to questions frommembers, Deputy Director of OMB, Joel Kaplan stated that the intent of the request was to identify"those areas where we think there'll be the greatest pressure points ... in particular, the Army O&M[Operation and Maintenance] accounts," but he acknowledged that the language of the request wasalso designed "to make sure that commanders and the secretary and the president have the flexibility,after notification to the Congress, to direct those resources to the needs and the requirements." (8) In recent months, congressional concern about flexible funding available to DOD for war and occupation-related funding has mounted. Such concerns have grown with allegations of abuses inlarge support contracts and a recent allegation by author Bob Woodward that the Administrationspent funds appropriated in 2001 and 2002 for Afghanistan to prepare for the war in Iraq. (9) Administration spokesman, Deputy Secretary of Defense Wolfowitz, denied the charge, saying thatthe funds were "to strengthen our [U.S.] capabilities in the region," rather than strictly to prepare fora war with Iraq. (10) Members have also questioned DOD's spending priorities for war and occupation spending because of initial shortages of force protection equipment, particularly body armor for troops anduparmored Humvees. The Administration has also provided sparse information about the allocationof spending between Iraq, Afghanistan, and enhanced security for defense installations, as well asthe number of troops deployed and current and future plans. For example, DOD has only providedthe distribution of funding by mission to Congress in the FY2004 Emergency Supplemental request,and only for FY2004, but not for earlier years or for the current request. (11) Some have expresseddissatisfaction with the quality and level of detail in DOD reporting on previous flexible funding.While flexible funding gives DOD a special tool to respond to the uncertainties of operations, it mayreduce the information available to Congress on U.S. plans, actions and options, and hence maymake oversight more difficult. Both the House and Senate provide the $25 billion requested by the Administration for operations in Iraq and Afghanistan in the FY2005 DOD authorization bill ( H.R. 4200 and S. 2400 ) and the FY2005 DOD appropriation bills ( H.R. 4613 for bothhouses, H.Rept. 108-533 and S.Rept. 108-284 ), passed on June 22 and June 24 respectively. Appropriations conferees met July 15, 2004, to resolve differences, and a conference report was filedon July 20 ( H.Rept. 108-622 ). The House and Senate are expected to vote on the FY2005 DODAppropriations bill, H.R. 4613, before the recess that begins on July 26, 2004. Table 1 below compares the request with congressional action to date. Congress is not expected to addressthe conference version of the FY2005 DOD Authorization until after the recess. The conference version of the appropriations bill provides most of the funding in regular appropriation account, giving DOD flexibility to allocate about 14% of the $25 billion with fundinglevels that reflect a compromise between the House and Senate version (see Table 1 ). The billalsoincludes more extensive reporting requirements on operations in Iraq and Afghanistan than arecurrently in effect. Authorization Issues. In the authorization bills, the chief differences in their treatment of the $25 billion request are the: extent of funding flexibility for DOD; mix of funding provided; type of reporting requirements; and military manpower levels. Funding Flexibility. Although both houses authorize the amount requested, neither provides the Administration with the funding flexibility requested. Both the House and Senate versions of the FY2005 DOD Authorization Act provide all but $2.5billion, or 10%, of the funds in individual appropriation accounts or by appropriation title (e.g.operation and maintenance) (see Table 1 ). The House authorization bill ( H.R. 2400 )distributes all the funds but gives DOD $2.5 billion in general transfer authority, subject to thestandard criteria governing transfers, including prompt notification of transfers. (12) The Senate version( S. 2400 ) allocates $2.5 billion for transfers and also requires a five-day advancenotification and consultation with the Chair and ranking members of the four congressional defensecommittees before transfers can be made. The House designates the $25 billion for "emergency contingency operations" for the global war on terrorism, consistent with the House version of the FY2005 budget resolution. (13) In the Senateversion, funding would not be available until the Administration submits a request and designatesthe funding as emergency. The House included its provision for the $25 billion in the reported version of the bill, whilethe Senate adopted an amendment proposed by Senators Warner and Stevens. (14) Funding Mix Differs. Unlike the Administration and the Senate authorizers, the House authorizers provide $3.4 billion for procurement of forceprotection equipment, with types of equipment specified in report language (e.g., $1 billion foruparmored HUMVees and bolt-on equipment for vehicles). (15) The Senate authorizers instead allocatehigher amounts for operation and maintenance funding and no procurement funding. TheAdministration has generally been reluctant to provide reconstitution funding in supplementals,although DOD has transferred funds provided in the FY2003 and FY2004 supplementals for forceprotection items such as body armor and uparmored HUMVees. The House also allocates funds byappropriation account, except for military personnel, whereas the Senate allocates funds at the moregeneral title levels and adopts the Administration's funding guidelines (see Table 1 ). Reporting Requirements and Funding Limits. The Senate requires more extensive reporting requirements than the House. The Senate requires bothmonthly reports on the use of the $25 billion -- by cost, purpose and amount and operation -- andquarterly reports on all funds expended for Operation Iraqi Freedom, Operation Enduring Freedom(Afghanistan), and Operation Noble Eagle (enhanced security for defense installation), and any otheroperation of the "Global War on Terrorism." (16) Neither bill requires reporting on past, current, orfuture funding by mission or operation (i.e. Iraq vs. Afghanistan), information that has been ofconsiderable interest to members. Nor do the bills require information on past, current, or futuretroop levels, which plays a major factor in driving costs. Both houses set a funding limit of $300 million and require reporting on the Commanders Emergency Response Fund, a fund where local commanding officers can dispense funds forcommunity and small reconstruction projects. (17) Both houses also require reports on contractorpersonnel. (18) And both houses provide forreimbursement for body armor or protective gear withincertain limits. (19) Post Major-Combat Operations Report. The Senate also requires an extensive report, by March 31, 2005, assessing goals, performance, lessons learned, strategy, andparticipation of allies during the post-major combat operations period after May 1, 2003, throughDecember 31, 2004. (20) The Senate also requiresa report on DOD's prisoner population andfacilities. (21) This reporting requirement is similarto the "lessons learned" report required after thefirst Gulf war (see below). Funding for Irregular Forces. The House provides additional flexibility inuse of these funds by allowing the Secretary of Defense to spend up to $25 million to supportirregular forces, a controversial previous Administration request that was rejected by Congress. (22) Both the House and the Senate authorizers refused, however, to give the Administration the authorityit requested to "train and equip" foreign forces for peace enforcement missions. (23) The Senate didprovide up to $150 million to train Iraqi security forces. (24) Military Manpower Levels. A chief bone of contention between the Administration and Congress this year has been whether to increase thenumber of active-duty personnel in the Army and the Marine Corps on a temporary or a permanentbasis in order to deal with the stresses created by the Iraq and Afghanistan conflicts. By settingendstrength levels -- which are then funded in the DOD appropriation bill -- the authorization billsplay a key role in this issue. Both authorization bills provide that higher endstrengh levels are fundedin the $25 billion for Iraq and Afghanistan. Although both authorization bills would increase active-duty endstrength by 10,000 in the Army and and 3,000 in the Marine Corps each year for the next three years, the House bill mandates theseincreases (although only through FY2007) and the Senate bill makes them permissive levels. Although the Administration has waived current ceilings, they oppose mandatory ceilings set byCongress, arguing that they need the flexibility to adjust levels. Table 1. Congressional Action on Administration Request for$25 Billion in FY2005 for Iraq and Afghanistan (in billions of dollars) Notes: a Administration request included non-binding illustrative ceilings and $5.0 billionunspecified,amounts shown in brackets. b As passed by each house. Both appropriation bills would make the funds available uponenactmentthough the Senate bill requires that the Administration must first submit an official budgetrequest. c Funds in Iraqi Freedom Fund (IFF) can be transferred to any account unless a ceiling is set;Houseappropriations bill includes $2.0B in classified programs in IFF so flexible portion would be$1.0 billion. Senate appropriations bill provides $25.0 billion in the IFF but sets floors for allbut $2.5 billion of the funds; allocations shown in brackets. Within IFF total, appropriationsconference includes $1.8 billion for classified and $100 million for the Coast Guard. In theHouse, Senate and conference appropriations bills, DOD must inform the congressional defensecommittees of transfers from the IFF five days in advance and report transfers quarterly. Senateauthorization puts $2.5 billion in a transfer account to be allocated by DOD. d The bills include these categories rather than accounts. e Senate bill provides that "up to" the amounts shown in brackets would be available so DODcouldchoose to spend. f Transfer authority sets limit on the amount that DOD can move between accounts withinreprogramming rules. g Funds would be transferred to the Coast Guard. h Classified funds are transferred to the intelligence community. * = Less than $100 million. NS = Not specified Sources: As passed by each house, H.R. 4200 and S. 2400 ; H.Rept. 108-491 and S.Rept. 108-260 ; Title IX in H.R. 4613 as passed each house and conference version; H.Rept. 108-284 , S.Rept. 108-553 , and H.Rept. 108-622 . Appropriation Issues. In the House and Senate versions of the FY2005 appropriation bill ( H.R. 4613 ), the chief issues are differences in funding priorities; mechanisms for providing funding flexibility; extent of reporting requirements; and funding for Darfur region of Sudan and the new Iraqiembassy. Funding Priorities. The conference version funding levels reflect a compromise between the levels in the two houses and lower funding for procurement. The conference version provides $1.2 billion for military personnel, between the House and Senateproposals and close to the Senate's amount for O&M. The conference version also provides lessfunding for procurement, primarily for Other procurement, Army, where force protection equipmentsuch as uparmored HUMVees is funded. The House version provided more funding for military personnel ($3.9 billion) than the Senate ($.5 billion). This reflects primarily funding the current higher special pays for personnel in combatand the House authorization bill requirement that the Army increase military endstrength by 10,000in FY2005. (25) The House appropriators providefunds in specific military personnel accounts tocover costs for the first quarter of the year. The Senate version provided $4 billion more in funding for operation and maintenance activities (see Table 1 ). Both appropriation bills provide additional funding for body armor fortroops in the Army's O&M accounts (e.g. $334 million in the House and $295 million in the Senate)and over $2 billion for procurement, much of it for force protection items (e.g., over $850 millionfor new vehicles or kits to uparmor HUMVees). (26) Funding Flexibility. Of the $25 billion total, the conference version provides $3.4 billion or 14% in flexible funding. That $3.4 billion total includes$1.9 billion of unallocated funding in the Iraqi Freedom Fund (the IFF also includes $1.8 billion forclassified programs and $100 million for the Coast Guard) and $1.5 billion in transfer authority. Both the House and the Senate appropriation bills provided about the same level of flexibility as the authorization bills, between $2 billion and $3 billion. The House version includes $2 billionin the Iraq Freedom Fund (IFF) Committee but specifies that $2.0 billion is for intelligence activities,leaving $1.0 billion for DOD to allocate. To provide additional flexibility, the House appropriatorsinclude $2.0 billion in transfer authority for the $25 billion in war-related funding, subject tostandard reprogramming rules. The Senate appropriators would give DOD $2.5 billion in the IraqiFreedom Fund to be allocated at DOD's discretion, but no additional transfer authority. To ensure that the Army has sufficient funds available to finance its operations in FY2004 -- a current concern -- the conference version (reflecting both houses) makes the $25 billion availableupon enactment. (27) The conference versiondropped the requirement in the Senate bill that theAdministration submit an official request. Like both houses, the conference bill also designates thefunds as emergency but no longer requires an emergency designation from the executive branch. (28) There is an ongoing debate about the size of the Army's shortfall in funds to finance its operations in Iraq in FY2004. DOD contends that sufficient funds will be available. (29) , CRSestimated that the shortfall in operations and maintenance (O&M) funding would range from $5.3billion to $7.1 billion but that DOD could tap about $7.0 billion in lower-than-anticipated costselsewhere to finance the shortfall. (30) Based onforecasts by the services, a new GAO report estimatesthat the Army will face an O&M shortfall of $10.2 billion, with the other services reporting shortfallsof about $3.0 billion more. To meet these shortfalls, GAO reports that the Army and the otherservices plan to transfer funds from other accounts with surpluses and defer some activities (likedepot maintenance) to the following fiscal year. (31) To accommodate these shifts in funding, theconference version of the FY2005 DOD appropriation bill ( H.R. 4613 ) increases DOD'sgeneral transfer authority from $2.1 billion to $2.8 billion. (32) Reporting Requirements. The conference version of H.R. 4613 provides most of the funding in regular appropriations bills and $2.0 billionin the Iraq Freedom Fund, which would be subject to the five-day advance notification and quarterlyreporting that was included in both the House and Senate version of the bill. The conference versiondid not adopt the Senate approach where all funds were appropriated to the IFF with floors byappropriation account. Under that approach, all transfers would have been under the reportingrequirement (see Table 1 ). Extending the availability of funds beyond one year also gives DODadditional flexibility. All funds, except for procurement funds and IFF funds, are available for oneyear in the conference version rather than one year in the House bill and two years in the Senatebill. (33) The conference bill adopted the extensive report to the Congress as a whole on military operations and reconstruction activities in Iraq that was required in the House bill. Required byApril 30 and October 31, DOD is required to report on amounts expended for Iraq and Afghanistan,progress in preventing attacks on U.S. personnel, effects on readiness, recruitment, retention, andequipment, on reserve forces. The report on treatment of prisoners in Iraq included by the Housewas dropped in conference. (34) The conferenceversion did retain the House provison (reflectingadoption of the Obey amendment on the floor) that the Administration provide estimates of costs formilitary operations and reconstruction for Iraqi and Afghanistan operations, reconstruction, andeconomic support for the period FY2006 to FY2011 unless the President certifies that the estimatescannot be provided because of national security. (35) The conference version also adopts the limits and reporting on the Commanders EmergencyResponse Fund ($300 million), assistance to the Iraqi and Afghan armies ($250 million), AfghanFreedom Support Fund ($550 million), and quarterly reports on amounts spent on coalition support(no dollar limit) for countries aiding the U.S. in combating terrorism included by both houses. Theconference also provides up to $500 million in funds to "train and equip" only the Iraqi Army andthe Afghan National Army, with a 15-day advance notification, a modification of the House versionthat could be used for any Iraqi or Afghan military or security forces. (36) Funding for Embassy Operations and Darfur, Sudan. Like the House and Senate appropriation bills, the conference bill also provides $70 million fordisaster assistance and $25 million for refugee assistance for Darfur, Sudan, to be transferred to theState Department, and like the Senate bill, $665 million for embassy operations and $20 million forconstruction. All of these funds are designated as emergency funding, and hence, are not subject tobudget resolution limits. (37) The conference bill also includes $100 million for wildfire management and $400 million for suppression. (38) Since 1990, Congress has periodically given DOD discretion to allocate appropriated fundsafter enactment by placing funds in flexible transfer accounts, with the remaining funding providedin regular appropriations accounts. For flexible transfer accounts, Congress has sometimes requiredadvance notification for transfers ranging from 5 days to 15 days. For funding in regular accounts,Congress generally requires that DOD follow standard reprogramming practices under which DODmust receive prior approval for transfers above specified thresholds. Based on precedents since 1990, and going from least restrictive to most restrictive, Congress could apply the following options to the FY2005 $25 billion budget amendment for Iraq that iscurrently under consideration. Option 1: Provide Extensive Flexibility as After 9/11. This option parallels the provisions governing the initial $20 billion providedin the Emergency Terrorism Response Supplemental passed on September 18, 2001, in theimmediate aftermath of the terrorist attacks ( P.L. 107-38 ). That measure required only that thePresident consult with the chairmen and ranking minority members of the appropriations committeesbefore transferring funds, that $10 billion of the amount could not be transferred until 15 days afternotifying the appropriations committees, and that the Office of Management and Budget (OMB)report on funding allocations quarterly to the appropriations committees. Option 2: Split Funding Between a Transfer Account and RegularAppropriations with Brief Notification Period. This approach was followed, withsome variations, in the FY2003 Iraq Emergency Supplemental ( P.L. 108-11 ), and in the mainappropriation of supplemental funding for the first Gulf War ( P.L. 102-28 ). Both measures providedfunding in regular appropriations accounts for those expenses that could be predicted, but providedrelatively large amounts ($10.0 billion to $11.0 billion in the FY2003 supplemental and $8 billionin the FY1991 Desert Storm supplemental) in a flexible transfer account for less predictableexpenses. Both also required 5- or 7-day advance notification to the congressional defensecommittees for transfers from the flexible account and quarterly after-the-fact reporting to the fourdefense committees. Option 3: Put Most Funds in Regular Accounts with Longer Notification and More Extensive Reporting. This approach parallels some featuresof the Persian Gulf Conflict Supplemental Authorization and Personnel Benefits Act of FY1991( P.L. 102-25 ) and the FY2004 Emergency Supplemental ( P.L. 108-106 ). The FY2004 supplementalprovided just $2 billion of the $65 billion for the Defense Department in a flexible transfer accountwith the remainder in regular appropriations accounts. Both measures on the first Persian Gulf warrequired extensive reports on strategy, force levels, time lines, and monthly reporting on transfersand allied contributions. Recent supplementals have required quarterly reporting to the fourcongressional defense committees. Option 4: Provide All Funds in Regular Accounts with SomeFlexibility, Longer Notification, and Require Planning Assumptions. Congresscould provide additional general transfer authority and could create special higher reprogrammingthresholds that would allow DOD to make changes to funding after enactment more easily. Fundingcategories could reflect current reporting on the costs of Iraq, Afghanistan and enhanced security fordefense installations (Operation Noble Eagle). This also reflects some features of the FY2004Emergency Supplemental ( P.L. 108-106 ), which provided most funds in regular appropriationsaccounts and provided $3 billion in general transfer authority. Legislative measures for the first Gulfwar and recent legislation on contingencies required that DOD provide its planning assumptions.Reporting could be provided to the Congress as a whole. Option 5: Provide All Funds in Regular Accounts with SomeFlexibility, Require Longer Notification, Planning Assumptions and ExtensiveReporting. Under this approach, standard peacetime reprogramming restrictionswould apply, and DOD would have to submit extensive, monthly reports on the cost and planningassumptions underlying costs in categories similar to current reporting on contingency and war costs,and provide 15-day advance notice of transfers to Congress as a whole. Table 2 below summarizes flexible funding, notification, and reporting requirements enacted by Congress for war, war-related, and contingency operations since 1990, and standardreprogramming rules, all of which serve as the basis for the options above. Table 2. Precedents For Funding War, Occupation and Contingencies, FY1990-FY2004 In providing flexibility for war and war-related spending, current restrictionsapplying to regular peacetime DOD spending may serve as a baseline. For mostfunds that are provided in regular appropriation bills, DOD can move monies afterenactment but only within the bounds of restrictions that are established partly bystatute, partly by language in congressional reports on annual defense funding bills,and partly by understandings with congressional defense committees that arereflected in Department of Defense financial management regulations. In general, DOD must get prior approval from the congressional defense committees to move funds between accounts, and, for certain purposes and abovecertain threshold amounts, to change funding levels within appropriations accounts. For other changes to funding levels within accounts, DOD issues internalreprogramming reports. Congress provides most of DOD's annual funding in regular appropriation accounts, which cover fairly broad categories of expenses. Appropriations accountsinclude "Military Personnel, Army," "Operation and Maintenance, Navy," "AircraftProcurement, Air Force," "Research, Development, Test, and Evaluation,Defense-Wide." The language of annual congressional appropriations acts specifiesthe amount available within each account, typically in the billions of dollars. After enactment, DOD is permitted to move funds between appropriation accounts or between specific programs within accounts in a process referred to as the "transfer" or "reprogramming" of funds. In most government agencies, the term"transfer" refers to shifts of funds between appropriations accounts, while"reprogramming" refers to shifts of funds within accounts. The Defense Department,however, uses the term "reprogramming" to refer to both kinds of activities. As a matter of law, transfers between accounts are subject to strict limits. Each year, in annual appropriations acts, Congress provides a specific amount of "generaltransfer authority" which sets limits the amounts that may be transferred betweenaccounts. Section 8005 of the FY2004 Department of Defense Appropriations Act( P.L. 108-87 ), for example, sets an overall limit of $2.1 billion on DOD's generaltransfer authority, requires prompt notification for transfers, requires that any transferbe "necessary in the national interest," and specifies that "such authority to transfer may not be used unless for higher priority items, based on unforeseen military requirements, thanthose for which originally appropriated and in no case where the item for which fundsare requested has been denied by the Congress." (39) In addition to limits established by statute, Congress has imposed other restrictions on DOD's authority to change the funding levels that are specified inappropriation acts or in report language. (40) Thoughit is not stated in statutorylanguage, Congress requires that the Defense Department receive prior approval fromthe four congressional defense committees for reprogramming of funds that would(1) move funds between appropriation accounts (i.e., amounts subject to overallgeneral transfer authority limit), (2) start or end programs, or (3) change fundinglevels above certain congressionally established threshold amounts. Reprogramming Thresholds. In addition to approving all transfers of funds between appropriation accounts, thecongressional defense committees must approve all changes in funding above certainthreshold amounts, which vary by appropriation account. The thresholds are: increases or decreases in funding for individual procurement programs above $20 million; increases or decreases in funding for Research, Development,Test & Evaluation (RDT&E) programs above $10 million; increases in funding to military personnel budget activitiesabove $10 million; or increases in funding to O&M activities at the budget activitylevel above $15 million. (41) DOD must also get prior approval for changes in any programs that are designated as "congressional interest items" by any one of the four congressionaldefense committees. (42) Increases to a programCongress has cut or decreases to aprogram Congress has increased require advance congressional approval. Forchanges in funding below the thresholds and for programs that are not congressionalinterest items, DOD issues internal reprogramming reports. (43) It is important to note that the definition of a "program" or "budget activity" subject to the thresholds varies between accounts. For procurement and RDT&Eprograms, reprogramming limits are fairly restrictive because the thresholds apply toindividual "line items" or "program elements" that are defined very narrowly bothin Department of Defense budget justification material and in congressionalcommittee reports. The thresholds for both military personnel and O&M "budgetactivities," in contrast, apply to broad budget groupings in the billions of dollars thatencompass many activities, giving the services considerable flexibility. Effect of Thresholds on O&M Activities. In Operation and Maintenance (O&M), for example, the$15 million O&M threshold applies to four budget activities within each service,each of which includes billions of dollars: Operating Forces; Mobilization; Training and Recruiting; and Administrative and Servicewide. (44) Within these limits, the services have discretion to move funds between Activity Groups (AGs) and Subactivity Groups (SAGs) such as Air Force flying hours andbase operations support for military installations. Because of concerns that DOD has sometimes moved funds out of readiness-related activities, such as combat training for Army units, Congress hasrecently required DOD to provide written notification of changes in funding tocertain "sub activity groups" (SAGs) within budget activities for O&M, such asPrimary combat forces, Air Force; or Aircraft depot maintenance, Navy. (45) Priorapproval of changes is not required, however, except at the broader budget activitylevel. In order to give DOD greater flexibility to adjust appropriations in response to changing circumstances, Congress could choose to establish new reprogrammingrules specifically for war and war-related spending. For example, the criteria forwar-related spending could require that funding must be directly related to combator occupation costs, be limited to incremental costs, and identify and take intoaccount savings in peacetime operations. These criteria are similar to the those thatapply to contingency costs funded in the Overseas Contingency Operations TransferAccount (OCOTF), and that are covered in DOD's financial regulations governingcontingency costing. (46) Congress could also adopt special thresholds for war and occupation-related expenses that could be applied to DOD's current categories for reporting those costs. DOD currently reports war and contingency costs monthly in categories such aspersonnel, personnel support, operating support, and transportation, which are furtherdivided into type of personnel (active, reserve, civilians), type of support (personnelvs. equipment), and type of transportation (air, sea, other). (47) In addition, Congresscould require that DOD provide its current planning assumptions and then requirethat DOD report changes to its underlying planning assumptions. This would providea mechanism that could aid congressional oversight of ongoing operations. Important planning assumptions that underlie cost estimates include current and anticipated manpower levels, mix of active-duty and reserve forces, planned rotationsof personnel, and anticipated operating tempo. DOD currently has a model, theContingency Operations Support Tool, that uses such assumptions to estimateoperational costs, but DOD has been unwilling to provide Congress with access tothis model or information about its assumptions. The Congressional Budget Office(CBO) has been provided access to similar models in the past. (48) To provide the Defense Department with greater flexibility in carrying out peacetime activities for which costs are likely to fluctuate after funds have beenappropriated, Congress has set up transfer accounts into which funding isappropriated for subsequent transfer to regular appropriations accounts for execution. In annual defense appropriations bills, for example, funds for drug interdiction andfor environmental restoration are normally provided in transfer accounts. TheFY2004 Department of Defense Appropriations Act, for example, provides $396million for the Army's environmental restoration programs that can be transferred toother accounts Provided, That the Secretary of the Army shall, upon determining that such funds are required for environmentalrestoration, reduction and recycling of hazardous waste, removal of unsafe buildingsand debris of the Department of the Army, or for similar purposes, transfer the fundsmade available by this appropriation. Some transfer accounts, like the Foreign Currency Fluctuation Account, set up to allow the services to respond to shifts in exchange rates, are noncontroversial. Others, like the Overseas Contingency Operations Transfer Fund (OCOTF),established in the mid-1990s to centralize funding in regular appropriations bills forcontingency operations in Bosnia, Kosovo, and Southwest Asia, and the DefenseEmergency Response Fund (DERF), set up originally to financing overseas disastercleanup activities but used as a vehicle for DOD's emergency funding afterSeptember 11, have proved to be more problematic. (49) While transfer accounts have the advantage that DOD can respond to unanticipated changes in circumstances, they may have the disadvantage thatCongress may be unaware of, or disapprove of, particular uses of the funds providedin the accounts. For example, controversy recently erupted when investigativereporter Bob Woodward alleged that DOD used funds provided in the first post 9/11Emergency Terrorism Response Supplemental for projects that were intended toprepare for a future war with Iraq, an allegation denied by the Administration. (50) Earlier in 2001, controversy developed about the Overseas Contingency Operations Fund (OCOTF), a flexible transfer account used to fund contingencies,when GAO found that some of those funds had been used for expenses that were nottruly incremental costs, or not related to contingency operations such as purchasesof cappuccino machines, golf memberships, and decorator furniture. (51) After the 9/11 attacks, Congress again turned to flexible accounts to give DOD discretion to move funds after enactment to fund combat operations in Afghanistan.In later supplementals, Congress split funding between flexible accounts and regularappropriations, a practice that was also adopted in funding for the first Gulf War. Since 1990, Congress has provided DOD with substantial amounts of flexiblefunding -- ranging from $2 billion most recently to $14 billion in the first post 9/11supplemental -- using various special accounts, and has used a variety of tools foroversight of those funds, including prior notification of transfers ranging from 5 daysto 15 days and various after-the-fact reporting in varying levels of detail. Typically,Administrations have requested broad discretion, which Congress has rejected evenin the midst of combat operations as was the case during the first Persian Gulf War. In 1990 and 1991, in the midst of the initial deployment of forces for the first Gulf War and during combat operations, the Administration submitted two requeststhat would allow the Defense Department full freedom to allocate funds contributedby allies for Operation Desert Shield/Desert Storm. Congress rejected bothAdministration requests. Creation of the Defense Cooperation Account. On September 17, 1990, six weeks after Iraq's invasionof Kuwait and the dispatch of some 50,000 U.S. forces to Saudi Arabia to prevent aninvasion of that country, the first Bush Administration submitted a request forsupplemental appropriations of $2.1 billion to cover FY1990 costs of OperationDesert Shield. (52) At that point, the Administrationrequested the funding in regulardefense appropriation accounts despite the uncertainties in costs. Relying on the analogy that contributions by allies were like gifts received by the government, however, the Administration also requested that Congress establisha trust fund in the Treasury to be known as the "National Defense Gift Fund," intowhich monetary contributions from allies or others would be deposited. Under this proposal, the Secretary of Defense, with the approval of the Office of Management and Budget, would have authority to transfer any amounts receivedby the fund to the regular operating accounts of the Department of Defense withoutfurther congressional action. In effect, the Administration requested that theSecretary of Defense be given general authority to allocate all amounts received ineither money or properties from allies without further specific appropriations actionfrom the Congress. Congress did not agree, however. At the end of September 1990, Congress provided $2.1 billion in supplemental appropriations for Operation Desert Shield andrelated expenses in H.J.Res. 655 ( P.L. 101-403 ), a measure providingcontinuing appropriations for FY1991. It appropriated the funds in regular defenseaccounts. Moreover, Congress explicitly refused to provide general authority to theSecretary of Defense to allocate funds received from allies. Instead, P.L. 101-403 established the "Defense Cooperation Account" in the Treasury to receivecontributions from allied nations or from individuals, but it also provided thattransfers from the account could be made only as provided in subsequentappropriations acts. Only two weeks later in mid-October, 1990, the U.S. wouldhave 200,000 troops deployed in the Persian Gulf. (53) Creation of the Persian Gulf Working Capital Fund. Later, on February 25, 1991, when the air war was completeand the ground phase had just begun, the Administration submitted its secondsupplemental appropriations request to cover the incremental costs of operations inand around the Persian Gulf, and it again asked for broad authority for the Secretaryof Defense to allocate funds for costs of the war. As a hedge to provide funds if allied contributions were not available, the Administration requested that Congress establish another new account, to be calledthe "Desert Shield Working Capital Account," with $15 billion in appropriated funds,on which the Secretary of Defense could draw, with the approval of the Office ofManagement and Budget, to cover war costs. Funds were to be transferred from thataccount to regular appropriation accounts, and the initial appropriation was to be"replenished" from previous and future contributions from allies deposited in theDefense Cooperation Account. In early September 1990, the Saudis had agreed tohelp defray the cost of Operation Desert Shield. (54) In this request, DOD provided extensive justification materials to underpin requested funding levels, including planning assumptions for manpower levels foractive and reserves, operating tempo rates, transportation, and support costs, as wellas projections of contributions from allies. (55) These justification materials -- totaling96 pages -- are far more detailed and extensive than those provided for any of thesupplementals after 9/11. Enacted April 6, 1991, the Persian Gulf Conflict Supplemental Authorization and Personnel Benefits Act of 1991 set up a Persian Gulf Conflict Working CapitalFund with $15 billion to act as a "bridge loan" until allied contributions becameavailable. Senate report language called on DOD to provide Congress withseven-day advance notifications of transfers, to certify that amounts were incrementalcosts, to list amounts and accounts for transfers, and to describe transfers at theprogram, project and activity level. (56) The Housereport required that reporting oftransfers follow regular reprogramming procedures including congressionalapproval. (57) A conference report was not issued. DOD was also required to provide extensive monthly reports on bothincremental war costs and allied contributions using a set of cost categories that weredefined in statute, and that have since become the basis for current reporting ofcontingency and war and war-related costs. The legislation required that DODdistinguish between recurring and non-recurring costs, and report costs in functionalcategories including personnel, personnel support, transportation, and operatingtempo. (58) Appropriators Require That Funds Be Allocated to Regular Accounts. Signed into law on April 10, 1991, about sixweeks after the conclusion of the war, the FY1991 Operation Desert Shield/DesertStorm Appropriations Act ( P.L. 102-28 ) rejected the Administration's request forbroad funding flexibility, and set up Persian Gulf Regional Defense Fund with $15billion in appropriated funds. At the same time, however, Congress required thatthose funds could be used only if allied contributions -- to be transferred from theDefense Cooperation Account -- were not adequate, and only in amounts specifiedby appropriation account in the act. (59) The actallocated a total of $34.6 billion byaccount. In effect, Congress insisted on appropriating funds in the regular mannerfor specific, established defense operating accounts for most of the funds, thoughthere was one exception. Special Flexibility For Combat Operations. To give DOD some flexibility, Congress provided $6.0billion for operation and maintenance and $1.9 billion for procurement "to financethe estimated partial costs of combat and other related costs of Operation DesertShield/Desert Storm," with a requirement that the Secretary of Defense could nottransfer these funds until seven days after informing the congressional defensecommittees. (60) Although Congress appropriatedthese funds by title (O&M andProcurement) rather than at the appropriation account level, the amount was basedon DOD information about potential combat operations plans. At the time Congress acted on the FY1991 supplemental, DOD had estimated "baseline" costs for the deployment of forces to the Gulf, but had not fully identifiedcombat costs. In its request, DOD presented a range of estimates for combatincluding a daily rate that would vary depending on the scenario. (61) In their respectivereports, the House and Senate used these estimates to recommend the amount to beincluded in the combat cost fund. (62) As it turned out, combat and some other funding requirements subsequently changed and Congress responded in the 1992 supplemental appropriations bill ( P.L.102-229 ) by giving DOD discretion to move about 20% of the funds appropriated inthe previous supplemental into different accounts, including about $2.9 billion fromthe Persian Gulf Regional Defense Fund and $6.6 billion in previously transferredfunds from the FY1991 Desert Storm Supplemental Appropriations Act. At the end of FY1994, the United States unexpectedly deployed forces simultaneously to Haiti and Southwest Asia, financed by funds that had been slatedfor peacetime training and equipment maintenance. To meet immediate needs, theAdministration obligated $126 million under the Feed and Forage Act (41 U.S.C.11), an emergency authority which allows the Defense Department to obligate fundsin excess of available appropriations for certain operational purposes, and ultimatelydrew several hundred million in funds from the services' peacetime operatingaccounts. (63) As a result, several operational unitsreported reduced levels of readinessat the end of the fiscal year. "Readiness Preservation Authority" Proposal Is Rejected. In reaction to this experience, the Clinton Administrationrequested, in a FY1995 supplemental submitted along with its FY1996 budget, thatthe Secretary of Defense be given authority to obligate substantial funds for certainreadiness-related military activities in advance of congressional appropriations,which the Administration called a "Readiness Preservation Authority." (64) Under thisproposal, if the Secretary of Defense, determines it is in the "national interest," hecould, with the approval of OMB, incur obligations 50% "in excess of" the totalamount appropriated for Operating Forces in Operation and Maintenance accounts(O&M) to fund certain "essential readiness functions and activities of the ArmedForces" in the second half of the fiscal year. These additional obligations were tobe offset by rescissions "unless the President determines that emergency conditionsexist." (65) So if the Readiness Preservation Authority were in effect now, the Defense Department would have authority to obligate half of the $75 billion provided foroperating accounts, or $37.5 billion, in the second half of FY2005, forreadiness-related military activities without specific congressional approval. Thefunding could cover the cost of operational training of all kinds, weapons repair andmaintenance, and operation of facilities that support operational forces, whichtogether make up about half of DOD's O&M funding. (66) Unless the Presidentdetermined that there was an emergency, however, the Administration would haveto propose offsetting rescissions to other programs. In 1995, Secretary of Defense William Perry and Undersecretary of Defense (Comptroller) John Hamre testified in support of the Readiness PreservationAuthority in congressional hearings. But neither the Armed Services Committees northe Appropriations Committees took any action on the proposal. (67) Congress Adopts the Overseas Contingency Operations Transfer Fund. Although Congress was unsympatheticto DOD's request for broad authority to increase O&M spending above the levelsappropriated, concerns re-surfaced the following year. As an interim measure,Congress agreed to DOD's request to raise its general transfer authority from $2.4billion to $3.1 billion to "cover costs associated with United States militaryoperations in support of the NATO-led Peace Implementation Force (FOR) in andaround former Yugoslavia." (68) The following year, Congress provided a more permanent solution by setting up the Overseas Contingency Operations Transfer Fund (OCOTF), to be drawn upon byDOD to fund contingency operations. Between FY1997 and FY2001, Congressappropriated from $1 billion to $5 billion annually to the OCOTF to cover the costsof operations Bosnia and Southwest Asia (including Northern Watch and SouthernWatch in Iraq). For OCOTF funding provided in regular appropriations, the Secretary of Defense could transfer funds to operations at his discretion; for funds provided insupplementals, both Congress and the Administration also had to designate the fundsas an emergency. (69) Congress also initially limitedtransfers to military personnel andoperations and maintenance accounts, which fund operation al expenses. In FY2000, Congress added the requirement that OCOTF funds be spent strictly on contingency operations, and required that DOD submit specific justificationmaterials for all contingency operations, including extensive reporting on manpowerlevels for active and reserve forces, costs by type of expense, and weapon systemsdeployed. (70) DOD incorporated these reportingcategories in its ContingencyOperations Support Tool (COST) model, and established reporting mechanisms tocapture the costs of individual contingencies. Both these categories and the reportingmechanisms are currently used in reporting on the cost of Iraq, Afghanistan, andother contingencies. Over several years, Congress gradually became disenchanted with the OCOTF, in part because GAO reports found consistent overestimates in costs. The final blowcame in 2001, when GAO found that some of those funds had been used forexpenses that were regular expenses rather than incremental costs, or were not relatedto contingency operations, such as purchases of cappuccino machines, golfmemberships, and decorator furniture. (71) Inreaction, Congress cut funding for theOCOTF in FY2002 to from $3.9 billion to $5 million, and transferred funding forBalkan operations and Southwest Asia to regular appropriation accounts. (72) After the terrorist attacks of September 11, 2001, Congress provided the Administration with broad authority to provide funds for disaster assistance, localpreparedness, countering terrorism, improving airport security, repairing damage andsupporting national security. In the next three emergency supplementals thatprovided funds for the occupation of Iraq and Afghanistan and enhanced security fordefense installations (known as Operation Noble Eagle), Congress continued to useflexible transfer accounts but gradually reduced the amount of flexible funding andincreased restrictions. FY2001 Emergency Terrorism Response Supplemental Gives President Broad Discretion. On September 12,2001, the Administration formally requested that Congress immediately appropriate$20 billion to respond to the previous day's terrorist attacks. As requested, thePresident would have had complete discretion to allocate the funds to federalagencies to provide assistance to victims, fund the cost of preparedness, supportefforts to counter terrorism, increase transit security, repair facilities, and "supportnational security." (73) This request is similar to thediscretion requested in the currentFY2005 budget amendment. Congress took swift action on the Administration's request by providing $40 billion in emergency supplemental appropriations on September 14th, two days afterthe Administration's request and four days after the attacks. The President signed theact into law ( P.L. 107-38 ) on September 18, 2001, six days after the attacks. In this first emergency supplemental, Congress gave the Administration unprecedented discretion to allocate $20 billion in funds to any federal agency inresponse to the terrorist attacks. At the same time, however, Congress provideddouble the amount of funding requested and required that the allocation of the second$20 billion be included in a subsequent appropriations act, thus re-assertingcongressional prerogatives. The first $20 billion in funding was initially placed in a government-wide Emergency Response Fund, to be transferred later to individual agencies. Alltransfers from that fund were subject to four general requirements: that "the President shall consult with the chairmen and ranking minority members of the Committees on Appropriations prior to the transfer of thesefunds"; that the funds may be transferred only for specified purposes,including "supporting national security," that not less than half of the $40 billion shall be for "disasterrecovery activities and assistance related to the terrorist acts in New York, Virginia,and Pennsylvania on September 11, 2001"; and that the Office of Management and Budget provide quarterlyreports to the Appropriations Committees on use of thefunds. (74) Under P.L. 107-38 , the President had discretion to transfer $10 billion of that total immediately to any federal agency, and to transfer a second $10 billion to anyfederal agency 15 days after OMB submitted a proposed allocation of the funds anda plan for use of the funds by each agency to the appropriations committees. Theremaining $20 billion, however, was available only after the President submitted anadditional supplemental appropriations request for the funds, and Congress passed,and the President signed, a subsequent appropriations bill. At the time, there was considerable debate about whether the 50% floor for recovery and assistance activities was met. More recently, some members haveraised questions about whether the requirement for consultation was met. (75) Of the $20 billion to be allocated at the President's discretion, DOD received $14.0 billion with most of the funds dedicated to upgrading intelligence systems andprosecuting the war in Afghanistan. These funds were deposited into the DefenseEmergency Response Fund (DERF), a fund originally set up for unanticipated DODassistance provided during disasters. (76) Some Appropriation Controls Apply To Second $20 Billion. In the supplemental attached to the regular FY2002defense appropriations bill, P.L. 107-117 , Congress appropriated the remaining $20billion to various federal agencies. Of that total, DOD received $3.5 billion that wasappropriated to the Defense Emergency Response Fund (DERF) in amounts specifiedusing a unique set of 10 major functional categories developed by DOD in theaftermath of the attack rather than regular appropriation accounts. These categoriesincluded, for example, "increased worldwide posture," which funded combatoperations in Afghanistan, and "Increased Situational Awareness" for intelligenceand reconnaissance activities. (77) Within these functional categories, Congress set specific program amounts in the conference report and designated those funding allocations as congressionalinterest items, "for purposes of complying with established procedures regardingtransfers and proposed reprogramming of funds." (78) In other words, DOD would needto get prior approval for any transfers of funds that differed from amounts specifiedin the report. But because DOD chose to spend funds directly out of the DERFaccount, this provision did not have any effect. (79) After-the-Fact Reporting Requirements. P.L. 107-38 required that OMB provide quarterlyreports to the appropriations committees on the use of the $40 billion in fundsoriginally appropriated. For DOD, OMB's quarterly reports only included the totalfunds obligated under each of the ten categories with no details on specific purposes,projects, activities, or appropriation accounts. (80) In order to improve visibility over all spending under P.L. 107-38 , Congress also required in the conference report that within 45 days of enactment and quarterlythereafter, DOD provide the appropriations committees with a "revised, comprehensive and detailed report, using the guidelines in the House report, regarding the overall allocation ofall appropriations for defense and intelligence activities (including obligations up tothat point, and forecasted expenditures) made available from Public Law107-38." (81) For the $3.5 billion appropriated to the DERF from the second $20 billion, Congress required in statutory language that DOD provide Congress with a report"specifying the projects and accounts to which funds provided in this chapter are tobe transferred," suggesting that Congress assumed that the DERF would operate asa transfer account. The House report also stated that all funding provided under P.L. 107-38 was to be "subject to traditional reprogramming procedures," with DOD required tosubmit an allocation plan for previous funding, and later a Base for Reprogramming"to be used as the baseline for any later transfers. (82) Based on that assumption, theHouse report also required that DOD provide quarterly reports with an allocationplan for both the $14.0 billion provided to DOD from the first $20 billion and the$3.5 billion provided in the FY2002 DOD Appropriation Act, including detailstypical for reprogramming reports, such as: funds available; funds transferred by appropriationaccount; amounts obligated and expended; amounts for O&M and military personnel using categories forongoing contingency operation since Bosnia and Kosovo. In addition, DOD was to "identify savings dues to cancellation or downsizing or normal peacetime education, training, professional development, or other activitiesdue to individual and unit activations or deployments in the war on terrorism." (83) Again, although DOD provided periodic reporting, DOD did not submit any priorapproval reprogramming requests because no funds were transferred between DODaccounts. Congressional Dissatisfaction with DOD Reporting. Although DOD did give periodic briefings to theappropriations committees, using the ten broad functional categories adoptedimmediately after the terrorist attacks, considerable dissatisfaction was voiced aboutthe quality of DOD's reporting. In the House report issued in November 2001, twomonths after the terrorist attacks, DOD reporting was characterized as "at best,intermittent and scattershot," and both the House report and the conference reportcalled on DOD to return to reliance on traditional appropriation accounts in futurerequests and provide "similarly configured, detailed supporting materials," in orderto ensure proper program review, fiscal discipline and controls, and oversight by boththe executive and legislative branches." (84) Although DOD's decision to spend funds directly from the DERF and use ten new functional categories was an untraditional approach, it may have also givenDOD more visibility on war and war-related funds than is the case when DOD usestraditional appropriation accounts. In that traditional approach, the servicessometimes have difficulty in segregating peacetime from wartime costs, making it allthe more difficult to see trends in either peacetime or wartime costs over time. Assessing DOD spending for war and occupation-related spending has also become problematic, not only because of inconsistent reporting categories, but alsobecause DOD has not provided information on the its planning factors for thisspending -- for example, operating tempo measures such as tank miles or flyinghours, how frequently forces will be rotated, or active and reserve manpower levelsfor forces in-country and those providing support to Iraq, Afghanistan, and enhancedsecurity for defense installations. (85) FY2002 Emergency Supplemental: Considerable Flexibility But In A Transfer Account. In the FY2002 EmergencySupplemental, DOD requested that Congress provide $11.3 billion of the $13.4billion total for DOD in the Defense Emergency Response Fund (DERF) because ofthe "dynamic nature of these [Afghanistan] operations," and because "the global waron terrorism will be variable and dynamic and, as the President has said, will morethan likely go on for years." (86) By the timeCongress considered the supplemental inthe spring and summer of 2002, the Taliban regime in Afghanistan had fallen severalmonths earlier, but combat operations were underway to eliminate small groups ofAl Qaeda and Taliban fighters ( P.L. 107-206 ). (87) Congress agreed, nonetheless, to provide $11.3 billion in the DERF but required that the DERF operate as a transfer account so that funds would be transferred toregular appropriation accounts and under the control of the services rather than beingspent directly from the DERF. Congress also required that DOD report quarterly ontransfers from the DERF. Congress was also to be notified in advance -- nospecified number of days -- if DOD planned to spend the funds in ways that differedfrom allocations in conference report language. (88) Like the proposed FY2005 budget amendment, as enacted, the FY2002 Emergency Supplemental included "contingent emergency funding." For funding tobe exempt from caps on discretionary spending that applied in FY2002, both theAdministration and Congress have to designate that funding as emergency. TheAdministration designated all funding in its request as emergency funding. In its action on the Administration's $28 billion request, however, Congress re-allocated $5.1 billion to other programs so that those funds no longer had anexecutive branch emergency designation. For that reason, Congress designated thefunds as "contingent emergency funding," that would only be available to agenciesif the Administration also designated the funds as emergency. The president chosenot to do so, so those funds never became available to agencies. FY2003 Emergency Supplemental Provides Some Flexibility to Fund Iraq War. In its FY2003 EmergencySupplemental request, submitted shortly after the war in Iraq began, DOD asked thatCongress provide $59.9 billion in the DERF and $2.9 billion in regular appropriationaccounts to fund combat and post war operations in Iraq as well as ongoingoperations in Afghanistan and enhanced security for defense installations. Submitted on March 25, 2003, two days after the war with Iraq began, DOD's request was to cover the costs of four to five months of pre-deployment buildup thathad already occurred, combat operations that had just begun, transitional costs duringthe post war period, and reconstitution of forces after the war. In its justificationmaterials, DOD argued that "because we cannot know exactly what militaryoperations might look like, it is impossible to know exactly the pace, scope, andaccounts related to expenditures," and "for this reason, we are requesting that themajority of the funding [should] be appropriated in a [flexible DERF] transferaccount." (89) Preferring to accelerate allocation of funds to the services, the appropriators moved $44.0 billion of the requested funds to individual accounts, but kept $15.7billion in a newly-established flexible transfer fund, the Iraqi Freedom Fund (IFF) inorder to give DOD "flexibility to manage the war effort" and the "many unknownsin the conduct of combat operations." (90) To provide additional flexibility, Congress also provided $2 billion in general transfer authority for funds in the FY2003 Emergency Supplemental. (91) At the sametime, Congress required that DOD follow standard reprogramming procedures,including prior approval procedures when appropriate. (92) As in the previoussupplemental, DOD was required to provide five-day advance notification oftransfers from the IFF. Within the IFF, Congress set statutory ceilings and floors on various types of expenses, (e.g. fuel and classified programs). (93) Once the amounts governed by theceilings were taken into account, the Secretary of Defense had flexibility to transfera total of between $10 billion and $11 billion to respond to the uncertainty of majorcombat operations. (94) The FY2005 BudgetAmendment requests a larger amount offlexible funds for DOD. Reporting Requirements. As in previous supplementals, DOD was required to report transfers of funds quarterly. The appropriators also stated that they expected DOD to be able to produce "better,more refined projections of expected costs," later in the year and to provide thecommittees with a "comprehensive financial analysis and update for FY2003,"including both actual and projected obligations for both peacetime and war-relatedspending. (95) Although these reportingrequirements were more extensive than in theprevious two supplementals, the reports were not required to include planningassumptions or cost drivers as Congress required in monthly reports after the firstGulf War. In addition, the appropriators added several new restrictions to ensure that funds in the supplemental were not used to fund programs previously denied by Congressor for items that would not be available within four years. (96) In report language, theappropriators required advance approval of funding for any investment items thatwould be fielded more than 18 months from enactment. (97) FY2003 Regular Budget Requests $10 Billion for Contingencies. Earlier in 2002, in its regular FY2003 budget, DODrequested discretion to transfer $20.1 billion from the Defense Emergency ResponseFund either for force protection, communication, or other projects, including up to$10 billion to be "used to fund continued operations for the war on terrorism." (98) Congress initially refused to provide the $10 billion for unspecified war costs. The Administration later provided an allocation of the $10.0 billion by appropriations title (for example, "Military Personnel" for all services). Although theArmed Services committees authorized the funds, Congress initially refused toappropriate funds. Later in the year in response to DOD concerns that there could bea shortfall of funding for Afghanistan and intelligence activities, Congress includedthese funds in the FY2003 Consolidated enacted on February 20, 2003, ( P.L. 108-7 )but provided the funds in regular appropriation accounts. (99) FY2004 Emergency Supplemental Limits Amount of Flexible Funding. Reversing course in the FY2004 EmergencySupplemental, DOD requested all but $2.0 billion of the $65.6 billion for DOD inregular appropriation accounts to fund ongoing operations in Iraq and Afghanistanand enhanced security. The only exception was $2.0 billion requested in the IraqFreedom Fund to cover the cost of foreign forces or to pay for U.S. troops if foreignforces did not become available. Congress accepted this rationale ( P.L. 108-337 ). Submitted in September 2003, the FY2004 Emergency Supplemental was intended to "sustain the level of support necessary to continue our operations in Iraqand Afghanistan ... "and "other areas around the world," and to pay for a forcestructure that was expected to decline from five to two-plus active U.S. Armydivisions in Iraq. (100) DOD's reduced requestfor flexible funds was predicated on thegreater predictability of costs after the end of the war. With the recent upsurge in violence, and the decision to keep an additional 20,000 troops in Iraq for the indefinite future, the Army has expressed concern thatit will not have sufficient funds to last the year. Others observers, including DODofficials, believe that funds can be transferred from other activities where expenseshave been lower than anticipated. Although the Army's costs are likely to be higherthan anticipated, their needs may be able to be accommodated by transferring fundsfrom other services and other areas within the Army. Rather than relying on aflexible account, DOD may be able to use the additional transfer authority that it wasprovided in the FY2004 Emergency Supplemental. (101) Expanding general transferauthority, but requiring that reprogramming practices are followed, may be analternative approach to giving DOD flexibility while maintaining traditionaloversight mechanisms. As in the previous two supplementals, DOD was required to provide five-day advance notification of transfers from the IFF (or the DERF in FY2002), and toreport quarterly to the congressional defense committees on all transfers. In addition,the FY2004 supplemental also formally closed the Defense Emergency ResponseFund. (102) In the two and a half years since the September 11, 2001 terrorist attacks, theDepartment of Defense (DOD) has received $165 billion in supplemental funding forthe war and occupation of Iraq and Afghanistan and enhanced security for defenseinstallations (referred to by DOD as Operation Noble Eagle). The Administrationrequested much of this funding for the "global war on terror" in flexible accounts,emphasizing the difficulties of predicting the cost of combat operations andoccupation costs. Amount of Flexible Funding in Post 9/11 Supplementals. Although Congress has provided most of the DODfunding requested by the Administration for the "global war on terrorism," Congresshas not provided most of that funding in flexible accounts despite Administrationrequests (see Table A1 ). Of the $173 billion that the Administration has requestedfor operations in Iraq and Afghanistan and for enhanced security for defenseinstallations since the 9/11 attacks, the Administration requested $104 billion inflexible funds and the remaining $69 billion in regular appropriation accounts. Inresponse, Congress appropriated $44 billion in flexible accounts and $127 billion inregular accounts. Table A1. Extent of DOD Flexibility in Supplementals Since 9/11 Attacks: Funding Amounts (inbillions of dollars) Notes and Sources: Includes effects of later rescissions. CRS calculations based onrequests and enacted levels. Share of Flexible Funding in Post 9/11 Supplementals. In previous supplementals, the Administration requested that between 80% and 100% of DOD's funding be provided in a flexiblefund (see Table A2 below). While Congress has generally provided the amount offunds requested, with the exception of the P.L. 107-38 , the supplemental passed inthe aftermath of the attacks, and the FY2002 Emergency Supplemental ( P.L.107-206 ), Congress, has not been willing to provide the degree of flexibilityrequested. Since then, Congress has pared back DOD's requests, providing about 20% in a flexible account in the FY2003 Supplemental ( P.L. 108-11 ) and 3% in the FY2004Supplemental ( P.L. 108-106 ). Table A2. Extent of DOD Flexibility inSupplementals Since 9/11 Attacks: Share of Total Funding (aspercent of total) Notes and Sources: Includes effects of later rescissions. CRS calculations based onrequests and enacted levels. P.L. 101-403 , October 1, 1990 ( H.J.Res. 655 ) Making continuing appropriations for the FY1991, supplemental appropriationsfor "Operation Desert Shield" for the FY1990, and for other purposes. P.L. 102-25 , April 6, 1991 ( S. 725 ) Persian Gulf Conflict Supplemental Authorization and Personnel Benefits Actof 1991. P.L. 102-28 , April 10, 1991 ( H.R. 1282 ) Making supplemental appropriations and transfers for "Operation DesertShield/Desert Storm" for the fiscal year ending September 30, 1991, and for otherpurposes. P.L. 104-134 , April 26, 1996 ( H.R. 3019 ) Omnibus Consolidated Rescissions and Appropriations Act of 1996. P.L. 107-38 , September 18, 2001 ( H.R. 2888 ) 2001 Emergency Supplemental Appropriations Act for Recovery from andResponse to Terrorist Attacks on the United States. P.L. 107-117 , January 10, 2002 ( H.R. 3338 ) Department of Defense and Emergency Supplemental Appropriations forRecovery from and Response to Terrorist Attacks on the United States Act, 2002. P.L. 107-206 , August 2, 2002 ( H.R. 4775 ) 2002 Supplemental Appropriations Act for Further Recovery From andResponse to Terrorist Attacks on the United States. P.L. 107-248 , October 23, 2002 ( H.R. 5010 ) Department of Defense Appropriations Act, 2003. P.L. 108-7 , February 20, 2003 ( H.J.Res. 2 ) Consolidated Appropriations Resolution, 2003. P.L. 108-11 , April 16, 2003 ( H.R. 1559 ) Emergency Wartime Supplemental Appropriations Act, 2003. P.L. 108-87 , September 30, 2003 ( H.R. 2658 ) Department of Defense Appropriations Act, 2004. P.L. 108-106 , November 6, 2003 ( H.R. 3289 ) Emergency Supplemental Appropriations Act for Defense and for theReconstruction of Iraq and Afghanistan, 2004. | Administrations have periodically asked Congress to give the Department of Defense flexibility in allocating funds to cover the costs of military operations. Most recently, on May 12, 2004, theWhite House requested $25 billion as a "contingent emergency reserve fund" for FY2005 to coverthe costs of operations in Iraq and Afghanistan for part of the fiscal year. If enacted in its currentform, DOD could transfer funds, in any amounts, to individual accounts as long as the Office ofManagement and Budget agreed and Congress received a five-day advance notification. The issuefor Congress is a perennial one: to determine how much flexibility the Defense Department mayneed to carry out military operations Congress intends to support while also ensuring that funds areused for purposes and in amounts that Congress endorses. Faced with the challenge of balancing DOD's need for some funding flexibility for operations with congressional oversight responsibilities, Congress has responded in various ways to DODrequests. In general, Congress has rejected Administration requests to provide broad authority tofinance military operations in advance. In the run-up to the first Persian Gulf War in 1990, forexample, Congress rejected an Administration request for blanket authority to spend moneycontributed by allies. Congress has, however, periodically appropriated money for ongoing or anticipated military operations into flexible "transfer accounts," where DOD can then move funds into regular accountsto meet evolving requirements. At the same time, Congress has generally imposed variousrestrictions and reporting requirements. The least restrictive requirements Congress has imposed in recent years applied to $20 billion that Congress appropriated in the immediate aftermath of the terrorist attacks of September 11,2001. Although the Administration requested similar flexibility in later supplementals, Congressgradually reverted to normal practices by limiting the amount of funding in flexible accounts andby requiring advance notification if DOD decides to spend monies in ways that differ from thosespecified in statutory or report language. By the standards of earlier congressional action, the Administration's current request for a contingency reserve would allow the Defense Department broad flexibility comparable to thatgranted by Congress immediately after September 11. In congressional action on the FY2005 DODauthorization ( H.R. 4200 and S. 2400 ), and appropriations bills( H.R. 4613 ), both houses limited DOD's flexibility by allocating most of the $25 billionto regular appropriation accounts, and setting various reporting requirements. This report reviewsrecent precedents for funding military operations, outlines options for monitoring that spending, andanalyzes congressional action on the Administration's $25 billion request for FY2005. Congress isexpected to vote on the conference version of the FY2005 DOD Appropriations bill, H.R.4613, which includes the $25 billion, before going on recess on July 26, 2004. |
Since 1995, at least thirty-one states have enacted laws banning the so-called "partial-birth" abortion procedure. Although many of these laws have not taken effect because of permanent injunctions, they remain contentious to both pro-life advocates and those who support a woman's right to choose. The concern over partial-birth abortion has been shared by Congress. Congress passed bans on the partial-birth abortion procedure in both the 104 th and 105 th Congresses. Unable to overcome presidential vetoes during both congressional terms, the Partial-Birth Abortion Ban Act was reintroduced in each successive Congress until its enactment in 2003. S. 3 , the Partial-Birth Abortion Ban Act of 2003, was passed by Congress in October 2003. The measure was signed by the President on November 5, 2003. The U.S. Supreme Court has also addressed the performance of partial-birth abortions. In Stenberg v. Carhart , a 2000 case, the Court invalidated a Nebraska statute that prohibited the performance of such abortions. Prior to this decision, the U.S. Courts of Appeals remained divided on the legitimacy of state statutes banning partial-birth abortions. In Gonzales v. Carhart , a 2007 case, the Court upheld the Partial-Birth Abortion Ban Act of 2003, finding that, as a facial matter, it is not unconstitutionally vague and does not impose an undue burden on a woman's right to terminate her pregnancy. This report discusses the Court's decisions and the partial-birth abortion measures in the 106 th , 107 th , and 108 th Congresses. The Supreme Court has held that a woman has a constitutional right to choose whether to terminate her pregnancy. Although a state cannot prohibit a woman from having an abortion, it can promote its interest in potential human life by regulating, and even proscribing, abortion after fetal viability so long as it allows an exception for abortions that are necessary for the preservation of the life or health of the mother. In Planned Parenthood of Southeastern Pennsylvania v. Casey , the Court expanded a state's authority to regulate abortion by permitting regulation at the pre-viability stage so long as such regulation does not place an "undue burden" on a woman's ability to have an abortion. The term "partial-birth abortion" refers generally to an abortion procedure where the fetus is removed intact from a woman's body. The procedure is described by the medical community as "intact dilation and evacuation" or "dilation and extraction" ("D & X") depending on the presentation of the fetus. Intact dilation and evacuation involves a vertex or "head first" presentation, the induced dilation of the cervix, the collapsing of the skull, and the extraction of the entire fetus through the cervix. D & X involves a breech or "feet first" presentation, the induced dilation of the cervix, the removal of the fetal body through the cervix, the collapsing of the skull, and the extraction of the fetus through the cervix. This report uses the term "D & X" to encompass both procedures. D & X is one of several abortion methods. The principal methods of abortion are suction curettage, induction, and standard dilation and evacuation ("D & E"). The decision to perform one abortion method over another usually depends on the gestational age of the fetus. During the first trimester, the most common method of abortion is suction curettage. Suction curettage involves the evacuation of the uterine cavity by suction. The embryo or fetus is separated from the placenta either by scraping or vacuum pressure before being removed by suction. Induction may be performed either early in the pregnancy or in the second trimester. In this procedure, the fetus is forced from the uterus by inducing preterm labor. D & E is the most common method of abortion in the second trimester. Suction curettage is no longer viable because the fetus is too large in the second trimester to remove by suction alone. D & E involves the dilation of the cervix and the dismemberment of the fetus inside the uterus. Fetal parts are later removed from the uterus either with forceps or by suction. D & X is typically performed late in the second trimester between the twentieth and twenty-fourth weeks of pregnancy. Although the medical advantages of D & X have been asserted, the nature of the procedure has prompted pro-life advocates to characterize D & X as something akin to infanticide. In Women ' s Medical Professional Corporation v. Voinovich , the U.S. Court of Appeals for the Sixth Circuit discussed the differences between the D & E and D & X procedures in reference to an Ohio act that banned partial-birth abortions: The primary distinction between the two procedures is that the D & E procedure results in a dismembered fetus while the D & X procedure results in a relatively intact fetus. More specifically, the D & E procedure involves dismembering the fetus in utero before compressing the skull by means of suction, while the D & X procedure involves removing intact all but the head of the fetus from the uterus and then compressing the skull by means of suction. In both procedures, the fetal head must be compressed, because it is usually too large to pass through a woman's dilated cervix. In the D & E procedure, this is typically accomplished by either suctioning the intracranial matter or by crushing the skull, while in the D & X procedure it is always accomplished by suctioning the intracranial matter. The procedural similarities between the D & E and D & X procedures have contributed to the concern that the language of partial-birth abortion bans may prohibit both methods of abortion. Plaintiffs challenging partial-birth abortion statutes have generally sought the invalidation of such statutes on the basis of two arguments: first, that the statutes are unconstitutionally vague, and second, that the statutes are unconstitutional because they impose an undue burden on a woman's ability to obtain an abortion. The Supreme Court has held that an enactment is void for vagueness if its prohibitions are not clearly defined. Vague laws are found unconstitutional because they fail to give people of ordinary intelligence a reasonable opportunity to know what is prohibited and thus allow them to act lawfully. Moreover, the inability to provide explicit standards is feared to result in the arbitrary and discriminatory enforcement of a statute. The undue burden standard was adopted by the Court in Casey . In that case, the Court held that a state could enact abortion regulations at the pre-viability stage so long as an "undue burden" is not placed on a woman's ability to have an abortion. Any regulation which "has the purpose or effect of placing a substantial obstacle in the path of a woman seeking an abortion" creates an undue burden and is invalid. The Sixth Circuit was the first to consider whether a ban on partial-birth abortions imposes an undue burden on a woman's ability to have an abortion. In Voinovich , the court found that an Ohio statute that attempted to ban the D & X procedure was unconstitutional under Casey . The court determined that the language of the statute targeted the D & X procedure, but encompassed the D & E procedure. Because the D & E procedure is the most common method of second trimester abortions, the court contended that the statute created an undue burden on women seeking abortions at this point in their pregnancies. In Stenberg v. Carhart , a Nebraska physician who performed abortions at a specialized abortion facility sought a declaration that Nebraska's partial-birth abortion ban statute violated the U.S. Constitution. The Nebraska statute provided: No partial birth abortion shall be performed in this state, unless such procedure is necessary to save the life of the mother whose life is endangered by a physical disorder, physical illness, or physical injury, including a life-endangering physical condition caused by or arising from the pregnancy itself. The term "partial birth abortion" was defined by the statute as "an abortion procedure in which the person performing the abortion partially delivers vaginally a living unborn child before killing the unborn child and completing the delivery." The term "partially delivers vaginally a living unborn child before killing the unborn child" was further defined as "deliberately and intentionally delivering into the vagina a living unborn child, or a substantial portion thereof, for the purpose of performing a procedure that the person performing such procedure knows will kill the unborn child and does kill the unborn child." Violation of the statute carried a prison term of up to twenty years and a fine of up to $25,000. In addition, a doctor who violated the statute was subject to the automatic revocation of his license to practice medicine in Nebraska. Among his arguments, Dr. Carhart maintained that the meaning of the term "substantial portion" in the Nebraska statute was unclear and thus, could include the common D & E procedure in its ban of partial-birth abortions. Because the Nebraska legislature failed to provide a definition for "substantial portion," the U.S. Court of Appeals for the Eighth Circuit interpreted the Nebraska statute to proscribe both the D & X and D & E procedures: "if 'substantial portion' means an arm or a leg - and surely it must - then the ban ... encompasses both the D & E and the D & X procedures." The Eighth Circuit acknowledged that during the D & E procedure, the physician often inserts his forceps into the uterus, grasps a part of the living fetus, and pulls that part of the fetus into the vagina. Because the arm or leg is the most common part to be retrieved, the physician would violate the statute. The state argued that the statute's scienter or knowledge requirement limited its scope and made it applicable only to the D & X procedure. According to the state, the statute applied only to the deliberate and intentional performance of a partial birth abortion; that is, the partial delivery of a living fetus vaginally, the killing of the fetus, and the completion of the delivery. However, the Eighth Circuit found that the D & E procedure involves all of the same steps: "The physician intentionally brings a substantial part of the fetus into the vagina, dismembers the fetus, leading to fetal demise, and completes the delivery. A physician need not set out with the intent to perform a D & X procedure in order to violate the statute." The Supreme Court affirmed the Eighth Circuit's decision by a 5-4 margin. The Court based its decision on two determinations. First, the Court concluded that the Nebraska statute lacked any exception for the preservation of the health of the mother. Second, the Court found that the statute imposed an undue burden on the right to choose abortion because its language covered more than the D & X procedure. Despite the Court's previous instructions in Roe and Casey , that abortion regulation must include an exception where it is "necessary, in appropriate medical judgment, for the preservation of the life or health of the mother," the state argued that Nebraska's partial-birth abortion statute did not require a health exception because safe alternatives remained available to women, and a ban on partial-birth abortions would create no risk to the health of women. Although the Court conceded that the actual need for the D & X procedure was uncertain, it recognized that the procedure could be safer in certain circumstances. Thus, the Court stated, "a statute that altogether forbids D & X creates a significant health risk . . . [t]he statute consequently must contain a health exception." In its discussion of the undue burden that would be imposed if the Nebraska statute was upheld, the Court maintained that the plain language of the statute covered both the D & X and D & E procedures. Although the Nebraska State Attorney General offered an interpretation of the statute that differentiated between the two procedures, the Court was reluctant to recognize such a view. Because the Court traditionally follows lower federal court interpretations of state law and because the Attorney General's interpretative views would not bind state courts, the Court held that the statute's reference to the delivery of "a living unborn child, or a substantial portion thereof" implicated both the D & X and D & E procedures. Because the Stenberg Court was divided by only one member, Justice O'Connor's concurrence raised concern among those who support a woman's right to choose. Justice O'Connor's concurrence indicated that a state statute prohibiting partial-birth abortions would likely withstand a constitutional challenge if it included an exception for situations where the health of the mother is at issue, and if it was "narrowly tailored to proscribing the D & X procedure alone." Justice O'Connor identified Kansas, Utah, and Montana as having partial-birth abortion statutes that differentiate appropriately between D & X and the other procedures. The Partial-Birth Abortion Ban Act of 1999, S. 1692 , was introduced by then Senator Rick Santorum on October 5, 1999. The bill was approved by the Senate on October 21, 1999, by a vote of 63-34. H.R. 3660 , the Partial-Birth Abortion Ban Act of 2000, was introduced by then Representative Charles T. Canady on February 15, 2000. H.R. 3660 was passed by the House on April 5, 2000, by a vote of 287-141. On May 25, 2000, the House passed S. 1692 without objection after striking its language and inserting the provisions of H.R. 3660 . House conferrees were subsequently appointed, but no further action was taken. Both S. 1692 and H.R. 3660 would have imposed a fine and/or imprisonment not to exceed two years for any physician who knowingly performed a partial-birth abortion. Partial-birth abortion was defined as an abortion in which a person "deliberately and intentionally ... vaginally delivers some portion of an intact living fetus until the fetus is partially outside the body of the mother, for the purpose of performing an overt act that the person knows will kill the fetus" and actually performs the overt act that kills the fetus. In addition to criminal penalties, S. 1692 and H.R. 3660 provided a private right of action for "[t]he father, if married to the mother at the time she receives a partial-birth abortion procedure, and if the mother has not attained the age of 18 years at the time of the abortion, the maternal grandparents of the fetus . . . unless the pregnancy resulted from the plaintiff's criminal conduct or the plaintiff consented to the abortion." When President Clinton vetoed a similar partial-birth abortion bill, H.R. 1122 , during the 105 th Congress, he focused on the bill's failure to include an exception to the ban that would permit partial-birth abortions to protect "the lives and health of the small group of women in tragic circumstances who need an abortion performed at a late stage of pregnancy to avert death or serious injury." While S. 1692 and H.R. 3660 would have allowed a partial-birth abortion to be performed when it was necessary to save the life of the mother, such an abortion would not have been available when it was simply medically preferable to another procedure. H.R. 4965 , the Partial-Birth Abortion Ban Act of 2002, was introduced by Representative Steve Chabot on June 19, 2002. The bill was passed by the House on July 24, 2002, by a vote of 274-151. The measure was not considered by the Senate. H.R. 4965 would have prohibited physicians from performing a partial-birth abortion except when it was necessary to save the life of a mother whose life was endangered by a physical disorder, physical illness, or physical injury, including a life-endangering physical condition caused by or arising from the pregnancy itself. The bill defined the term "partial-birth abortion" to mean an abortion in which "the person performing the abortion deliberately and intentionally vaginally delivers a living fetus until, in the case of a head-first presentation, the entire fetal head is outside the body of the mother, or, in the case of breech presentation, any part of the fetal trunk past the navel is outside the body of the mother for the purpose of performing an overt act that the person knows will kill the partially delivered living fetus." Physicians who violated the act would have been subject to a fine, imprisonment for not more than two years, or both. Although H.R. 4965 did not provide an exception for the performance of a partial-birth abortion when the health of the mother was at issue, supporters of the measure maintained that the bill was constitutional. They contended that congressional hearings and fact finding revealed that a partial-birth abortion is never necessary to preserve the health of a woman, and that such an abortion poses serious risks to a woman's health. S. 3 , the Partial-Birth Abortion Ban Act of 2003, was signed by the President on November 5, 2003 ( P.L. 108-105 ). The House approved H.Rept. 108-288 , the conference report for the measure, on October 2, 2003, by a vote of 281-142. The Senate agreed to the conference report on October 21, 2003, by a vote of 64-34. In general, the act resembles the Partial-Birth Abortion Ban Act of 2002 in language and form. The act prohibits physicians from performing a partial-birth abortion except when it is necessary to save the life of a mother whose life is endangered by a physical disorder, physical illness, or physical injury, including a life-endangering physical condition caused by or arising from the pregnancy itself. Physicians who violate the act are subject to a fine, imprisonment for not more than two years, or both. Although the Supreme Court previously held that restrictions on abortion must allow for the performance of an abortion when it is necessary to protect the health of the mother, the act does not include such an exception. In his introductory statement for the act, then Senator Rick Santorum discussed the act's lack of a health exception. He maintained that an exception is not necessary because of the risks associated with partial-birth abortions. Senator Santorum insisted that congressional hearings and expert testimony demonstrate "that a partial birth abortion is never necessary to preserve the health of the mother, poses significant health risks to the woman, and is outside the standard of medical care." Within two days of the act's signing, federal courts in Nebraska, California, and New York blocked its enforcement. On April 18, 2007, the Court upheld the Partial-Birth Abortion Ban Act of 2003, finding that, as a facial matter, it is not unconstitutionally vague and does not impose an undue burden on a woman's right to terminate her pregnancy. In Gonzales v. Carhart , the Court distinguished the federal statute from the Nebraska law at issue in Stenberg . According to the Court, the federal statute is not unconstitutionally vague because it provides doctors with a reasonable opportunity to know what conduct is prohibited. Unlike the Nebraska law, which prohibited the delivery of a "substantial portion" of the fetus, the federal statute includes "anatomical landmarks" that identify when an abortion procedure will be subject to the act's prohibitions. The Court noted: "[I]f an abortion procedure does not involve the delivery of a living fetus to one of these 'anatomical landmarks'—where, depending on the presentation, either the fetal head or the fetal trunk past the navel is outside the body of the mother—the prohibitions of the act do not apply." The Court also maintained that the inclusion of a scienter or knowledge requirement in the federal statute alleviates any vagueness concerns. Because the act applies only when a doctor "deliberately and intentionally" delivers the fetus to an anatomical landmark, the Court concluded that a doctor performing the D & E procedure would not face criminal liability if a fetus is delivered beyond the prohibited points by mistake. The Court observed: "The scienter requirements narrow the scope of the act's prohibition and limit prosecutorial discretion." In reaching its conclusion that the Partial-Birth Abortion Ban Act of 2003 does not impose an undue burden on a woman's right to terminate her pregnancy, the Court considered whether the federal statute is overbroad, prohibiting both the D & X and D & E procedures. The Court also considered the statute's lack of a health exception. Relying on the plain language of the act, the Court determined that the federal statute could not be interpreted to encompass the D & E procedure. The Court maintained that the D & E procedure involves the removal of the fetus in pieces. In contrast, the federal statute uses the phrase "delivers a living fetus." The Court stated: "D&E does not involve the delivery of a fetus because it requires the removal of fetal parts that are ripped from the fetus as they are pulled through the cervix." The Court also identified the act's specific requirement of an "overt act" that kills the fetus as evidence of its inapplicability to the D & E procedure. The Court indicated: "This distinction matters because, unlike [D&X], standard D&E does not involve a delivery followed by a fatal act." Because the act was found not to prohibit the D & E procedure, the Court concluded that it is not overbroad and does not impose an undue burden a woman's ability to terminate her pregnancy. According to the Court, the absence of a health exception also did not result in an undue burden. Citing its decision in Ayotte v. Planned Parenthood of Northern New England , the Court noted that a health exception would be required if it subjected women to significant health risks. However, acknowledging medical disagreement about the act's requirements ever imposing significant health risks on women, the Court maintained that "the question becomes whether the act can stand when this medical uncertainty persists." Reviewing its past decisions, the Court indicated that it has given state and federal legislatures wide discretion to pass legislation in areas where there is medical and scientific uncertainty. The Court concluded that this medical uncertainty provides a sufficient basis to conclude in a facial challenge of the statute that it does not impose an undue burden. Although the Court upheld the Partial-Birth Abortion Ban Act of 2003 without a health exception, it acknowledged that there may be "discrete and well-defined instances" where the prohibited procedure "must be used." However, the Court indicated that exceptions to the act should be considered in as-applied challenges brought by individual plaintiffs: "In an as-applied challenge the nature of the medical risk can be better quantified and balanced than in a facial attack." Justice Ginsburg authored the dissent in Gonzales . She was joined by Justices Stevens, Souter, and Breyer. Describing the Court's decision as "alarming," Justice Ginsburg questioned upholding the federal statute when the relevant procedure has been found to be appropriate in certain cases. Citing expert testimony that had been introduced, Justice Ginsburg maintained that the prohibited procedure has safety advantages for women with certain medical conditions, including bleeding disorders and heart disease. Justice Ginsburg also criticized the Court's decision to uphold the statute without a health exception. Justice Ginsburg declared: "Not only does it defy the Court's longstanding precedent affirming the necessity of a health exception, with no carve-out for circumstances of medical uncertainty . . . it gives short shrift to the records before us, carefully canvassed by the District Courts." Moreover, according to Justice Ginsburg, the refusal to invalidate the Partial-Birth Abortion Ban Act of 2003 on facial grounds was "perplexing" in light of the Court's decision in Stenberg . Justice Ginsburg noted: "[I]n materially identical circumstances we held that a statute lacking a health exception was unconstitutional on its face." Finally, Justice Ginsburg contended that the Court's decision "cannot be understood as anything more than an effort to chip away at a right declared again and again by [the] Court—and with increasing comprehension of its centrality to women's lives." Citing the language used by the Court, including the phrase "abortion doctor" to describe obstetrician-gynecologists and surgeons who perform abortions, Justice Ginsburg maintained that "[t]he Court's hostility to the right Roe and Casey secured is not concealed." She argued that when a statute burdens constitutional rights and the measure is simply a vehicle for expressing hostility to those rights, the burden is undue. | The term "partial-birth abortion" refers generally to an abortion procedure where the fetus is removed intact from a woman's body. The procedure is described by the medical community as "intact dilation and evacuation" or "dilation and extraction" ("D & X") depending on the presentation of the fetus. Intact dilation and evacuation involves a vertex or "head first" presentation, the induced dilation of the cervix, the collapsing of the skull, and the extraction of the entire fetus through the cervix. D & X involves a breech or "feet first" presentation, the induced dilation of the cervix, the removal of the fetal body through the cervix, the collapsing of the skull, and the extraction of the fetus through the cervix. Since 1995, at least thirty-one states have enacted laws banning partial-birth abortions. Although many of these laws have not taken effect because of temporary or permanent injunctions, they remain contentious to both pro-life advocates and those who support a woman's right to choose. This report discusses the U.S. Supreme Court's decision in Stenberg v. Carhart, a case involving the constitutionality of Nebraska's partial-birth abortion ban statute. In Stenberg, the Court invalidated the Nebraska statute because it lacked an exception for the performance of the partial-birth abortion procedure when necessary to protect the health of the mother, and because it imposed an undue burden on a woman's ability to have an abortion. This report also reviews various legislative attempts to restrict partial-birth abortions during the 106th, 107th, and 108th Congresses. S. 3, the Partial-Birth Abortion Ban Act of 2003, was signed by the President on November 4, 2003. On April 18, 2007, the Court upheld the act, finding that, as a facial matter, it is not unconstitutionally vague and does not impose an undue burden on a woman's right to terminate her pregnancy. In reaching its conclusion in Gonzales v. Carhart, the Court distinguished the federal statute from the Nebraska law at issue in Stenberg. |
The increased presence of foreign students in graduate science and engineering programs and in the scientific workforce has been and continues to be of concern to some in the scientific community. Enrollment of U.S. citizens in graduate science and engineering programs has not kept pace with that of foreign students in those programs. In addition to the number of foreign students in graduate science and engineering programs, a significant number of university faculty in the scientific disciplines are foreign, and foreign doctorates are employed in large numbers by industry. Those in the scientific community, arguing for ceilings on admissions for immigrants, maintain that foreign students use U.S. graduate education programs as stepping stones to immigration through sponsorships for legal permanent residence. Approximately 56% of foreign doctorate degree earners on temporary visas remain in the United States, with many eventually becoming citizens. Data on adjustments from temporary visas to permanent status reveal that approximately 6 in 10 new permanent residents occurred in both 2007 and 2008 from adjustments of status admissions. In 2008, approximately 15.0% of those individuals awarded legal permanent resident status resulted from employment-based preferences. Few will dispute that U.S. universities and industry have chosen foreign talent to fill many positions. Foreign scientists and engineers serve the needs of industry at the doctorate level and also have been found to serve in major roles at the masters level. Not surprisingly, there are charges that U.S. workers are adversely affected by the entry of foreign scientists and engineers, who reportedly accept lower wages than U.S. citizens would accept in order to enter or remain in the United States. These arguments occur in the context of a debate on projections and potential imbalances in certain scientific and technical disciplines. The U.S. Bureau of Labor Statistics reports that between the years 2006 and 2016, employment in science and engineering fields will increase at a faster rate than other professional groups. The growth rate will result, primarily, from growth in mathematics and computer-related occupations. Much attention in the scientific community has focused on the H-1B temporary admissions program. A report of the National Science Foundation (NSF) during the late 1980s claiming a nationwide shortage of scientists and engineers may have contributed to the decision by Congress to expand the skilled-labor preference system contained in the Immigration Act of 1990. The 1990 legislation more than doubled employment-based immigration, including scientists and engineers entering under the H-1B visa category. The act raised the numerical limits or ceilings on permanent, employment-based admissions, from 54,000 to 140,000 annually. In addition, the legislation ascribed high priority to the entry of selected skilled and professional workers, and simplified admissions procedures for foreign nationals seeking to temporarily work, study, or conduct business in the United States. On October 17, 2000, the American Competitiveness in the Twenty-First Century Act of 2000 was signed into law ( P.L. 106 - 313 ), significantly changing the H-1B program and the employment-based immigration program. The legislation raised the annual number of H-1B visas to 195,000 for FY2001, FY2002, and FY2003, and returned to 65,000 in FY2004. It excluded from the new ceiling all H-1B nonimmigrants who are employed by institutions of higher education and nonprofit or governmental research organizations. The law authorized additional H-1B visas for FY1999 to offset the visas inadvertently approved for the year that exceeded the cap. In addition, the law increased the fees employers paid for each petition for nonimmigrant status—from $500 to $1,000 per petition. A portion of the fees were made available to the NSF for the development of private-public partnerships in K-12 education, the expansion of computer science, engineering, and mathematics scholarships, and the establishment of demonstration programs or projects that provide technical skills training for U.S. workers, both employed and unemployed. Signed into law on December 8, 2004, P.L. 108 - 447 , The Consolidated Appropriations Act, 2005, reauthorized H-1B funding. The fee employers pay for each petition was raised from $1,000 to $1,500 per petition. For employers with less than 25 full-time equivalent employees, the fee was set at $750 per petition. Also, the legislation created an additional 20,000 H-1B visas for FY2005, for those who had earned a masters degree or higher from a U.S. institution of higher education. The scientific community has been divided over proposals to impose stricter immigration limits on people with scientific and technical skills. Attempts to settle upon the balance between the needs for a highly skilled scientific and technical workforce, and the need to protect and ensure job opportunities, salaries, and working conditions of U.S. scientific personnel, will continue to be debated. This paper addresses these issues. The number of non-U.S. citizens enrolling in U.S. colleges and universities slowed following the September 11 th terrorist attacks. The slowing of enrollments has been attributed to, among other things, the tightening of U.S. visa policies and increased global competition for graduates in the scientific and technical disciplines from countries such as China, India, and Canada. However, a 2009 report of the Institute of International Education reveals that for the academic year 2008-2009, the number of foreign-born students (in all disciplines) increased by 8.0%, the largest recorded increase since 1980. The growth of students from China contributed significantly to the increase. In addition, new foreign student enrollment for 2008-2009 increased by approximately 16.0% from the previous academic year. The new enrollments are said to result from both recruitment efforts by U.S. institutions and recently improved visa processing for students. The international student enrollment changes are reflected differently by types of institutions, levels of study, and disciplines. There are noticeable differences by world region of origin in the flow of foreign students to the United States. India's students were 15.4% of the population for academic year 2008-2009. The other countries of origin of foreign students falling within the top ten were China (14.6%), South Korea (11.2%), Canada (4.4%), Japan (4.4%), Taiwan (4.2%), Mexico (2.2%), Turkey (2.0%), Vietnam, (1.9%), and Saudi Arabia (1.9%). The top ten fields of study for all foreign students were: business and management (20.6%), engineering (17.7%), physical and life sciences (9.2%), social sciences (8.5%), mathematics and computer sciences (8.4%), health professions (5.2%), fine and applied arts (5.2%), intensive English language (4.2%), humanities (2.9%), education (2.7%), and agriculture (1.3%). NSF data reveal that in 2006, the foreign student population earned approximately 36.2% of the doctorate degrees in the sciences and approximately 63.6% of the doctorate degrees in engineering. In 2006, foreign students on temporary resident visas earned 32.0% of the doctorates in the sciences, and 58.6% of the doctorates in engineering. (See Figure 1 .) The participation rates in 2005 were 30.8% and 58.4%, respectively. In 2006, permanent resident status students earned 4.2% of the doctorates in both the sciences and engineering, a slight change from the 2005 levels of 3.8% in the sciences and 4.4% in engineering. Trend data for science and engineering degrees for the years 1996-2005 reveal that of the non-U.S. citizen population, temporary resident status students consistently have earned the majority of the doctorate degrees. (See Table 1 and Table 2 .) Disaggregated data for the subfields of science provide a detailed picture of degree recipients by U.S. citizenship and non-U.S. citizenship status. In 2006, foreign students (temporary and permanent resident status) were awarded 47.9% of the doctorates in the physical sciences, an increase from the 46.2% awarded in 2005. In mathematics, 55.3% of the doctorates were awarded to foreign students in 2006, a slight increase from the 55.1% awarded in 2005. For the computer sciences, 61.3% were awarded to foreign students, an increase above the 2005 level of 58.8%. The earth, atmospheric, and ocean sciences and the agricultural and biological sciences awarded 35.4% and 33.6% of the degrees respectively to foreign-born students in 2006, compared to the 2005 levels of 35.7% and 32.1%. In the social sciences and psychology, 24.6% of the doctorates were awarded to foreign students in 2006, almost level with the 24.5% awarded in 2005. The NSF provides specific data on the country of origin of foreign-born science and engineering doctorate awards. Data for 2006 reveal that of the earned doctorate degree holders (non-U.S. citizens), 33.5% were from China, 11.9% were from India, 3.4% were from Taiwan, 2.8% from Canada, 3.4% from Africa, 2.8% from Turkey, 1.7% from Japan, and 1.4% from Germany. See Figure 2 for additional disaggregated data on doctorate degrees awarded to non-U.S. citizens by country of origin. Certain restrictions have been placed on foreign students with temporary resident student status who are enrolled in graduate programs in U.S. institutions. Foreign graduate students are required to be full-time students, and are prohibited, due to visa restrictions, from seeking employment. While they are prohibited also from obtaining most fellowships, traineeships or federally guaranteed loans, they are able to be employed as research assistants or teaching assistants on federally funded research projects. Foreign and U.S. science and engineering graduate students receive financial support from many resources—personal, university (primarily through teaching assistantships, research assistantships/traineeships, fellowships/dissertation grants) , foreign government, employer, and other. Many foreign students receive support from their home country, though it is generally limited to the first year of study. For the continuing years, the university usually provides support mostly in the form of research assistantships or teaching assistantships. While temporary resident foreign students are ineligible for direct federal aid, the university support provided to them through research assistantships and teaching assistantships often results from federally funded research grants awarded to their home institution. The 2007 report, Doctorate Recipients from United States Universities: Summary Report 2006 , reveals that institutions of higher education provide a significant amount of support, primarily through teaching assistantships, research assistantships/traineeships, and fellowships/dissertation grants, to foreign students on temporary and permanent resident visas. In all fields, a greater percentage of non-U.S. citizen doctoral recipients receive financial assistance from universities than do U.S. doctoral recipients. (See Table 3 for primary sources of financial support.) A disaggregation of the data by race/ethnicity reveal that 40.6% of Native Americans/Alaska Natives doctoral students relieved on their own resources to finance their graduate studies, followed by blacks at 38.8%, whites, at 30.1%, Hispanics, at 30.7%, and Asians, at 16.9%. In the physical sciences, which include mathematics, computer and information sciences, universities provided the primary support for 84.6% of temporary resident students, 73.1% for permanent residents, and 58.8% for U.S. citizens. In engineering, 84.8% of temporary resident students received primary financial support from universities, as did 63.9% of permanent resident students, and 42.8% of U.S. citizen doctoral students. Even in those disciplines where foreign students do not participate with any degree of frequency (i.e., education and the social sciences), larger percentages of foreign doctoral students on temporary and permanent resident visas obtained their primary financial assistance from universities than did comparable U.S. students. In the field of education, 43.6% of temporary resident doctoral students received their primary financial support from universities; for permanent resident students, 41.5%, and for U.S. citizens, 13.4%. In the social sciences, universities provided financial support to 54.0% of temporary resident doctoral students, 43.9% for permanent residents, and 35.7% for U.S. citizens. There are divergent views in the scientific and academic community about the effects of a measurable foreign student presence in graduate science and engineering programs. Some argue that U.S. universities benefit from a large foreign citizen enrollment by helping to meet the needs of the university and, for those students who remain in the United States, the nation's economy. Foreign students generate three distinct types of measurable costs and benefits. First, 13 percent of foreign students remain in the United States, permanently increasing the number of skilled workers in the labor force. Second, foreign students, while enrolled in schools, are an important part of the workforce at those institutions, particularly at large research universities. They help teach large undergraduate classes, provide research assistance to the faculty, and make up an important fraction of the bench workers in scientific labs. Finally, many foreign students pay tuition, and those revenues may be an important source of income for educational institutions. The noticeable participation of foreign students in graduate programs has generated critical responses by many in the minority community. Blacks, Hispanics, and Native Americans, historically underrepresented in the science and engineering fields, contend that disparity exists in the university science community with respect to foreign students. It is charged that there is not equal access for U.S. minorities to graduate education, receipt of scholarships, promotion to higher ranks, receipt of research funds, access to outstanding research collaborators, and coauthorship of papers and other outlets for scientific publications. Frank L. Morris, former professor, University of Texas, charged that colleges and universities employ exclusionary mechanisms. Rather than supporting minority graduate students, institutions provided the majority of their resources to departments that have admitted foreign students. In testimony before the Subcommittee on Immigration and Claims, Morris stated that: The generous immigration policy coupled with the much better and disproportionate and much better subsidy out of U.S. taxpayer funds of foreign doctoral student over all American minority students and especially much better than the support given to African American doctoral students.... This has created a situation that place the economic well being of the African American community in jeopardy because we have received inadequate doctoral training to prepare for or compete in an increasing information and higher order scientifically technologically driven current and future U.S. economy. Another criticism noted by some is that foreign student teaching assistants do not communicate well with American students. Language as a barrier has been a perennial problem for some foreign students. There are charges that the "accented English" of the foreign teaching assistants affects the learning process. A large number of graduate schools require foreign teaching assistants to demonstrate their proficiency in English, but problems remain. Several states have passed legislation setting English-language standards for foreign students serving as teaching assistants. Some academics and scientists do not view scientific migration as a problem, but as a net gain. These proponents believe that the international flow of knowledge and personnel has enabled the U.S. economy to remain at the cutting-edge of science and technology. A 2005 report of the National Academies states that: The participation of international graduate students and postdoctoral scholars is an important part of the research enterprise of the United States. In some fields they make up more than half the populations of graduate students and postdoctoral scholars. If their presence were substantially diminished, important research and teaching activities in academe, industry, and federal laboratories would be curtailed, particularly if universities did not give more attention to recruiting and retaining domestic students. During the 1980s, the number of immigrant scientists and engineering entering the United States remained somewhat stable (12,000), registering only slight annual increases. In 1992, there was a marked increase in the admissions of scientists and engineering, fueled primarily by the changes in the Immigration Act of 1990 that allowed significant increases in employment-based quotas of H-1B visas. By 1993, the number of scientists and engineers on permanent visas increased to 23,534. The numbers were increased further as a result of the Chinese Students Protection Act of 1992. The proportion of foreign born scientists and engineers in the U.S. labor force reached a record in 2000, revealing high levels of entry by holders of permanent and temporary visas during the 1990s. The issuance of permanent visas in the past few years has been impacted by administrative changes at the U.S. Citizenship and Immigration Services (USCIS), changes in immigration legislation, and any impact of September 11 th . Foreign scientists and engineers on temporary work visas have generated considerable discussion. As previously stated, recent legislation has increased the annual quota for the H-1B program in which foreign-born workers can obtain visas to work in an occupation for up to six years. The H-1B program, generally, is thought of as an entry for technology workers, but it is used also to hire other skilled workers. A report of the NSF notes that "An H-1B visa is sometimes used to fill a position not considered temporary, for a company may view an H-1B visa as the only way to employ workers waiting long periods for a permanent visa." Data on selected occupations for which companies have been given permission to hire H-1B visa workers are contained in Table 4 . Some argue that the influx of immigrant scientists and engineers has resulted in depressed job opportunities, lowered wages, and declining working conditions for U.S. scientific personnel. While many businesses, especially high-tech companies, have recently downsized, the federal government issued thousands of H-1B visas to foreign workers. There are those in the scientific and technical community who contend that an over-reliance on H-1B visa workers to fill high-tech positions has weakened opportunities for the U.S. workforce. Many U.S. workers argue that a number of the available positions are being filled by foreign labor hired at lower salaries. Those critical of the influx of immigrant scientists have advocated placing restrictions on the hiring of foreign skilled employees in addition to enforcing the existing laws designed to protect workers. Those in support of the H-1B program maintain that there is no "clear evidence" that foreign workers displace U.S. workers in comparable positions and that it is necessary to hire foreign workers to fill needed positions, even during periods of slow economic growth. A September 2006 report of the Government Accountability Office (GAO), H-1B Visa Program: More Oversight by Labor Can Improve Compliance with Program Requirements, states that: Labor's review of employers' H-1B applications is limited by law to identifying omissions and obvious inaccuracies, but we found it does not consistently identify all obvious inaccuracies. ...Labor's Wage and Hour Division (WHD) enforces H-1B program requirements by investigating complaints made against H-1B employers and recently began random investigations of previous program violators. From fiscal year 2000 through fiscal year 2005, complaints and violations increased but changes in the program, such as temporary increases in visa caps, may have been a factor.... However, USCIS does not have a formal mechanism to report such information to Labor, and current law precludes WHD from using this information to initiate an investigation of an employer. Justice pursues charges filed by U.S. workers alleging they were not hired or were displaced so that an H-1B worker could be hired instead, but it has not found discriminatory conduct in most cases. The maturing of the computer industry has wrought its own set of problems relative to employment of foreign scientists and engineers. There are some who contend that the salary of the foreign-born computer professionals working in the United States is lower than that of their U.S. counterparts who are the same age and educational level. Others charge that the hiring of H-1B workers "undermines the status and bargaining position of U.S. workers." The Department of Labor (DOL) has sought to enforce the existing policies on temporary employment of nonimmigrant foreign workers under H-1B visas, and to penalize those employers who are found to be in violation. Many in the scientific community maintain that in order to compete with countries that are rapidly expanding their scientific and technological capabilities, the United States needs to bring in those whose skills will benefit society and will enable us to compete in the new-technology-based global economy. Individuals supporting this position do believe that the conditions under which foreign talent enters U.S. colleges and universities and the labor force should be monitored more carefully. And there are those who contend that the underlying concern of foreign students in graduate science and engineering programs is not necessarily that there are too many foreign-born students, but that there are not enough native-born students entering the scientific and technical disciplines. A May 2010 report of the National Science Board states that: Attracting and retaining foreign-born talent remains an essential pillar of our Nation's STEM [science, technology, engineering, and mathematics] enterprise. As global demand for STEM talent surges, we cannot reliably expect that the best and brightest from abroad will remain in the United States and continue to be a sufficient source of talent. It is essential that we develop our own domestic human capital as well. Ideally, foreign talent should augment a robust domestic STEM talent pipeline, not compensate for its deficiencies. The debate on the presence of foreign students in graduate science and engineering programs and the workforce intensified following the terrorist attacks of September 11, 2001. It has been reported that foreign students in the United States are encountering "a progressively more inhospitable environment." A June 2006 report of the Association of International Educators, Restoring U.S. Competitiveness for International Students and Scholars , states that " ... [F]or the first time, the United States seems to be losing its status as the destination of choice for international students." Concerns have been expressed about certain foreign students receiving education and training in sensitive areas. There has been increased discussion about the access of foreign scientists and engineers to research and development (R&D) related to chemical and biological weapons. Also, there is discussion of the added scrutiny of foreign students from countries that sponsor terrorism. The academic community is concerned that the more stringent requirements of foreign students may have a continued impact on enrollments in colleges and universities. Others contend that a possible reduction in the immigration of foreign scientists may affect negatively on the competitiveness of U.S. industry and compromise commitments made in long-standing international cooperative agreements. The issue of tracking foreign students attending U.S. institutions has generated particular debate in the academic and scientific community following the September 11 th terrorist attacks. Prior to September 11 th , the Illegal Immigration Reform and Immigrant Responsibility Act ( P.L. 104 - 208 ) authorized the Student and Exchange Visa Program/Coordinated Interagency Partnership Regulating International Students (SEVP/CIPRIS). This electronic information reporting system for tracking foreign students and researchers was to replace the existing paper-based format. The legislation required colleges and universities to monitor and compile data on foreign students attending their respective institutions in such areas as date of enrollment/reporting, field of study, credits earned, and source of financial support for the student. The information was to be provided to the INS by the colleges and universities. However, the system was never fully implemented, primarily because institutions described it as being too costly, an "unnecessary burden on colleges and universities," and "an unreasonable barrier to foreign students." The USA Patriot Act ( P.L. 107 - 56 ) and the Enhanced Border Security and Visa Entry Reform Act ( P.L. 107 - 173 ) revised and enhanced the process for collecting and monitoring data on foreign students and researchers in U.S. institutions. In response to the legislation, the INS developed the Student and Exchange Visitor Information System (SEVIS). SEVIS, a web-based system, was designed to maintain current information on foreign students and exchange visitors in order to ensure that they arrive in the United States, register at the institution or predetermined exchange program, and properly maintain their visa status during their stay. Congress directed the then INS to have the tracking system in operation by January 30, 2003. The deadline for implementation of SEVIS was extended to February 15, 2003. However, SEVIS experienced considerable problems and created excessive delays in processing visa applications. The more rigorous screening of visa applicants was one factor contributing to the delays. The existing problems with SEVIS are described as being primarily those relating to technical matters and personnel costs. Currently, there is a proposal to implement a second-generation system, SEVIS II, that would expand the capabilities of the current tracking system and address any reported technical difficulties or security issues. On September 13, 2005, the House Subcommittee on National Security, Emerging Threats, and International Relations held a hearing to examine the procedures put in place to correct the gaps and vulnerabilities in the visa process. Attention was directed at the mechanisms that are necessary to strengthen the visa process as an antiterrorism tool while simultaneously facilitating legitimate travel by foreign students, scientists, researchers, and others in the United States. Witnesses testified that consular workloads had increased significantly, yet the visa-processing offices continued to lack strategic direction, adequate resources, and training. In addition, reliable data were not readily available, across and among departments and agencies, to determine security and visa fraud related issues and overall increased visa wait times. Witnesses stated that because visa policies and requirements are ongoing and can change quickly, clear procedures on visa issuance and monitoring operations worldwide are necessary to guarantee that visas are adjudicated in a consistent manner at each visa-issuing post. The Government Accountability Office (GAO) has released several reports detailing the efforts and the improvements that have been made in the visa processing. Other reports of the GAO assessed agencies' progress in implementing recommended changes in visa operations. An April 4, 2006 report— Border Security, Reassessment of Consular Requirements Could Help Address Visa Delays, stated that while steps have been taken to improve the visa application system, additional issues required immediate attention. The recommendations included clarifying visa policies and procedures in order to facilitate their implementation, and ensuring that consular officers have access to the needed tools to improve national security and promote legitimate travel. Comprehensive immigration reform legislation was debated and under consideration during the beginning of the 110 th Congress. Those attempts at reform failed and comprehensive reform legislation was not revisited. Comprehensive federal immigration reform has been reintroduced in the 111 th Congress. H.R. 4321 , Comprehensive Immigration Reform for America's Security and Prosperity Act, would, among other things, exempt specified categories of U.S.-educated immigrants from employment-based immigration limits. The bill would also amend H-1B visa employer application requirements by lengthening U.S. worker displacement protection and prohibiting employer position announcements that specify positions solely to, or that gives priority to, H-1B immigrants. In addition, bills have been introduced in the 111 th Congress that are directed at attracting foreign students in the scientific and technical disciplines while maintaining the interests of American scientists. H.R. 1736 , International Science and Technology Cooperation Act, would, among other things, address the various issues that impact the ability of U.S. scientists and engineers to collaborate with foreign counterparts. S. 887 , H-1B and L-1 Visa Reform Act, would amend H-1B employer requirements by limiting the number of H-1B and L-1 employees that an employer of 50 or more workers in the United States may hire. The bill would also direct the DOL to conduct annual audits of businesses with large numbers of H-1B workers. H.R. 1791 , Stopping Trained in America Ph.D.s from Leaving the Economy Act (STAPLE), would direct numerical limitations on immigrants who have been awarded a doctorate degree in the scientific disciplines from a U.S. institution and who have an offer of employment from a U.S. employer in a degree-related field. In addition, the bill would provide H-1B visa numerical limitations on immigrants who have earned a doctorate in a scientific discipline and with respect to a petitioning employer, requires that education as a condition of employment. | The increased presence of foreign students in graduate science and engineering programs and in the scientific workforce has been and continues to be of concern to some in the scientific community. Enrollment of U.S. citizens in graduate science and engineering programs has not kept pace with that of foreign students in those programs. In addition to the number of foreign students in graduate science and engineering programs, a significant number of university faculty in the scientific disciplines are foreign, and foreign doctorates are employed in large numbers by industry. Few will dispute that U.S. universities and industry have chosen foreign talent to fill many positions. Foreign scientists and engineers serve the needs of industry at the doctorate level and also have been found to serve in major roles at the masters level. However, there are charges that U.S. workers are adversely affected by the entry of foreign scientists and engineers, who reportedly accept lower wages than U.S. citizens would accept in order to enter or remain in the United States. NSF data reveal that in 2006, the foreign student population earned approximately 36.2% of the doctorate degrees in the sciences and approximately 63.6% of the doctorate degrees in engineering. In 2006, foreign students on temporary resident visas earned 32.0% of the doctorates in the sciences, and 58.6% of the doctorates in engineering. The participation rates in 2005 were 30.8% and 58.4%, respectively. In 2006, permanent resident status students earned 4.2% of the doctorates in both the sciences and in engineering, a slight change from the 2005 levels of 3.8% in the sciences and 4.4% in engineering. Many in the scientific community maintain that in order to compete with countries that are rapidly expanding their scientific and technological capabilities, the country needs to bring to the United States those whose skills will benefit society and will enable us to compete in the new-technology based global economy. The academic community is concerned that the more stringent visa requirements for foreign students may have a continued impact on enrollments in colleges and universities. There are those who believe that the underlying problem of foreign students in graduate science and engineering programs is not necessarily that there are too many foreign-born students, but that there are not enough native-born students pursuing scientific and technical disciplines. Legislation has been introduced in the 111th Congress to attract foreign students in the scientific and technical disciplines and to maintain the interests of American scientists. H.R. 4321, Comprehensive Immigration Reform for America's Security and Prosperity Act, would, among other things, amend H-1B visa employer application requirements by lengthening U.S. worker protection and prohibiting employer position announcements that specify positions solely to, or give priority to, H-1B visa holders. H.R. 1791, Stopping Trained in America Ph.D.s from Leaving the Economy Act (STAPLE), would place numerical limitations on immigrants who have been awarded a doctorate degree in the scientific disciplines from a U.S. institution and who have an offer of employment from a U.S. employer in a degree-related field. |
Since 2014, the United States and a coalition it leads have partnered with a politically diverse set of Kurdish groups to combat the Islamic State organization (IS, also known as ISIS/ISIL or by the Arabic acronym Da'esh ). Coalition-backed Kurdish forces have reversed IS advances in some parts of Iraq and Syria and have taken control of some previously IS-controlled territory. Coalition air support for Kurdish fighters is provided primarily from bases in Iraq, Turkey, and Arab Gulf states. U.S. officials have praised Kurdish fighters as some of the most effective ground force partners the coalition has in Iraq and Syria. Their effectiveness may partly stem from a measure of Kurdish political and military cohesion—relative to other groups—that predates the ongoing conflicts in both countries. Yet, Kurdish military success in both states has complicated U.S. efforts to partner with the Iraqi and Turkish governments, largely because of the boost such success apparently has given to the political ambitions and regional profiles of various Kurdish groups. Efforts by the United States to address its state partners' concerns could fuel uncertainty among Kurdish groups about the terms and durability of U.S. support. In Iraq, the U.S. military has worked with fighters who come under the official authority of the Kurdistan Regional Government (KRG) (see Figure 1 ). In Syria, U.S. forces have partnered with fighters from or allied with the Democratic Union Party (PYD)/People's Protection Units (YPG) (see Figure 2 ). As of December 2016, U.S. partnering with these forces is focusing on and around the key IS-controlled cities of Mosul (Iraq) and Raqqah (Syria). As Administration officials and Members of Congress assess how to reconcile U.S. coordination with Kurdish groups with overall U.S. objectives, their considerations include: The extent to which Kurdish groups should be involved in military operations and post-conflict security in areas with predominantly Sunni Arab or other non-Kurdish populations. The likely effects of U.S. military support for Kurdish groups in Iraq and Syria on state cohesion and political compromise among varying ethnic, sectarian, and ideological groups. Whether and how the coalition's strategic priorities might come into conflict with Kurdish groups' possible goals to (1) maximize their control over territory and resources and (2) reduce or eliminate potential threats (either from rival Kurds or non-Kurds). Questions of leverage between the United States and Kurdish groups, given how they depend on one another for their success and how they each manage relations with other actors—such as the Syrian and Iraqi governments, Turkey, Russia, and Iran. The nature of relationships among Kurdish groups, including the Kurdistan Workers Party (PKK), a U.S.-designated terrorist organization. Legal authorities enacted by Congress and the President permit the Administration to provide some arms and some anti-IS-related funding for Iraq and Syria to Kurdish groups under certain conditions, as discussed below. In April 2016, U.S. officials announced that they would provide more than $400 million to pay and otherwise sustain Iraqi Kurdish fighters with the consent of the Iraqi government. Such support is being drawn from Defense Department-administered funds Congress has appropriated in recent years for countering the Islamic State organization in Iraq. The Obama Administration has requested additional funds to counter the Islamic State organization for FY2017, and Congress may choose to authorize and appropriate anti-IS funding in general terms and/or specifically for various Iraqi forces—including Kurdish groups. Iraqi Kurdish fighters number approximately 160,000, including regular peshmerga and elite forces such as the Zeravani. Prior to the 2014 outbreak of conflict against the Islamic State, these forces had primarily been serving as internal security providers. Of these forces, about 40,000 peshmerga fight in nominally integrated KRG brigades, with the remainder loyal to one of the two main Iraqi Kurdish political groups: the Kurdistan Democratic Party (KDP) or the Patriotic Union of Kurdistan (PUK). According to various open sources, the U.S.-led coalition has trained several thousand peshmerga to participate in anti-IS operations. The general U.S. practice in supplying arms to Iraqi Kurdish peshmerga forces, dating from before Operation Inherent Resolve (OIR), has been to do so either via Iraq's central government or with its express approval. On July 7, 2015, Secretary of Defense Ashton Carter testified to the Senate Armed Services Committee that the United States and other countries "basically convey" weapons directly to the Kurds with Iraqi government approval. Various NATO countries reportedly have directly provided or committed to provide some weapons—including anti-tank missiles and transport helicopters—and non-lethal equipment to peshmerga to augment the Kurds' aging core arsenal of largely Soviet-era small arms and armored vehicles. Notwithstanding the equipment received by peshmerga commanders from various sources, KRG leaders have complained about a lack of heavy weaponry for attack against IS forces from longer ranges. In April 2016, U.S. military officials provided information showing that the U.S.-led coalition was in the process of providing additional equipment to the peshmerga in preparation for anti-IS operations in and around Mosul, including Mine Resistant Ambush Protected (MRAP) armored personnel carriers, anti-tank weapons, mortars, and light arms and ammunition. The Administration allocated $353.8 million for Iraqi Kurdish forces in FY2015 from the $1.6 billion Iraq Train and Equip Fund (ITEF.) Reportedly, Iran and Russia also supply the peshmerga. According to one analyst, Iran has been a major provider of artillery to the peshmerga, "especially BM-14 and BM-21 truck mounted rocket launchers." Russian officials disclosed in early 2016 that they have provided arms to the KRG with Iraqi government approval, including anti-aircraft autocannons. U.S. military trainers and advisors have been based in KRG-controlled areas (along with other areas in Iraq) since 2014, and the U.S. government has acknowledged that advisors have periodically engaged in direct action missions in both Iraq and Syria. More than 5,000 U.S. military personnel are deployed throughout Iraq. Some regional media outlets have speculated that the United States and KRG have secretly agreed to the establishment of enduring U.S. military bases within KRG-controlled areas, though KRG officials have denied this. In April 2016, the Defense Department announced that the United States would provide more than $400 million in assistance to Kurdish peshmerga in coordination with the Iraqi government. This support is intended to help with monthly installments for peshmerga salaries and food, which were previously in short supply given KRG budget shortfalls discussed below. Funds have been drawn from appropriations for ITEF. Proposed legislation for FY2017 would authorize some amounts for peshmerga and other local forces (see " Enacted and Proposed U.S. Legislation " below). In early 2016, Senators Lindsey Graham (chair of the Senate Appropriations Subcommittee on State, Foreign Operations, and Related Programs) and John McCain (chair of the Senate Armed Services Committee) had called for assistance to pay peshmerga salaries. In response to them, Senator Bob Corker (chair of the Senate Foreign Relations Committee) said that in considering any decision to directly fund the KRG, "you have to take into account you could be encouraging the breaking apart of the country." Various political and budgetary issues within the KRG and between the KRG and the Iraqi central government could complicate the KRG's role in countering the Islamic State. These include: KRG budget difficulties linked to (1) Iraqi central government unwillingness since early 2014 to pay the KRG its 17% share of total Iraqi oil revenue (partly driven by the KRG's independent export since 2014 of oil resources it controls via Turkish ports), (2) lower global oil prices, and (3) increases in military spending since the IS threat clearly emerged in 2014. The limited integration (as mentioned above) of KDP and PUK peshmerga into apolitical KRG units. Disputes within the KRG over the continued rule of Masoud Barzani (head of the KDP) as KRG president after his prescribed term in office expired in August 2015, as well as a significant factional dispute within the PUK. Ongoing tension between the KRG and other Iraqi leaders over the composition of the national cabinet. The potential for a future KRG statehood referendum to exacerbate existing KRG-Baghdad disputes regarding territory, governance, and oil. To date, these issues do not appear to have significantly undermined the KRG's military capacity. Before the U.S. announcement in April 2016 of assistance for KRG fighters, the KRG reportedly was paying peshmerga only once every four months. In July 2016, the United States and the KRG signed a memorandum of understanding (MOU) with Baghdad's approval governing the provision of the assistance referenced in the April 2016 announcement. In September, the Iraqi national government and the KRG tentatively resolved their dispute over the export of and division of proceeds from some of Kirkuk's oil. In December, reports indicated that the non-KDP factions within the KRG were working with a major Shia Arab faction toward a possible compromise for the 2017 budget on oil sharing and peshmerga salaries. At present, U.S. assistance to security forces in Iraq, including to Kurdish and other regional or local forces, is coordinated with and/or channeled through the Iraqi national government. This process reflects U.S. policy since the 2003 invasion of Iraq—a policy whose merit has been vigorously debated by U.S. officials and lawmakers—of promoting Iraq's unity under a non-sectarian national government. The process is also reflective of an overall U.S. legal and policy approach that identifies countries (i.e., national governments) and international organizations as the specified lawful recipients of U.S. security assistance. However, since 2014, some U.S. and international observers have at times criticized the Iraqi Security Forces (ISF)'s performance against the Islamic State. Critics have contended that Iraq's central government has at times failed to direct necessary assistance to local Kurdish and Sunni forces or to adequately constrain some Iran-backed Shia militia forces engaged in the anti-IS fight. Some legislative proposals considered in the 114 th Congress reflected these views and sought to provide authorization for direct U.S. assistance to specific forces in Iraq in addition to ongoing engagement with and support for the ISF. The FY2016 National Defense Authorization Act (NDAA) reported by committee to the House ( H.R. 1735 ) in May 2015 would have required that at least 25% of the $715 million in ITEF funding authorized under Section 1223 of the bill would have been used to directly assist peshmerga and/or various local Sunni security forces without requiring prior approval or consultation with Baghdad. The provision would have explicitly directed the executive branch to consider Kurdish peshmerga and various other subnational forces as the equivalents of "countries." This version sparked considerable national political debate in Iraq, and the direct reference to "countries" was removed by a managers' amendment during floor consideration of the bill. In line with post-2003 U.S. policy regarding Iraq and its constituent geographic, ethnic, and sectarian parts, the Obama Administration expressed concerns that removing the requirement for the Iraqi government to consent to U.S. assistance for Kurds in northern Iraq might undermine Iraq's unity and political cohesion. As mentioned above, by mid-2015, U.S. officials had begun to expedite arms deliveries more to KRG-affiliated forces, probably to some extent in response to Kurdish complaints that the Iraqi central government did not distribute U.S.-provided weapons fairly or quickly enough. In Secretary Carter's July 7, 2015, Senate Armed Services Committee testimony, he said that KRG President Barzani had communicated to him that the delays the KRG had experienced in procuring equipment were no longer occurring. The FY2016 NDAA enacted by Congress and the President in late 2015 ( P.L. 114-92 ) provided an explicit legal basis—previously lacking—for direct U.S. support to Iraqi Kurdish and Sunni forces, but left ultimate discretion on the matter with the President. Section 1223(e) authorized the President to provide arms directly to Kurdish peshmerga (among other regional or local Iraqi forces with a "national security mission") for anti-IS purposes if he determines that the Iraqi government has failed "to take substantial action to increase political inclusiveness, address the grievances of ethnic and sectarian minorities, and enhance minority integration in the political and military structures in Iraq." In a March 2016 report to various congressional committees required by Section 1223(e), the Defense Department and State Department assessed that the Iraqi government had taken meaningful steps toward greater inclusivity and integration of minorities. Additionally, Section 7041(c)(3) of the 2016 Consolidated Appropriations Act ( P.L. 114-113 ) stated that funds appropriated by the act for Iraq under the headings "International Narcotics Control and Law Enforcement" and "Foreign Military Financing Program" "should be made available to enhance the capacity of Kurdistan Regional Government security services and for security programs in Kurdistan." The House Appropriations Committee report ( H.Rept. 114-577 ) accompanying the committee's version of the Department of Defense Appropriations Act, 2017 ( H.R. 5293 ), strongly encourages the Secretary of Defense to "consider the use of all available authorities and funding to build the capacity of the KRG" against the Islamic State. The FY2017 NDAA ( S. 2943 ) enacted in late 2016 extends the authorization to provide funding to peshmerga and other forces with a "national mission" through December 31, 2018. It also extends the authorization to use Foreign Military Financing (FMF)-Overseas Contingency Operations (OCO) funds for loans usable by Iraq for U.S. arms purchases, while adding the requirement that any loan notification submitted to Congress shall include "a detailed summary of the terms and conditions of such loan and an assessment of the extent to which use of the proposed loan proceeds would place special emphasis on the Kurdish Peshmerga, Sunni tribal security forces, or other local security forces, with a national security mission." The FY2017 NDAA conference report ( H.Rept. 114-840 ) explicitly identifies $50 million of the $969.5 million authorized for ITEF as allocated for peshmerga and Sunni tribal security forces in Iraq "for operations in Mosul." The Further Continuing and Security Assistance Appropriations Act, 2017 ( P.L. 114-254 ), enacted in December 2016, appropriated $289.5 million to ITEF as part of OCO funding to "support counter-terrorism operations." This appropriation followed a November 2016 Administration request for the same amount in ITEF/OCO funding for "conditions-based sustainment assistance to the Kurdish Peshmerga through the Government of Iraq, including stipends and other sustainment, training, and equipment." According to the request: This assistance is not only helping the Kurdish Peshmerga to continue the fight, but it is also responding to economic pressures faced by the Kurdistan Regional Government (KRG). Support to KRG and Peshmerga helps enable and assure their cooperation in, and contributions to, the continuing campaign against ISIL. If used for the peshmerga, this $289.5 million would presumably supplement the more than $400 million subject to the July 2016 MOU mentioned above. U.S. loan guarantees often complement or supplement other countries' capacity to borrow from other international actors. In Iraq's case, the International Monetary Fund (IMF) approved a three-year, $5.34 billion loan in July 2016, and KRG leaders have sought assurances that they will benefit from the credit being extended to the Iraqi national government. In August 2016, the Obama Administration requested that FY2017 continuing appropriations legislation include an authorization for a $1 billion sovereign loan guarantee to Iraq from amounts provided within the Economic Support Fund account. H.R. 2028 authorizes the use of FY2017 Economic Support Fund (ESF) money for loan guarantees to Iraq provided That the Secretary of State should obtain a commitment from the Government of Iraq that such government will make available the proceeds of such financing to regions and governorates, including the Kurdistan Region of Iraq, in a manner consistent with the principles of equitable share of national revenues contained in clause "Third" of Article 121 of the Constitution of Iraq: Provided further , That such funds shall be subject to prior consultation with, and the regular notification procedures of, the Committees on Appropriations, except that any such notification shall include a detailed summary of the terms and conditions of such financing and an assessment of the extent to which the proposed financing agreement between the Governments of the United States and Iraq supports the constitutional principles of equitable share of national revenues to regions and governorates, including the Kurdistan Region of Iraq. A FY2017 bill proposed by the House Appropriations Committee would require that "not less than 17 percent of the proceeds" of U.S. guaranteed lending benefit the KRG [Section 7041(c)(3)(A) of H.R. 5912 ]. The FY2017 NDAA conference report requires a joint Defense Department/State Department report on political and military strategies to defeat the Islamic State, including: (1) the military conditions that must be met for ISIL to be considered defeated; (2) the plan for achieving a political transition in Syria; (3) a plan for Iraqi political reform and reconciliation among ethnic groups and political parties; (4) an assessment of the required future size and structure of the Iraqi Security Forces, including irregular forces; and (5) a description of the roles and responsibilities of U.S. allies and partners and other countries in the region in establishing regional stability. The conference report also requires a Comptroller General's report assessing the "United States' and the Government of Iraq's capacities to apply transparency and antifraud mechanisms, accounting and internal controls standards, and other financial management and accountability measures to transfers of cash and other forms of assistance provided to the Iraqi Security Forces, including irregular forces, and other recipients through the Iraq Train and Equip Fund." As the offensive against IS in Mosul proceeds, Defense Department officials state that Kurdish forces are closely involved in military operations surrounding the city. However, according to the Defense Department, as various anti-IS forces coordinate their actions, ISF and local Sunni tribal fighters are expected to take a larger combat and post-conflict security role in Mosul itself than Kurdish forces (or Shia militias), based on factors including: U.S. and Iraqi central government interests in minimizing Kurdish-Arab tensions in Mosul and Kurdish political control over ethnically mixed areas, given concerns about (1) Iraqi political unity and (2) human rights practices in areas currently under Kurdish control. For example, the peshmerga's seizure in June 2014 of most of the disputed province of Kirkuk as the Islamic State overran Mosul complicated ISF-peshmerga cooperation. Apparent Kurdish interests in maintaining control over the largely Kurdish-populated territory they already hold rather than taking military risks in areas largely populated by Sunni Arabs and other non-Kurds. Improvement in non-Kurdish forces' capabilities via training, resources, experience, and U.S. air and ground support. The operations around Mosul have featured an unprecedented level of cooperation between the ISF and peshmerga, including the KRG's willingness to allow the ISF use of and passage through Kurdish-controlled areas. However, as of December 2016, the KDP has steered the KRG to reject a 2017 budget approved by Iraq's parliament and other Kurdish factions that would condition delivery of the KRG's share of the national budget on limits to the KRG's autonomy over oil resources it controls. In November, the Iraqi parliament voted to have the Shia-majority Popular Mobilization Forces (PMF) become part of Iraq's military. Since 2015, about 500 Turkish military personnel based northeast of Mosul near Bashiqa have been training Turkmen, Kurds, and a predominantly Sunni Arab "National Mobilization Force" ( Hashd al Watani , recently renamed the "Ninewa Guard Force") affiliated with former Ninewa province governor Atheel al Nujaifi. Turkish officials assert that a considerable portion of the approximately 3,000 local fighters trained at Bashiqa are taking part in anti-IS operations in the vicinity of Mosul, along with Iraqi security forces and peshmerga. Some reports indicate that these fighters may receive artillery support from Turkey. Baghdad officials have protested to the United Nations Security Council that this Turkish military presence in Iraq is unauthorized. A public dispute between Turkish President Recep Tayyip Erdogan and Iraqi Prime Minister Hayder al Abadi over the Turkish presence and their role in forthcoming Mosul operations escalated in October 2016 after President Erdogan implied that only Sunnis should remain in Mosul after its recapture, and he refused to accept Iraqi government command of Turkish forces or Iraqi conditions on the participation of Turkish troops. Prime Minister Al Abadi has insisted that forces respect Iraqi sovereignty, and some hardline Iraqi Shia groups are describing the Turkish forces as occupiers and threatening to attack them. Turkey remains concerned about the presence and activity in northern Iraq of the PKK as well as the possibility of Iranian-supported Iraqi Shia groups increasing their influence in the area, which was separated from the Ottoman Empire (Turkey's predecessor state) under League of Nations arbitration after World War I. Shia PMF militias have advanced toward the outskirts of the city of Tal Afar, which was home to a mixed Sunni and Shia population of ethnic Turkmen prior to IS forces evicting Shia inhabitants in 2014. Turkey also deployed additional forces to the border crossing at Silopi and threatened to intervene if Shia PMF forces enter Tal Afar and harm its Sunni Turkmen inhabitants. The Turkish forces now at Bashiqa are based on territory controlled by KDP-affiliated peshmerga forces. On October 5, 2016, Vice President Joe Biden spoke with KDP leader/KRG President Barzani and "stressed the importance of ensuring that all military operations in Iraq respect Iraq's territorial integrity and sovereignty." On October 11, the State Department spokesperson repeated that formulation in a daily press briefing and said that "the situation in Bashiqa is a matter for the governments of Iraq and Turkey to resolve. What we support is continued dialogue between them that can lead to a speedy resolution of the matter." In November, Iraqi and Turkish officials exchanged views on a possible resolution to the dispute, with Iraq signaling its openness to the continuing Turkish presence if Iraqi sovereignty over the base is recognized and with Turkey suggesting it would consider withdrawing from the base if the area remains secure in the wake of the peshmerga recapture of the surrounding area. As continuing operations appear likely to drive IS fighters out of northern Iraq more broadly, Turkish officials have expressed concern about the possibility that forces from the PKK might gain greater control in and around areas such as Sinjar. Such heightened PKK control in these areas, or Turkish efforts (possibly taken in conjunction with the KDP) to counter PKK influence there, could further complicate cross-border dynamics that have implications both for the PKK's insurgency inside Turkey and for ongoing contention between Turkey and Syrian Kurdish groups with apparent PKK links (see " Turkey, the PKK, and the Syrian Kurds' Situation " below). According to one source, Iran's Islamic Revolutionary Guard Corps (IRGC) is providing support to the PKK in an effort to weaken Turkey and the KRG. In October 2015, the Administration shifted the focus of its Syria train-and-equip program away from forming new units and toward supporting approved leaders and units already fighting or poised to fight the Islamic State. Some forces from the YPG—estimated by various unofficial sources to range in number from 25,000 to 50,000 —then joined with non-Kurdish (mainly Sunni Arab, with some Christian and Turkmen) units to form an umbrella organization known as the Syrian Democratic Forces (SDF). Shortly thereafter, the U.S. military began airdropping weapons to elements within the SDF and working closely with it. In late 2015, approximately 50 U.S. Special Forces personnel reportedly were deployed in northern Syria primarily in an advisory capacity. In April 2016, President Obama authorized 250 additional U.S. forces, including special operations forces and medical and logistics personnel, to deploy to Syria. Additional forces have reportedly followed, and the President authorized 200 more special operations forces in December 2016. Some of the U.S. personnel interface with SDF units and may also recruit non-Kurdish fighters for these units. One analyst has claimed that anti-IS clans have joined the SDF largely because "the SDF is the single repository for U.S. weapons." In early 2016, reports surfaced that the United States was in the process of establishing or refurbishing two air bases in Kurdish-controlled areas in northern Syria. U.S. Central Command (CENTCOM) denied any suggestion of U.S. control over Syrian airfields, stating that U.S. forces were simply "looking for ways to increase efficiency for logistics and personnel recovery support." When addressing questions about the supply of U.S. arms and participation in military operations, U.S. officials generally emphasize the diverse composition of the SDF, even though the YPG reportedly maintains a predominant role in command decisions and key combat actions. Speaking at a public event in September 2016, General Joseph Dunford, USMC, Chairman of the Joint Chiefs of Staff, said that there are around 14,000 Arabs among the 30,000-strong SDF. The constituent elements of the SDF reportedly remain fluid, with various groups joining or leaving depending on changes in military or political realities. Most reports indicate that the YPG remains relatively lightly armed. Some observations suggest that the YPG's guerrilla-style battlefield tactics rely on significant operational flexibility and a high tempo based on the use of foot soldiers, snipers, machine guns, and self-produced mortars and explosives. Although a YPG official was cited in October 2015 as claiming that the YPG received a U.S. weapons airdrop and would share it with other SDF groups, Secretary Carter countered that the airdrop was delivered to Arab elements of the SDF. The U.S. military has subsequently made hundreds of subsequent resupply deliveries to Arab militias associated with the SDF, and some analysts consider such aid to essentially be for the YPG. A U.S. plan that has reportedly been considered to directly arm Syrian Kurdish groups would provide the YPG with small arms and ammunition, but no heavy (i.e., antitank or antiaircraft) weapons. Reports indicate that U.S. support for the SDF has been limited to small arms given Turkish officials' concerns that anti-tank missiles could be used against Turkey in the future. In September 22 Senate Armed Services Committee testimony, General Dunford agreed with the idea that arming and reinforcing Syrian Kurds could increase the effectiveness of the anti-IS effort and prospects of success in Raqqah. Weapons sources for the YPG presumably include black market purchases and caches seized from the Islamic State and other adversaries. Blogs and social media engaging in unsubstantiated speculation about other possible YPG arms sources reference Iraqi Kurdish groups and the Turkey-originated Kurdistan Workers' Party (PKK). The PKK is a U.S.-designated terrorist organization and foreign narcotics trafficker that is widely viewed as the PYD/YPG's parent organization (see " Turkey, the PKK, and the Syrian Kurds' Situation " below). Because the U.S. military lacks a state partner in Syria, the United States may be more dependent in Syria than in Iraq on Kurdish ground forces. The executive branch has struggled with how to calibrate support for the YPG on one hand and various other Syrian forces on the other. Consequently, a key U.S. objective appears to be to strengthen the YPG's non-Kurdish partners in the SDF so that they can (1) help capture IS-held territory in predominantly Sunni Arab areas, and (2) take primary responsibility for providing security to non-Kurdish populations after territory is taken. Turkey is the NATO country where many anti-IS coalition aircraft are based, and its leaders seek to have influence over outcomes and future order in border areas of the weakened Iraqi and Syrian states. Turkey equates the PYD/YPG with the PKK, and thus strongly opposes U.S. support for the PYD/YPG and is suspicious of support for the SDF. Increased PYD influence and territorial control in northern Syria may be partly fueling conflict in Turkey between the PKK and the Turkish military. The Obama Administration does not equate the PYD/YPG with the PKK as Turkey does. However, a number of sources point to evidence of close and continuing operational and personnel links between the PKK and PYD/YPG. One such source claims that although the PYD and PKK are officially independent, "in practice, Syrian Kurdish PKK cadres with years of service in Qandil (the organisation's northern Iraqi mountain base) [see Figure 1 ] dominate the YPG leadership and are the decision-makers within the self-proclaimed 'autonomous administration'" in Syria. This same source claims that U.S. support for the YPG has encouraged the broader PKK organization to pursue escalation in Turkey. The PKK and its affiliates apparently calculated—perhaps not recognizing that U.S. views would probably reject this calculation—that an upheaval undermining central authority in Turkey could "reshuffle the regional order in the Kurds' favour" without endangering PYD/YPG achievements in Syria. However, one analyst has asserted that the PYD has become distinct in some ways from its "PKK roots." Turkey's military became directly involved in a cross-border military operation in August 2016. The operation (codenamed "Euphrates Shield") features Turkish air and artillery support for Turkish tanks and for ground forces drawn from Syrian Arab and Turkmen units under the umbrella of Free Syrian Army (FSA) opposition to the Syrian regime. Some of these FSA-affiliated units have received external support from state actors seeking the removal of Bashar al Asad. Turkish officials have publicly explained that Euphrates Shield seeks to counter actors that Turkey considers to be terrorists, whether they are affiliated with the Islamic State or the PKK. Operation Euphrates Shield began less than two weeks after the SDF captured the town of Manbij from IS fighters, and one of the Turkish operation's main objectives is to prevent Kurdish fighters within YPG/SDF units from establishing an indefinite presence in Manbij or other areas within the contested territory between the Kurdish-controlled cantons of Afrin (in the west) and Kobane (in the east) (see Figure 2 ). After dislodging IS fighters from the town of Jarabulus and elsewhere along the border between the Kurdish cantons (in some cases via largely uncontested efforts) Turkish-supported forces have clashed with Kurdish-led units in the area, and Turkish airstrikes have targeted Kurdish-controlled positions. Turkey claims that these strikes have killed hundreds of YPG personnel. As of December 2016, Turkish-supported forces appear focused on obtaining control of Al Bab, a key transport hub that has been controlled since 2014 by the Islamic State and is coveted by all parties involved in the ongoing conflict in northern Syria. Turkish President Recep Tayyip Erdogan has said that subsequent Turkish-supported action in Manbij is possible. In August 2016, Vice President Biden called for all Kurdish fighters in Manbij to retreat east of the Euphrates River, and the OIR spokesperson said that this retreat had either occurred or was ongoing as of mid-November. However, Erdogan alleged in late November that PYD/YPG elements remained in Manbij. U.S. officials reportedly assess that Turkish-supported troop numbers might need to increase if Turkey expects to drive military or political outcomes in this area. U.S. forces have provided air, artillery, and special forces support to Turkish-supported forces in their operations against the Islamic State (with the joint effort dubbed "Operation Noble Lance" since September 2016), but U.S. officials have called upon the Turkish-supported forces and the Kurdish-led forces to refrain from fighting one another. The embedding of U.S. forces on both sides could be a way to keep communications open between the two and try to reduce the possibility of armed conflict. However, the OIR spokesperson stated in mid-November 2016 that U.S. forces were not providing airstrikes in support of Turkish operations focused on Al Bab, and that embedded U.S. forces had been decoupled from Turkish-supported forces when it began advancing on Al Bab. He said that Turkey was pursuing these operations "independently and what we'd like to do is continue to work with them to develop a plan where everyone remains focused on Daesh." Some media sources have speculated that the Syrian government (with Russian support) was behind a November 24 airstrike that killed four Turkish special forces personnel near Al Bab, indicating that a number of actors may be concerned about Turkish designs on that strategically important place. As the PYD has extended its de facto political control throughout areas controlled or seized by the YPG, it has sought greater public and international legitimacy. PYD leaders likely hope that the United States, Russia, and other key actors agree that an eventual Syrian political resolution will probably involve some degree of decentralization, as well as a role for the Kurds. The PYD has sought to participate in international talks regarding Syria's political future, but has been excluded to date based in part on objections from Turkey, which has insisted that other Syrian Kurds should participate. Turkey had hosted PYD leader Salih Muslim on multiple occasions prior to the resumption of Turkey-PKK violence in 2015. The PYD still faces some opposition from other Syrian Kurdish groups, and some human rights organizations (as discussed below) have questioned YPG compliance with international laws and norms in areas it controls. Some 2016 media reports have indicated that Syrian Kurds and a council they lead (including Arabs, Turkmen, and Christians) are considering declaring a federal region for the various ethnosectarian groups in areas under de facto PYD control. Along those lines, in September 2016 Syrian Kurdish authorities conducted a census among the population in areas under their control in preparation for eventual elections. In June 2016, one analyst wrote, "While some Syrian opposition groups have attacked the PYD for not doing enough to integrate Arabs, it has also been criticized by other Kurdish parties for doing too much." Although Syrian Kurds have instituted a measure of self-rule with regard to education, other basic services, and even their own representational offices in some foreign countries, they reportedly remain dependent on the Syrian government "to pay the majority of civil-servant salaries, issue high-school and college diplomas, and run the region's airport." Turkey and the KRG have generally closed their borders to goods from PYD-controlled areas of Syria. Beyond Turkey's clear objections to the influence that greater Syrian Kurdish autonomy might have on the aspirations of Turkey's Kurds, a Syrian Kurdish-led federal region would have implications for a number of other stakeholders in Syria's conflict. It could affect the military posture and political aspirations of Syria's government, the Islamic State, various other Sunni groups, and minorities. It could also influence the calculations of outside actors. In a March 17, 2016, daily press briefing, the State Department spokesperson stated U.S. opposition to "self-rule, self-autonomous zones," while expressing openness to a federal system if chosen by the Syrian people. At least one media report indicates that Russia has supported discussing the possibility of granting Syrian Kurds special status within the country, but that the Syrian government has rejected the idea. The Syrian government and the PYD/YPG have been relatively non-belligerent throughout Syria's civil conflict, and some sources have reported that the two have made occasional common cause. But the PYD/YPG has a historically grounded wariness of the Asad regime, and clashes between the two broke out in the city of Al Hasakeh in August 2016. Some reports indicate that the YPG had even received occasional military assistance from the regime, and that Russian forces in Syria had enabled some YPG military actions west of the Euphrates, particularly before Russia and Turkey improved their previously degraded relations (in relation to the Turkish downing of a Russian aircraft in November 2015) in June 2016. Shortly after the anti-IS offensive began against Mosul in October 2016, U.S. officials began publicly discussing imminent operations with partners against IS fighters in and around Raqqah. A November 2016 media report cited U.S. military officials as sketching out a three-phase plan: 1. Preparatory air strikes that have already taken place for months. 2. A campaign to isolate Raqqah from resupply. 3. The direct assault on Raqqah itself. Lt. Gen. Stephen Townsend, Commander Combined Joint Task Force (CJTF)-OIR, has expressed that operations focused on Raqqah are urgent largely because of the coalition's interest in preventing IS fighters (including those fleeing Mosul) from regrouping in Raqqah and carrying out potential external attacks. On November 6, an SDF spokesperson said that the SDF had begun its offensive to isolate Raqqah shortly after receiving a shipment of weapons and ammunition from the U.S.-led coalition. Brett McGurk, the Special Presidential Envoy to the Global Coalition to Counter ISIL, stated that U.S. Special Forces would assist as advisors in the operation (dubbed "Euphrates Rage"). In a November 10 Defense Department briefing, the OIR spokesperson indicated that U.S. forces in the region were providing air support to the SDF—including both YPG and Arab fighters (the Arabs within the SDF are sometimes known as the "Syrian Arab Coalition")—as part of the operations to isolate Raqqah. Operations within Raqqah itself are anticipated to follow, although U.S. military leaders have said that the isolation phase could take "months." One observer opined in late November that statements from U.S. officials hinting at impending operations may be influenced by pressure on these officials to "'accelerate' the fight against ISIS," but "shaping operations in the surrounding countryside will prolong for some time." The timeline may also be affected by the transition from the outgoing Obama Administration to the incoming Trump Administration, as well as the possibility that some of the resources the anti-IS coalition is using for Mosul may be needed for Raqqah. Responding to threats they face in Mosul and Raqqah, as of December 2016, some IS fighters are reportedly relocating to the Syrian province of Deir ez Zor near the Iraqi border. General Dunford's September 22 congressional testimony indicated that the United States has assisted anti-IS forces with planning, logistics, equipment, and training in preparation for a Raqqah operation. Reports based on official statements indicate that the 30,000 to 40,000 of SDF fighters expected to take part in the operations are made up roughly of two-thirds Syrian Kurds (YPG) and one-third Syrian Arabs. Questions remain about the composition of the forces that will be expected to actually seize Raqqah and provide for its post-conflict administration. By U.S. officials' accounts, Kurdish YPG elements of the SDF remain the most numerous and capable, and will feature prominently in the operation. However, General Dunford explicitly stated in his September 22 congressional testimony that Kurdish forces are "not intended to hold Raqqa." In the OIR spokesperson's November 3 briefing, he acknowledged that building up the Arab contingent of the SDF was of particular importance "because we do understand that Raqqah is primarily an Arab city. And … just like the Iraqis have done in Mosul, we do understand that there is a political dimension and a local acceptance dimension to this fight." U.S. military officials have indicated that they view the SDF's previous use of local forces as a model for future operations in and around Raqqah. According to Lt. Gen. Townsend, in various other areas of northern Syria—including the strategically positioned town of Manbij—the coalition and its partners had "recruited forces from the local area that were part of the assault force to liberate that area. And they form the core of the whole force that will stay." It is unclear to what extent local forces are able to secure these smaller areas in northern Syria without a residual YPG presence, and to what extent similar operations might be successful on a larger scale in Raqqah. U.S. officials acknowledge that recruitment, training, and actual operations involving newer local forces will be challenging and potentially time-consuming. Townsend has anticipated that most of the recruiting and basic combat training will be done by existing SDF forces, with the training likely taking place in areas of northern Syria somewhat removed from Raqqah. U.S. advisors would assist with "specialty courses, weapons, leadership courses." The OIR spokesperson, in his November 3 briefing, said that the time period for training is generally not very long, partly because many recruits will have had previous fighting experience. Turkey harbors deep concerns about the U.S.-led coalition's partnering with the SDF, including the YPG elements within it. Turkish President Erdogan and other Turkish officials insist that the coalition abandon its support for the YPG, and propose that Turkish-supported forces could participate with the United States in operations in and around Raqqah. Although Turkish-supported forces in Operation Euphrates Shield have achieved some successes, questions exist about Turkey's willingness and capability to shape political outcomes in Syria via military action and support. In a November 30 Defense Department briefing, the deputy commander of CJTF-OIR (a British major general) said that dialogue would continue with Turkey and other interested parties to "decide on what force is best placed to retake Raqqah." One analysis of different Raqqah operational scenarios indicates that the SDF may be better-positioned than Turkish-supported forces to prosecute the military campaign, but asserts that potentially wider territorial clashes between the two near the Turkish border could detract from anti-IS coalition objectives in Raqqah. It is also unclear to what extent Raqqah and its immediate vicinity is an area of priority for the YPG or Turkey, particularly in light of the ongoing rivalry between the two for Al Bab and Manbij. Direct Turkish involvement in and around the primarily Arab-populated Raqqah could raise concerns regarding ethnic sensitivities and local acceptance similar to those mentioned above regarding possible Kurdish involvement. While Kurdish groups in Iraq and Syria work with the U.S.-led coalition against the Islamic State, various humanitarian and human rights concerns have affected Kurdish-populated communities and the surrounding areas where Kurdish forces have been active. With the assault by U.S.-backed Iraqi forces in Mosul, the largest remaining stronghold of the Islamic State, concerns remain about the humanitarian impact of the operation, including evacuation plans and the protection and assistance of those who flee (or stay) and the possible influx of tens of thousands of internally displaced persons (IDPs) to areas under the control of the KRG. As a result of the conflicts in Iraq and Syria, significant population displacement has occurred and has affected, among other areas, those areas largely populated by Kurds. Certain Kurdish-controlled areas in both countries have become havens for refugees and IDPs. As of December 2016, in connection with various waves of fighting in Iraq since 2014, more than 1 million IDPs (the KRG claims the number is close to 1.8 million)—including Arabs, Kurds, Yezidis, Turkmen, and Assyrian Christians—have sought shelter in the Kurdistan Region of Iraq (KRI). Reportedly, IDPs constitute approximately one-sixth of the current population of the KRI, and in some areas nearly one-third are IDPs. Also as of December 2016, an estimated 225,500 Syrians, most of Kurdish origin, have fled to the KRI. Displaced persons in areas under Kurdish control comprise fewer than one-third of Iraq's total displaced population. Until late 2014, the KRG generally allowed displaced persons to enter and stay in the KRI. At that time, amid growing concerns about the financial implications of sheltering the displaced as their numbers swelled, the KRG imposed restrictions on those allowed to enter the KRI. In order to work, IDPs, refugees, and other foreigners are required to have a security clearance and work permit. Amnesty International also reports that many displaced persons have been denied access to safe areas by Iraqi and KRG authorities. The authorities justify their actions by reference to security concerns, but some observers contend that the measures taken have sectarian and discriminatory undertones. According to the State Department, this is a problem that has mainly impacted IDPs coming into the KRG from elsewhere, but it is unclear how many people may be affected. In discussions with relevant officials, the U.S. Embassy is urging that IDPs have freedom of movement. Although Syrian refugees in the KRI have not been compelled to live in camps, the majority have been sheltered in such facilities with the help of the U.N. High Commissioner for Refugees (UNHCR) and other humanitarian actors. The Ministry of Interior of the KRG is a key government partner. Approximately 30,000 refugees have opted to live in cities instead of camps. For IDPs, there has been less of a coordinated strategy on the provision of facilities and services. The KRG has said that it does not have the financial or technical assistance necessary to register and track all IDPs. IDPs are living in both camp and non-camp settings, with approximately half of these people located in Dohuk province. Some are hosted by communities and municipalities, while others live in rented accommodations or unfinished buildings. The Iraqi government and KRG are responding to the crisis by providing humanitarian aid and coordinating assistance through civil society, local communities, and international organizations. Government leadership of the humanitarian operation is reinforced by mechanisms set up to coordinate assistance: the Joint Coordination and Monitoring Center (JCMC) in Baghdad and the Joint Crisis Coordination Center in Erbil (JCCC). The KRG's ongoing fiscal crisis (see " Political and Budgetary Disputes " above) has been exacerbated by the region's significant population increase and accompanying costs and impacts. Humanitarian experts report that the absorption capacity of the host communities is reaching a critical threshold. Residents are competing with the displaced for jobs and resources, contributing to tensions within communities already struggling with poverty. In 2015, the World Bank and the KRG estimated that the KRG would need $1.4 billion in additional revenue to stabilize the economy. The KRG has requested additional international support, arguing that it has been generous to those fleeing their homes and promoted tolerance and inclusivity throughout the process. Despite these humanitarian response efforts and ISF and Kurdish military gains against the Islamic State, Iraqi civilians (including those living in the KRI) have generally not seen a corresponding improvement in their living situation. Ongoing fighting and the perceptions of danger and uncertainty it fuels continue to create significant displacement, which is difficult to monitor and track. In certain areas, including the KRI, insecurity has severely constrained local, national, and international humanitarian efforts to provide assistance (i.e., food, water, sanitation, health services) and protection to refugees, IDPs, and others affected by conflict. This is especially the case for those thought to be trapped in hard-to-reach areas or in close proximity to front lines. Basic government social services are limited. Health concerns and food insecurity contribute to the vulnerability of millions of civilians. Close to half of those displaced in Iraq are estimated to be children, making emergency education support a significant concern for various actors involved in the humanitarian response. Winter kits and other items like kerosene are also being provided in Dohuk, Erbil and Sulimaniyah, where UNHCR has reached more than 10,000 displaced families with cash assistance since October 2016. Cash assistance has been provided to almost 10,000 Syrian refugee families in those areas as well. As of mid-December 2016, with the Mosul military operation in its third month, more than 100,000 people had been displaced by fighting. Many experts predict that displacement numbers are likely to increase substantially, possibly to 1 million (or more) civilians requiring protection and assistance. The majority of newly displaced families are moving toward areas under the control of the Iraqi Government or the KRG. The Iraqi Government's Ministry of Migration and Displacement (MoMD), the JCCC, and humanitarian partners are working together to increase the capacity to host and support displaced civilians as cold weather sets in. Most of the displaced are being sheltered in UNHCR-supported camps in the area, of which there are six, with another three under construction, and one being planned. In accessible areas around Mosul, there are urgent needs of hundreds of thousands of vulnerable residents, many in areas newly retaken from the Islamic State. As many as 1 million are thought to remain out of reach of humanitarian assistance in Mosul city, with reports of water and food shortages. Trauma injuries have increased amid overall concerns regarding civilian protection. A High Advisory Team (HAT), which includes the Government of Iraq, KRG, militaries and the U.N. Humanitarian Coordinator, meets regularly on humanitarian issues, as do other humanitarian entities to coordinate the Mosul humanitarian response. In northeast Syria, more than 750,000 people—including IDPs and Iraqi refugees—are reportedly in need of assistance in Al Hasakeh governorate (roughly corresponding in location with what some Syrian Kurds regard as the "Jazirah canton" in the northeast part of the country). Iraqi refugees are living in two refugee camps as well as in villages. A Syrian Kurdish leader estimated in May 2016 that approximately 500,000 Syrian IDPs were sheltering in areas of northern Syria broadly controlled by Syrian Kurds. This leader claimed that various international and private organizations have provided some humanitarian assistance to the IDPs, but that such assistance—when available—is largely limited to basic subsistence. Escalations in fighting in conflict-affected areas have increased displacement, while closures of border crossings with Iraq could have a humanitarian impact. In December 2015, the United Nations, along with humanitarian partners, launched the Humanitarian Response Plan (HRP) 2016 for Iraq, which appealed for $861 million, of which $328 million (38%) was identified for the KRI. As of December 21, 2016, the overall Iraq appeal is 83% funded. Since FY2014, U.S. humanitarian assistance for the Iraq response through September 30, 2016, totals $1.1 billion. In addition, the July 2016 U.N. Mosul Flash Appeal seeks $284 million, and as of December 21, 2016, is 92% covered. The United States is the largest donor of humanitarian assistance to the Syria crisis. Since FY2012, it has allocated more than $5.9 billion to meet humanitarian needs using existing funding from global humanitarian accounts and some reprogrammed funding. In keeping with humanitarian principles, U.S. humanitarian assistance is needs-based and can be used countrywide (where access is possible) in Iraq and Syria (including in Kurdish-controlled areas) for the displaced, vulnerable host communities, and others affected by conflict. Therefore, while some assistance is being provided to populations in Kurdish-controlled areas of Iraq and Syria, a breakdown is not available. Protracted conflict and the flow of displaced persons appear to have exacerbated ethnic and sectarian tensions across Iraq and Syria. These developments have heightened international concerns about the vulnerability of civilians to endangerment, dispossession, or other forms of mistreatment or hardship, while also calling into question whether displaced persons will ever be able to return to their places of origin. The Islamic State has committed systematic and widespread violence, with many reported instances of mass executions, kidnappings, systematic rape and sexual violence, and torture. Some other actors—both government and non-state—may also engage in activities endangering or dispossessing civilians. In January 2016, in his report on the U.N. Assistance Mission in Iraq (UNAMI), U.N. Secretary-General Ban Ki-moon stated, "Regrettably, in areas retaken from ISIL, there have been reports of arbitrary arrests, killings, destruction of property, efforts to forcibly change demographic composition and retaliatory violence." Concerns about possible mistreatment by Iraqi and Syrian Kurdish authorities of non-Kurdish populations under their control—possibly even to the level of "war crimes"—have received international attention. A January 2016 Amnesty International report based on satellite photos, field investigations, and eyewitness and victim accounts alleged that KRG-affiliated fighters and other forces acting with their knowledge (YPG, PKK, Yezidi militias) not only displaced Arabs from areas in Iraq captured or recaptured from the Islamic State, and looted their possessions, but destroyed entire villages. A news release accompanying the report's publication stated: Though KRG officials have justified the displacement of Arab communities on grounds of security, it appears to be used to punish them for their perceived sympathies with IS, and to consolidate territorial gains in "disputed areas" which the KRG authorities have long claimed as rightfully theirs. This is part of a drive to reverse past abuses by the Saddam Hussein regime, which forcibly displaced Kurds and settled Arabs in these regions. A second Amnesty International report, Marked With An 'X' I raqi Kurdish Forces' Destruction of Villages, Homes in Conflict with ISIS (November 2016) examines further the conduct of KRG security forces in locations where they have defeated the Islamic State. The report finds a pattern of apparently unlawful demolitions of buildings and homes, and in many cases entire villages, between September 2014 and May 2016, with claims that mostly Arab homes were destroyed. Following the release of the earlier report, KRG authorities subsequently conducted an investigation and reportedly asserted that much of the destruction documented in that report resulted from the U.S.-led coalition's employment of bombs, mortars, and artillery fire against IS positions, as well as from the peshmerga's detonation of IS-planted improvised explosive devices. Additionally, in areas under PYD control in Syria, human rights groups have documented reports of YPG abuses against the PYD's Kurdish political rivals, and of forced displacement of Sunni Arab residents. The possibility of systematic human rights abuses by Kurdish groups could greatly complicate the U.S.-led coalition's heavy reliance on these groups to secure territory in areas of mixed ethnic and sectarian population. It also raises questions about whether and how the coalition's strategic priorities in Iraq and Syria might come into conflict with Kurdish groups' apparent objectives to (1) maximize their control over territory and resources they claim and (2) significantly weaken non-Kurdish groups in their vicinity that are seen as posing potential threats. Some Members of Congress have considered the following issues in assessing policy options related to U.S. support for Kurdish groups fighting the Islamic State organization in Iraq and Syria: Risks that that U.S. equipment provided to Kurdish groups could fall under the control of the Islamic State or other actors actively working against U.S. regional goals. Means for better providing U.S. and international humanitarian assistance to support the needs of displaced persons in the Kurdish-controlled areas of Iraq and Syria. The extent to which the United States can influence the decisions of various Kurdish groups and the extent to which Kurdish decisions may reshape the strategic context in which the United States is pursuing its own goals. The nature of the PYD/YPG's apparent links with the PKK, and related Turkish concerns. Other actors' relationships with various Kurdish groups, including the Syrian and Iraqi governments, Russia, and Iran. Questions reflected in legislative and executive policy discussions as of late 2016 include: What roles should Kurdish ground forces in Iraq and Syria play in U.S.-supported operations, particularly those to take IS strongholds such as Mosul and Raqqah, and in post-conflict administration? To what extent should Congress authorize (or require) the Administration to provide arms or assistance directly to the KRG, the YPG, or forces affiliated with them? To what extent, if at all, should caps or conditions (such as those related to central government approvals, end-use monitoring, human rights practices, or good governance) be placed on arms shipments or assistance? How might other U.S. partners and adversaries view such assistance and respond? How might various types of U.S. military and political support for specific Kurdish or Kurdish-led groups affect (1) prospects for political cooperation or resolution among Kurds and between different ethnic, sectarian, and ideological groups in Iraq and Syria, (2) regional security, and (3) long-term U.S. commitments? What alternatives exist to continued cooperation with Kurdish forces to achieve stated U.S. objectives in the conflict? How should U.S. assistance to Kurdish forces evolve as U.S. objectives for defeating the Islamic State group are achieved? As anti-IS operations continue, U.S. officials appear inclined to embrace the capabilities of various Kurdish ground forces in Iraq and Syria. At the same time, U.S. officials seem to focus on addressing and resolving limitations or complications that may arise from U.S.-Kurdish partnerships. For example, officials may be seeking to leverage and augment the Kurds' military successes by empowering non-Kurdish forces that may be more able to command political legitimacy among local populations in predominantly Sunni Arab areas such as Mosul and Raqqah. U.S. officials may also be looking to minimize disruptions in U.S. relations with other partners—such as the Iraqi and Turkish governments. The future of the U.S.-Kurdish partnership beyond current anti-IS cooperation is unclear and could largely depend on how the current cooperation and its outcomes unfold. Might the present joint efforts translate into a longer-term partnership in a region riven by chronic instability, ethnosectarian tension, and weapons proliferation? Policymakers might conclude that greater U.S.-Kurdish closeness could promote greater stability and political resolution due to some Kurdish groups' active support for U.S. operations in recent decades; general embrace of secular political leadership; and relative prosperity amid the complexities and tribulations of their surroundings. Alternatively, policymakers might conclude that greater U.S.-Kurdish closeness could work against stability in the region due to some Kurdish groups' possible efforts to maximize their influence, wealth, power, and status (potentially including attempts to gain independence or more autonomy) at the expense of non-Kurdish actors; treatment of civilians in areas over which they have recently gained control; and political disputes among themselves, both inside and across national borders. Ultimately, U.S. policy on this question may depend on a number of factors. These include the degree to which the United States is willing to maintain or undertake long-term political or military commitments in the region, and Kurdish groups' value as partners—relative to other state and non-state actors—in contributing to U.S. objectives in that context. | Since 2014, the United States and members of a coalition it leads have partnered with a politically diverse set of Kurdish groups to combat the Islamic State organization (IS, also known as ISIS/ISIL or by the Arabic acronym Da'esh). For background information on these groups and their relationships in the region, see CRS In Focus IF10350, The Kurds in Iraq, Turkey, Syria, and Iran, by [author name scrubbed] and [author name scrubbed]. The capabilities of various Kurdish ground forces have advanced some U.S. objectives in connection with ongoing anti-IS operations. At the same time, as these operations increasingly focus on predominantly Sunni Arab areas such as Mosul, Iraq, and Raqqah, Syria, U.S. officials are encouraging Kurdish forces to support and empower the combat and post-conflict administration profile of non-Kurdish forces that may have greater ethnic and political legitimacy with local populations. U.S. officials also seek to avoid having U.S. cooperation with Kurds significantly disrupt U.S. relations with other partners, including the Iraqi central government and NATO ally Turkey in light of those partners' respective concerns and operations on the ground in Iraq and northern Syria. Legal authorities enacted by Congress and the President permit the Administration to provide some arms and some Iraq/Syria anti-IS-related funding to Kurdish groups under certain conditions. In April 2016, the Defense Department announced that it would provide more than $400 million in assistance to pay and otherwise sustain Iraqi Kurdish fighters as part of an ongoing partnership that delivers U.S. assistance to Iraqi Kurds with the consent of the Iraqi national government. Some Members of Congress proposed legislation in the 114th Congress that would have extended or expanded U.S. cooperation with Kurdish groups under certain conditions. This report examines: the roles played by Iraqi Kurdish groups affiliated with the Kurdistan Regional Government (KRG) and by the Syrian Kurdish Democratic Union Party (PYD)/People's Protection Units (YPG) in U.S. and coalition efforts to defeat the Islamic State; interactions Iraqi and Syrian Kurds have with other actors; benefits and challenges the Kurdish role presents for U.S. interests in the region; the outlook for military operations (such as against Mosul in Iraq and Raqqah in Syria) and political outcomes; humanitarian concerns regarding displaced persons in Kurdish-controlled areas, and human rights concerns regarding Kurdish forces' treatment of civilians in areas they capture; specific U.S. policy questions regarding current and future U.S.-Kurdish cooperation; and the broader trajectory of the U.S.-Kurdish partnership. U.S. military trainers and advisors have been based in KRG-controlled areas (along with other areas in Iraq) since 2014. The U.S. government has acknowledged that these advisors have periodically engaged in direct action missions in both Iraq and Syria. Since late 2015, U.S. officials have announced additional "advise and assist" deployments in Iraq and Syria. |
"Sequestration" is a process of automatic, largely across-the-board spending reductions under which budgetary resources are permanently canceled to enforce certain budget policy goals. It was first authorized by the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA; Title II of P.L. 99-177 , commonly known as the Gramm-Rudman-Hollings Act). Currently, sequestration is being used as an enforcement tool under the Budget Control Act of 2011 (BCA; P.L. 112-25 ). Because Congress failed to act by January 15, 2012, to reduce the deficit by at least $1.2 trillion, a series of automatic spending reductions has been triggered. The reductions take the form of the sequestration of mandatory spending in each of FY2013-FY2021, a one-year sequestration of discretionary spending for FY2013, and lower discretionary spending limits for each of FY2014-FY2021. Certain federal programs are exempt from sequestration, and special rules govern the effects of sequestration on other programs. Most of these provisions are found in Sections 255 and 256 of BBEDCA, as amended. Sequestration, required by the BCA ( P.L. 112-25 ) and first implemented on March 1, 2013 (delayed by P.L. 112-240 ), affects some but not all types of unemployment insurance (UI) benefits. Benefits from the regular Unemployment Compensation (UC), Unemployment Compensation for Ex-Servicemembers (UCX), and Unemployment Compensation for Federal Employees (UCFE) programs are exempt and not subject to the sequester reductions. Extended Benefits (EB) and the temporary, now-expired Emergency Unemployment Compensation (EUC08)—as well as most forms of UI administrative funding—are not exempt from the sequester, however, and, therefore, are subject to the sequester reductions. The U.S. Department of Labor (DOL) has released details on how the UI BCA sequester reductions should be implemented. This DOL guidance outlines how states, which administer UI benefits, must reduce all EB and EUC08 benefits, when that program was authorized. For FY2015, the sequester order requires a 7.3% reduction in all nonexempt nondefense mandatory expenditures, including EB benefits. Since authorization for EUC08 benefits expired at the end of 2013, EB benefits are the only type of UI benefit subject to the FY2015 sequester. As of the week of January 18, 2015, however, no EB benefits have been available in any state in FY2015 thus far. The U.S. DOL has announced that any EB benefit payments in FY2015 must be reduced by 7.3% for weeks of unemployment beginning on October 4, 2014, through September 26, 2015. This reduction only applies to the federal share of EB benefits, which is 50% (states finance the other 50% of EB benefits). States generally would be responsible for paying the amount of the EB benefit subject to sequester (i.e., making up the 7.3% reduction in FY2015). However, under federal law, a state may choose to reduce EB benefits by the amount sequestered if the state changes its state unemployment law and the reduction is equivalent to the sequester reduction. The Office of Management and Budget's (OMB's) sequester order for FY2014 required a 7.2% reduction in all nonexempt nondefense mandatory expenditures, including EB and EUC08 benefits. Authorization for the EUC08 program ended the week ending on or before January 1, 2014 (i.e., December 28, 2013; or December 29, 2013, in New York State). EB benefits were not available in any state in FY2014. The U.S. DOL announced that EUC08 benefit payments were to be reduced by 7.2% for benefits paid for weeks of unemployment beginning on October 6, 2013, and ending December 28, 2013. According to its guidance, the U.S. DOL worked with states individually to assist them in administering the FY2014 sequester of EUC08: Due to the extraordinary programming challenges states experienced during sequestration implementation for FY 2013, and the additional challenges presented by the further changes necessary for sequestration implementation for FY 2014, the Department has reached out to states with various options that may be used in order to achieve the required FY 2014 sequestration savings. Letters have been sent to each state approving the implementation strategy agreed upon by the Department and the states in advance of further specific guidance in this UIPL [Unemployment Insurance Program Letter.] Although no EB benefits were paid in FY2014, any EB benefits would have been reduced by 7.2% for any benefits paid for weeks of unemployment beginning on October 6, 2013, and ending September 27, 2014. Only the federal share of EB benefit costs were subject to the sequester. The temporary 100% federal financing of EB benefits ended on December 31, 2013. After December 31, 2013, the federal share of EB benefit costs returned to 50% (and states finance 50% of EB benefits). States generally would have been responsible for paying the amount of the EB benefit subject to sequester (i.e., making up the 7.2% reduction). However, under federal law, a state may reduce EB benefits by the amount sequestered if the state changes its state unemployment law and the reduction is equivalent to the sequester reduction. Table 1 provides the sequestration percentages that were applied to nonexempt UI benefits in FY2013 (October 1, 2012, through September 30, 2013). Actual UI payment reductions began to be implemented by states the week beginning March 31, 2013. No EB or EUC08 benefits already paid to individuals were recovered to satisfy the sequestration reductions. OMB's BCA sequester order required a 5.1% reduction for all nonexempt nondefense mandatory expenditures for FY2013. Thus, according to DOL guidance, EUC08 and EB payments were required to be reduced by 10.7% for benefits paid for weeks of unemployment beginning on March 31, 2013, in order to meet the 5.1% reduction target for FY2013. Higher percentage reductions in EB and EUC08 benefits were associated with later dates of state implementation of the UI sequester. Table 1 provides the schedule of benefit reductions for FY2013 for states that implemented the reductions later than March 31, 2013. As of the effective date of the implementation of the FY2013 sequester, only Alaska was in a payable EB period in FY2013; and that EB period ended on May 4, 2013. Alaska began implementing its FY2013 sequester cuts on May 19, 2013, which was after the last payable EB period in Alaska ended. Therefore, in FY2013, states were responsible for implementing the sequester of EUC08 benefits only. According to the National Association of State Workforce Agencies (NASWA), of the 52 states and territories that responded to a survey in June 2013, 19 states implemented FY2013 sequester cuts of 10.7% on March 31, 2013; 9 states implemented cuts by April 30, 2013; 14 states implemented cuts by May 31, 2013; 8 states planned to implement cuts by June 30, 2013; and 1 state planned to implement cuts by August 31, 2013. In addition, NASWA reported that North Carolina did not plan to implement the sequester reduction for FY2013 since the EUC08 program in that state no longer met the federal requirements to offer EUC08 to its workers as of July 2013. Not all states implemented the sequestration reductions uniformly across all EUC08 beneficiaries in FY2013. Several states were unable to implement the preferred method of reduction as outlined by the U.S. DOL. Among these states, there were three alternative methods used in FY2013: (1) paused-week, (2) grandfathering, and (3) reduction of weeks within a tier. 1. Paused-Week : States scheduled two-three weeks during which no EUC08 benefits were paid. The remaining weeks of EUC08 were still paid. For example, South Carolina did not pay EUC08 benefits for the weeks ending on May 18, July 13, and August 31, 2013. 2. Grandfathering : The sequester cuts applied only to claimants entering a new EUC08 tier. For example, in California the 17.69% cut did not impact anyone collecting EUC08 on an existing tier filed with an effective date before April 28, 2013. Instead, the sequester reduction was implemented when an individual finished a current tier and became eligible to receive benefits on the next EUC08 tier filed with an effective date of April 28, 2013, or after. 3. Reduction of Weeks in EUC08 Tiers : The state reduced the number of weeks available in each tier of EUC08, but did not reduce the weekly benefit paid. For example, Maine opted to stop paying the last eight weeks of tier III EUC08 benefits, leaving one remaining week available. For more specific information on state implementation of the UI sequester, links to state workforce agency websites are available through the U.S. Department of Labor's America's Service Locator at http://www.servicelocator.org/OWSLinks.asp . There has been no relevant legislation introduced in the 114 th Congress as of the date of this publication. In the 113 th Congress, H.R. 2177 , the Unemployment Restoration Act, would have made both EB and EUC08 exempt from sequestration. This exemption would have been retroactive and would have continued through FY2021. Any reduction of UI payments made because of the sequester would have been paid back retroactively. Due to the required reductions in agency spending under the sequester, federal agencies may furlough some or all of their employees for a period of time. The Office of Personnel Management (OPM) states: An administrative furlough is a planned event by an agency which is designed to absorb reductions necessitated by downsizing, reduced funding, lack of work, or any budget situation other than a lapse in appropriations. Furloughs that would potentially result from sequestration would generally be considered administrative furloughs. In the event of a furlough, federal employees may become eligible for UI benefits through the Unemployment Compensation for Federal Employees (UCFE) program. Under federal law, UCFE provides income support for laid-off or furloughed federal employees in the same way as under the UC program for other types of workers. Eligibility—as well as benefit levels and the waiting period for benefits—under UCFE are determined according to the state laws of the UC program in the state where the federal employee's official duty station was located. As with UC, separated federal employees, including furloughed employees, must have earned a certain amount of wages or have worked for a certain period of time (or both) within the previous 12-18 months to be monetarily eligible to receive any UI benefits (although methods that states use to determine this eligibility vary greatly). Thus, whether or not a furloughed federal employee may be eligible for UCFE will depend on relevant state UC laws. In particular, two key state law issues factor into this type of UCFE eligibility decision: (1) the state definition of "partial unemployment" and (2) whether or not there is a "waiting week" required under state law. First, because UI benefits are designed to provide temporary income support to the involuntarily unemployed , a furloughed federal employee must meet the relevant state definition of unemployment. The UI system permits benefit receipt in certain circumstance of reduced work hours or short-term reemployment—primarily in order not to discourage work or reemployment. Therefore, each state has its own laws regarding how much work may be performed without making an individual ineligible for UI benefits, that is, partial unemployment. Under state laws, an individual is generally considered to be partially unemployed in any week with less than full-time work and with earnings of less than the weekly benefit amount, or the weekly benefit amount plus an allowance. For instance, in the District of Columbia, an individual is considered partially unemployed if he or she has earnings that are less than the individual's weekly benefit amount plus $20. Furloughed individuals must meet the state definition of partial unemployment in order to be potentially eligible for UC or UCFE benefits. Second, most states require that eligible individuals first serve a waiting week before receiving any UI benefits. For instance, the District of Columbia and Virginia have a waiting week requirement of one week. Maryland has no waiting week requirement. In states with a waiting week requirement, an individual's furlough days would need to be spread out across more than one week of unemployment. That is, an individual would need to meet the state's definition of unemployment—including partial unemployment—in more than one week (i.e., the waiting week plus an additional week) in order to be eligible for UI benefits. For additional guidance on furloughed federal employees and UCFE, see U.S. DOL, "Information for Furloughed Federal Workers," available at http://www.dol.gov/sequestration/ui-federalemployees.htm ; and OPM, "Guidance for Administrative Furloughs," June 10, 2013, p. 18 (H.1.), available at http://www.opm.gov/policy-data-oversight/pay-leave/furlough-guidance/guidance-for-administrative-furloughs.pdf . | "Sequestration" refers to a process of automatic, largely across-the-board spending reductions under which budgetary resources are permanently canceled to enforce certain budget policy goals. Most recently, sequestration was triggered by the Budget Control Act of 2011 (BCA; P.L. 112-25) and first implemented on March 1, 2013 (delayed by P.L. 112-240). Some, but not all, types of unemployment insurance (UI) benefits are subject to reductions under the BCA sequester. Regular Unemployment Compensation (UC), Unemployment Compensation for Ex-Servicemembers (UCX), and Unemployment Compensation for Federal Employees (UCFE) benefits are specifically exempt from the sequester reductions. UI payments from the Extended Benefit (EB) and now-expired Emergency Unemployment Compensation (EUC08) programs, however, are subject to the sequester reductions. States administer all types of UI benefits. Therefore, states are responsible for carrying out the sequester reduction in UI benefit payments. The amount and method by which a UI recipient's benefit is reduced varies by state and the date the reduction begins. This report provides brief answers to some frequently asked questions regarding sequestration and unemployment insurance benefits. Additional information on UI programs and benefits is available in CRS Report RL33362, Unemployment Insurance: Programs and Benefits, by [author name scrubbed] and [author name scrubbed]; and CRS Report R42444, Emergency Unemployment Compensation (EUC08): Status of Benefits Prior to Expiration, by [author name scrubbed] and [author name scrubbed]. Additional information on modifications to UI programs and benefits as a result of recent changes to state laws is available in CRS Report R41859, Unemployment Insurance: Consequences of Changes in State Unemployment Compensation Laws, by [author name scrubbed]. More general information on the sequester is available in CRS Report R42050, Budget "Sequestration" and Selected Program Exemptions and Special Rules, coordinated by [author name scrubbed]. |
The Workforce Investment Act of 1998 (WIA; P.L. 105-220 ) is the primary federal program that supports workforce development. WIA includes four main titles: Title I—Workforce Investment Systems—provides job training and related services to unemployed or underemployed individuals. Title I programs, which are primarily administered through the Employment and Training Administration (ETA) of the U.S. Department of Labor (DOL), include three state formula grant programs, multiple national programs, Job Corps, and demonstration programs. In addition, Title I authorizes the establishment of a One-Stop delivery system through which state and local WIA training and employment activities are provided and through which certain partner programs must be coordinated; Title II—Adult Education and Literacy—provides education services to assist adults in improving their literacy and completing secondary education; Title III—Workforce Investment-Related Activities—amends the Wagner-Peyser Act of 1933 to integrate the U.S. Employment Service (ES), which provides job search and job matching assistance to unemployed individuals, into the One-Stop system established by WIA; and Title IV—Rehabilitation Act Amendments of 1998—amends the Rehabilitation Act of 1973, which provides employment-related services to individuals with disabilities. The authorizations for appropriations for most programs under the Workforce Investment Act (WIA) of 1998 ( P.L. 105-220 ) expired at the end of FY2003. Since that time, WIA programs have been funded through the annual appropriations process. In the 108 th and 109 th Congresses, bills to reauthorize WIA were passed in both the House and the Senate; however, no further action was taken. In the 112 th Congress, the Senate Committee on Health, Education, Labor, and Pensions (HELP) released discussion drafts in June 2011 of legislation to amend and reauthorize WIA. While markup of this legislation was scheduled, it was ultimately postponed indefinitely. No legislation has been introduced. The House Committee on Education and the Workforce, however, ordered reported H.R. 4297 —the Workforce Investment Improvement Act of 2012. This bill was introduced on March 29, 2012, by Representative Virginia Foxx of North Carolina, the chair of the Subcommittee on Higher Education and Workforce Training (for herself, Representative Howard P. "Buck" McKeon of California, and Representative Joseph Heck of Nevada). A legislative hearing on H.R. 4297 was held before the full Committee on Education and the Workforce on April 17, 2012. On June 7, 2012, the committee, after considering 23 amendments to H.R. 4297 , ordered the bill reported by a vote of 23 to 15. No further action was taken on H.R. 4297 in the 112 th Congress. In the 113 th Congress, the House Committee on Education and the Workforce has ordered reported H.R. 803 —the Supporting Knowledge and Investing in Lifelong Skills Act (SKILLS Act). This bill was introduced on February 25, 2013, by Representative Virginia Foxx of North Carolina, the chair of the Subcommittee on Higher Education and Workforce Training. A legislative hearing on H.R. 803 was held before the full Committee on Education and the Workforce on February 26, 2013. On March 6, 2013, the committee, after considering four amendments to H.R. 803 , ordered the bill reported by a vote of 23 to 0. No Democrats on the committee cast a vote on the measure, maintaining that they were not provided adequate input in the process. H.R. 803 was debated in the House of Representatives on March 15, 2013, and passed by a vote of 215-202. This report summarizes each of the WIA titles and highlights the major features of H.R. 803 pertaining to each title. The report also compares the proposed provisions of H.R. 803 to current law in the following tables: Table 1. Major Provisions of Title I. This table covers provisions governing the "workforce investment systems" that provide for, among other things, state formula grants, state and local planning procedures, and the establishment of the One-Stop delivery system. WIA established the One-Stop delivery system as a way to co-locate and coordinate the activities of multiple employment programs for adults, youth, and various targeted subpopulations. The delivery of these services occurs primarily through more than 3,000 career centers nationwide. Table 2. Major Provisions of Title II. This table covers provisions for adult education and literacy activities. Table 3. Major Provisions of Title III. This table covers changes to the Wagner-Peyser Act of 1933, which was also amended in Title III of WIA. Wagner-Peyser provides authorization for the Employment Service, which provides job matching and job search assistance for unemployed individuals. Table 4. Major Provisions of Title IV of WIA and Title V of H.R. 803 . This table addresses amendments to the Rehabilitation Act of 1973, in particular to the Vocational Rehabilitation and other employment-related provisions of that act, which authorizes various employment services for individuals with disabilities. Title I of the Workforce Investment Act—Workforce Investment Systems—authorizes the establishment of a One-Stop delivery system through which state and local WIA training and employment activities are provided and through which certain partner programs must be coordinated. Title I also authorizes funding for the three major state formula grant programs (Adult, Youth, and Dislocated Worker), Job Corps (a DOL-administered program for low-income youth), and several other national programs that are directed toward subpopulations with barriers to employment (e.g., Native Americans). H.R. 803 takes a fundamentally different approach from current law to the federal role in the delivery of workforce development services by consolidating multiple programs into a single block grant that is allocated to states by formula. At the same time, H.R. 803 maintains the existing One-Stop delivery system as the delivery mechanism for employment and training services. Below is a brief summary of the major provisions of H.R. 803 . This list is followed by a thematic comparison in Table 1 of current law and H.R. 803 . H.R. 803 repeals 24 programs, activities, and provisions in WIA Title I, the Wagner-Peyser Act, and related workforce development legislation. Major Title I programs that are repealed include Youth Activities, Native American programs, Migrant and Seasonal Farmworker programs, Reintegration of Ex-Offender programs, and YouthBuild. In addition, H.R. 803 modifies several other programs to increase coordination with the WIA system. For example, H.R. 803 specifies that certain refugee assistance programs in the Department of Health and Human Services (HHS) coordinate training services with WIA programs. As part of the elimination and consolidation of multiple programs, H.R. 803 combines funding from 19 programs to create a new, single Workforce Investment Fund (WIF). From the $6.25 billion in the WIF, the Secretary of Labor would set aside $31.2 million for technical assistance and evaluations, $62.5 million for Native American employment and training programs, $1.56 billion for Job Corps, and $218.6 million for national emergency/dislocated worker activities. From the remaining $4.37 billion, $11 million would be set aside for outlying areas and $4.26 billion would be allocated to states through a new four-factor formula consisting of measures of unemployment, civilian labor force, long-term unemployment, and youth poverty. For the first three years of authorization (FY2014-FY2016), H.R. 803 provides that states would receive 100% of the relative share of funding they received under the 19 programs whose funding is consolidated into the WIF. For the remaining years of authorization (through FY2020), states would receive no less than 90% of their previous year's relative share of funding. At the state level (i.e., after funds are allocated from DOL to the states), H.R. 803 requires that each state set aside up to 15% of the state allotment for various statewide activities, including rapid response, statewide grants for individuals with barriers to employment, and administrative costs. H.R. 803 changes the composition and majority requirements of both state and local Workforce Investment Boards (WIBs). Under current law, WIBs are required to have representatives from business, labor, government, and other organizations with workforce development experience, the majority of which must represent businesses. H.R. 803 would make business representatives the only required members of WIBs, and require that two-thirds of the WIB membership be comprised of business representatives. In addition, H.R. 803 requires that local WIBs reserve a percentage of funds to carry out training activities. Under current law, there is no required percentage to be spent on training. H.R. 803 expands the requirements for state and local plans to require that WIBs indicate how they will serve the employment and training needs of various subpopulations, including at-risk and out-of-school youth, disabled workers, ex-offenders, Native Americans, migrant and seasonal farmworkers, refugees and entrants, and veterans (including disabled and homeless veterans). In addition, H.R. 803 requires that state and local plans indicate strategies to develop or strengthen industry or sector partnerships. In addition to enhanced provisions for state and local plans, H.R. 803 expands the scope of existing options for State Unified Plans. H.R. 803 allows governors to propose additional consolidation of funds into the WIF. Specifically, governors may propose to consolidate some or all of the funds from programs dedicated to employment and training activities into the WIF, subject to the approval of the secretary with jurisdiction over the program under consideration for consolidation. For example, governors may propose to consolidate some or all of the funding dedicated to employment and training in the Temporary Assistance for Needy Families (TANF) grant into the WIF, subject to approval by the Secretary of HHS. H.R. 803 combines "core" and "intensive" services into a new single category of "work ready services." Under current law, an individual typically needs to move through core and intensive services before being considered for training (this is known as the "sequence of services" provision in WIA). Under H.R. 803 , however, an individual may be determined eligible for training after an interview, evaluation, assessment, or case management by a One-Stop operator or partner, but the individual need not have necessarily received work ready services. Under current law, there is a priority of service for low-income individuals when resources are limited at One-Stop centers. H.R. 803 eliminates this priority. H.R. 803 adds incumbent worker training as an allowable training activity at the local level. Currently, incumbent worker training is an allowable statewide activity but not an allowable local activity. Finally, H.R. 803 requires that each local area hire at least one "veteran employment specialist" to carry out employment and training activities for veterans in the local area. The bill specifies that the hiring preference for this specialist should be for a disabled or other veteran. The Adult Education and Family Literacy Act (AEFLA) is the primary federal legislation that supports basic education for out-of-school adults. Commonly called "adult education," the programs funded by AEFLA typically support educational services at the secondary level and below, as well as English language training. Almost all AEFLA funding is allotted to the states via formula grants. States are required to subgrant the large majority of their funds to local providers that deliver educational services. The SKILLS Act reauthorizes AEFLA from FY2014 through FY2020 and makes largely administrative changes to the existing program. It also changes the program's accountability measures to align with the standardized measures of the SKILLS Act. The SKILLS Act authorizes $606,294,933 per year for FY2014 through FY2020. This authorization level equals the FY2012 funding level. Under current law, approximately 5% of the AEFLA appropriation is set aside for national programs and incentive grants. The SKILLS Act reduces the set-aside to 2% for modified and streamlined National Activities. The SKILLS Act does not substantially modify the formula that distributes state grants or matching requirements. It also maintains the current requirements for the portions of each state grant that must be allotted to specified activities. To receive federal funds, each state must have an approved state plan. The SKILLS Act reduces the duration of each state's plan from five years to three years and permits a state's adult education plan to be part of a State Unified Plan (described in Title I). The SKILLS Act also increases the scope of each state's required plan in several ways, such as increasing the range of stakeholders (e.g., representatives from other social service programs and postsecondary education) that must be consulted in the formulation of the state plan. The SKILLS Act also updates language and makes minor changes to state and local activities. Most notably, it replaces considerations that states must make when awarding local grants with a group of "measurable goals" that local grantees must demonstrate. Title III of the Workforce Investment Act—Workforce Investment-Related Activities—makes amendments to the Wagner-Peyser Act of 1933 (29 U.S.C. 49 et seq. ), which authorizes the Employment Service (ES). The ES is the central component of most states' One-Stop delivery systems, as ES services are universally accessible to job seekers and employers and ES offices may not exist outside of the One-Stop delivery system. ES is one of the required partners in the One-Stop delivery system. Its central mission is to facilitate the match between individuals seeking work and employers seeking workers. It has been a central component of the workforce development system through WIA. Title III adds Section 15 ("Employment Statistics") to Wagner-Peyser, which requires the Secretary of Labor to develop, provide, and improve various types of labor market information. H.R. 803 repeals Sections 1-14, which authorize the Employment Service. Funding from the ES is consolidated into the new Workforce Investment Fund. The Rehabilitation Act, as amended, authorizes grants to support programs related to employment and independent living for individuals with disabilities. The programs it funds are generally administered by the Department of Education. In FY2012, nearly 90% of the funds appropriated under the Rehabilitation Act were for Vocational Rehabilitation (VR) state grants. The SKILLS Act authorizes the VR state grants program as well as other programs under the Rehabilitation Act from FY2014 through FY2020. The programs' performance indicators are also modified to align with the standardized metrics described in Title I. The VR grants to states program is mandatory spending. The SKILLS Act authorizes $3,121,712,000 per year for the VR State Grants program for FY2014 through FY2020. This authorization is equal to the FY2012 appropriation level. Funding for the VR State Grants program, however, is determined by a formula in the Rehabilitation Act that provides an inflationary increase each year. The SKILLS Act does not amend or repeal this formula. As such, the program's funding would be determined by this formula and not its authorization level. The SKILLS Act increases emphasis on transitional services to students with disabilities. Transitional services vary by student but can generally be understood as a coordinated set of services for an eligible individual between the ages of 16 and 21 to assist that individual in moving from school activities to post-school activities and employment. The SKILLS Act requires each state to set aside at least 10% of its VR state grant funds for transition services. The act also requires each state's VR plan to include strategies for serving the transition population as well as a description of how the VR services will coordinate with transition services provided under the Individuals with Disabilities Education Act (IDEA). In addition to the VR State Grants program, the SKILLS Act authorizes approximately $317 million per year for other grant programs that are administered by the Department of Education. These programs are authorized at their FY2012 funding levels for each year from FY2014 to FY2020; the authorization level is the same each year. The largest authorization among these programs is National Institute on Disability and Rehabilitation Research (NIDRR) grants, which is authorized at $109 million per year. The SKILLS Act also extends authorization through FY2020 for the National Council on Disability ($3.3 million per year) and the Access Board ($7.4 million per year). The SKILLS Act repeals four authorizations. The Supported Employment State Grants program ($29 million appropriation in FY2012) is repealed and its functions are absorbed by the VR state agencies. Three competitive grant programs (two of which were unfunded in FY2012) are also repealed. | The Workforce Investment Act of 1998 (WIA; P.L. 105-220) is the primary federal program that supports workforce development activities, including job search assistance, career development, and job training. WIA established the One-Stop delivery system as a way to co-locate and coordinate the activities of multiple employment programs for adults, youth, and various targeted subpopulations. The delivery of these services occurs primarily through more than 3,000 One-Stop career centers nationwide. The authorizations for appropriations for most programs under the WIA expired at the end of FY2003. Since that time, WIA programs have been funded through the annual appropriations process. In the 108th and 109th Congresses, bills to reauthorize WIA were passed in both the House and the Senate; however, no further action was taken. In the 112th Congress, the Senate Committee on Health, Education, Labor, and Pensions (HELP) released discussion drafts in June 2011 of legislation to amend and reauthorize WIA. While markup of this legislation was scheduled, it was ultimately postponed indefinitely. No legislation has been introduced. The House Committee on Education and the Workforce ordered reported H.R. 4297—the Workforce Investment Improvement Act of 2012, on June 7, 2012, by a vote of 23 to 15. This legislation would have amended and reauthorized WIA. No further action was taken on H.R. 4297 in the 112th Congress. In the 113th Congress, the House Committee on Education and the Workforce has ordered reported H.R. 803—the Supporting Knowledge and Investing in Lifelong Skills Act (SKILLS Act). This bill was introduced on February 25, 2013, by Representative Virginia Foxx of North Carolina, the chair of the Subcommittee on Higher Education and Workforce Training. A legislative hearing on H.R. 803 was held before the full Committee on Education and the Workforce on February 26, 2013. On March 6, 2013, the committee, after considering four amendments to H.R. 803, ordered the bill reported by a vote of 23 to 0. H.R. 803 was debated in the House of Representatives on March 15, 2013, and passed by a vote of 215-202. H.R. 803 would maintain the One-Stop delivery system established by WIA but would repeal numerous programs authorized by WIA and other federal legislation, and it would consolidate other programs into a new single funding source—the Workforce Investment Fund. Adult Education and Vocational Rehabilitation retain separate titles and funding in H.R. 803. This report first provides a brief introduction to the four main titles of WIA and then compares the proposed provisions of H.R. 803 to the current law provisions by each of the four titles. |
The National Telecommunications and Information Administration (NTIA), a part of the Department of Commerce, is the executive branch's principal advisory office on domestic and international telecommunications and information technology issues and policies. Among its objectives, it has a mandate to provide greater access for all Americans to telecommunications services; to provide support for U.S. attempts to open foreign telecommunications and information markets; to advise the Secretary of Commerce, the President, and Vice President and the executive branch in international telecommunications and information negotiations; to fund research grants for new technologies and their applications; and to assist non-profit organizations in converting to digital transmission in the 21 st century. Generally, congressional policymakers have supported the NTIA's mandate and objectives through the appropriations process. The recent history of the NTIA budget, FY2000-FY2007, is as follows (appropriations for FY2008 will be included once the final bill has been passed): It should be noted that in FY2001, the Clinton Administration requested additional funding for digitizing existing public broadcasting transmissions and construction of new public digital broadcasting facilities. While the final appropriations did not match the Clinton Administration's request of $423 million, it represented a substantial increase in NTIA's historical budget. Congress has generally maintained consistent funding for NTIA in its appropriations, regardless of the request. For FY2009 , the Bush Administration has proposed a continued reduction in the NTIA budget, primarily reflected in eliminating NTIA's program to construct and maintain public telecommunications facilities. The Administration also sees NTIA having a larger role in national emergency planning (see below). Until FY2004, the NTIA budget had three major components: salaries and expenses; information infrastructure grants programs; and public telecommunications facilities, planning and construction. However, the infrastructure grants program was eliminated in FY2005. In both FY2006 and FY2007, the Bush Administration requested ending funding for the public telecommunications facilities, planning and construction program. This portion of the NTIA budget includes funding to maintain ongoing programs for domestic and international policy development, federal spectrum and related research. For FY2009, the Bush Administration has requested $19.2 million. According to the Administration, this would sustain current efforts to provide basic research, analytical, and management topics of interest to the U.S. telecommunications and information sectors of the economy. Other administrative and policy responsibilities that fall to NTIA but are not separate program functions include domestic and international telecommunications policymaking. The NTIA advises the President, Vice President and Secretary of Commerce on international telecommunications treaties and represents U.S. positions and policies at international conferences, such as the World Radio Conference held by the International Telecommunication Union. The NTIA also advises the executive branch on ways to implement the 1996 Telecommunications Act ( P.L. 104-104 ), further competition in telecommunications and develop "technology neutral" telecommunications policies. At the same time, it has produced a series of reports on the "digital divide" in Americaâwho comprises this divide and what policies may help close the divide. The NTIA also is overseeing the transition of the management of the Internet domain name system to the private sector. Spectrum Policy. Among the many administrative functions that also fall under salaries and expenses is management of the U.S. spectrum for federal use. The Federal Communications Commission (FCC) has the primary role of managing the non-federal portion of the spectrum, which not only includes private sector use, but state and local government use of the spectrum as well. The NTIA also advises the President and executive branch on national spectrum policy, manages the federal portion of the spectrum for public safety use, and encourages policies that provide greater private sector use of existing broadcast spectrum. Domain Names. The Department of Commerce, through NTIA, maintains formal oversight over the International Corporation for Assigned Names and Numbers (ICANN), the private, non-profit corporation which serves as the technical coordinator of the domain name system. ICANN's authority is governed by a Memorandum of Understanding (MOU) with the Department of Commerce and NTIA. The MOU was intended to provide the transition of the management of the domain name system to the private sector, with the United States and other governments participating as minority stakeholders. The NTIA is currently the accredited U.S. government's representative to ICANN's Government Advisory Committee (GAC). Digital Transition. The third NTIA program that the Bush Administration has requested funding for comes out of the 2005 Deficit Reduction Act. That lawâand new NTIA programâcalled for the creation of a Digital Transition and Safety Public Fund, which offset receipts from the auction of licenses to use electromagnetic spectrum recovered from discontinued analog television signals. The Bush Administration began setting these reimbursable funds at $45 million in FY2007. The receipts would fund the following programmatic functions at NTIA: a digital-analog converter box program to assist consumers in meeting the 2009 deadline for receiving television broadcasts in digital format; public safety interoperable communications grants, which will be made to ensure that public safety agencies have a standardized format for sharing voice and data signals on the radio spectrum; New York City 9/11 digital transition funding, until the planned Freedom Tower is built; assistance to low-power television stations, for conversion from analog to digital transition; a national alert and tsunami warning program; and funding to enhance a national alert system as stated in the ENHANCE 911 Act of 2004. The PTFPC program in NTIA assists public broadcasting stations, state and local governments, Indian tribes, and non-profit organizations construct facilities to bring educational and cultural programs to the U.S. public using broadcast and non-broadcast telecommunications and information technologies. The program provides competitive grants to public broadcasting organizations to plan, buy and employ new broadcast equipment and services nationwide. The public broadcast system had a mandate to convert all of its television broadcasts to digital by May 31, 2003. The Corporation for Public Broadcasting has reported that most, but not all, of its public broadcast members have me that goal. For FY2009, the Bush Administration has requested zero funding, to close out existing digital construction and conversion projects and to end NTIA's role in this area. The Bush Administration is seeking to place all funding for construction of public broadcasting facilities and conversion of analog broadcast to digital in the federal funding for the Corporation for Public Broadcasting, so it can expedite digital conversion. In FY2005 , the Bush Administration requested the termination of NTIA's information infrastructure grants program, called the Technology Opportunity Program (TOP). Congress agreed with this request and eliminated funding for this program. TOP was a competitive, merit-based matching grant program that was started in FY1994 to provide emerging telecommunications and information technologies to grant recipients in new and innovative ways. The Bush Administration and Congress agreed that this program had successfully served its purpose of creating new pilot programs in areas not served or underserved by telecommunications and Internet technologies. While some policymakers have called for new funding for this program, no new legislation authorizing appropriations has been introduced to date. Policymakers continue to examine the proper role of NTIA in supporting its programs and policies, as well as the overall budget for NTIA to support its mission. According to some, the Telecommunications Act of 1996 set into law a de-regulatory environment that requires less, not more, federal direction of telecommunications and information technology use. The explosive growth of the Internet since the mid-1990s has reached nearly every part of America, and Internet access is virtually ubiquitous. Therefore, beyond budget issues, the role of NTIA has changed in some policy areas. Two important issues facing NTIA's administration of public telecommunications policy are domain name registration and use of spectrum. Regarding domain names, the expiration of the Department of Commerce/NTIA MOU with ICANN on September 30, 2006, has led to speculation over whether, and how, the MOU might be renewed. IT also has raised concerns over the extent to which (if at all) NTIA might ultimately relinquish control over ICANN and the domain name system. Second, some are concerned that NTIA is seeking to develop a larger and broader policy role in spectrum management as a result of losing funding in other program areas, such as the TOP program and perhaps eventually the PTFPC program. Because spectrum and its use is an important alternative to terrestrial communications transmission and reception, federal policy regarding its use and applications is an important national issue. Some question whether NTIA's evolving role in spectrum management is being fully coordinated with other federal institutions, such as that of the Federal Communications Commission. A second important issue is the role of NTIA in the auction and management of spectrum. The third NTIA program that is administered by NTIA but not directly funded by appropriated money comes out of the 2005 Deficit Reduction Act. That law ( P.L. 109-171 ) called for the creation of a Digital Transition and Safety Public Fund, which would provide funding for further use of the electromagnetic spectrum, by offsetting receipts received from the auction of licenses to use the older analog spectrum for other purposes. The initial auction was held on January 24, 2008. The receipts from the auction will fund the following programmatic functions at NTIA, perhaps the most notable (and receiving the most public attention) is a digital-analog converter box program to assist consumers in meeting the February 2009 deadline for receiving television broadcasts in digital format. Congress is watching this transition period, and NTIA's role in it, very closely. Concerns about changes in NTIA's mission and objectives also has been raised regarding the Bush Administration's elimination of funding for the TOP program and reducing funding for the PTFPC program. The Administration contends that the efforts of the former will be picked up by the private sector, and the latter by the Corporation for Public Broadcasting. Some still contend that it is not clear whether all of the possible areas of information infrastructure development have been saturated through the TOP program; or if not yet saturated, whether industry will find it profitable to provide the "last mile" of telecommunications and Internet connections in areas not yet served. For public telecommunications and facilities planning and construction, an issue may arise as to whether the Corporation for Public Broadcasting has the resources to administer a facilities construction program. The ultimate question may be whether this change will fundamentally affect the pace at which national broadcasting is converted to digital transmission. | For FY2009, the Bush Administration has proposed a budget of $19.2 million for NTIA, with this money going towards administrative functions. There would be no funding under another NTIA program, which supports public telecommunications facilities planning and construction. Under the FY2008 enacted appropriation ( P.L. 110-161 ) NTIA is funded at $36.3 million, which was $3.3 million below the FY2007 enacted and $17.7 million above the President's request. There are two major components to the NTIA appropriated budget (a third program, which is a revolving fund based on spectrum auctions, is discussed below). The first is Salaries and Expenses. For FY2008, the Bush Administration recommended $18.6 million; Congress approved $17.5 million for FY2008. In the past, a large part of this program has been for the management of various information and telecommunications policies both domestically and internationally. For the second NTIA component, the Public Telecommunications and Facilities Program (PTFPC), the Bush Administration has requested that this program's funding be eliminated, arguing that most of the construction and refurbishing of public telecommunications facilities has already been done, and that any remaining support that is needed should come from local public broadcasting entities. However, for FY2008, Congress disagreed, citing the ongoing need for upgrading of public broadcasting facilities, particularly as the deadline of converting all analog broadcasts to digital in 2009 approaches. For FY2008, Congress funded this program at $18.8 million. Under at third program, NTIA operates a revolving fund which uses offset receipts from the auction of licenses recovered from discontinued analog signals. An important part of this program is to fund a digital-analog converter box program to assist consumers in meeting the February 2009 deadline for receiving television broadcasts in digital format. |
China is in a new era of development and is at a crossroads with its economic development plans and its newly announced commitment to consolidate the minerals industry. China is the world's leading producer and consumer of many minerals and metals that are in high demand in the United States and China and upon which the United States is highly import dependent. China's current, 12 th Five-Year Plan (2011-2015) and successive five-year plans anticipate rapid urbanization, a rising middle class, and increased product manufacturing of high-value, high-quality goods and increased consumption. With China's potential economic growth and heavy U.S. reliance on imported raw materials, will adequate supplies of critical and strategic raw materials and metals be available to the U.S. economy from reliable suppliers? Is there a possibility of material shortfalls? If China uses more of its raw materials and metals for its own downstream manufacturing sector instead of exporting them, as well as competing for raw materials and metals from outside China, then there may be a cause for concern. Materials such as the platinum group metals (PGMs), niobium, tantalum, manganese, and cobalt are heavily imported by the United States and China. Most of the minerals and metals discussed in this report have been classified by the Department of Defense (DOD) as strategic minerals, while others are classified by the Department of Energy (DOE) as critical. Many of these materials are used in building defense systems while others are required for new energy technologies. Many Chinese leaders have acknowledged that double-digit economic growth is unsustainable. Over the next five years, China is planning a more sustainable growth rate in its gross domestic product (GDP) of about 7%-8% annually. New economic reforms that will generally lead to more market-based decision making are underway, according to China's Third Plenum. The slowing of China's economy and less construction has resulted in less demand, overcapacity, and lower prices for many raw materials, particularly steel and steel-making materials (e.g., iron ore, chromium, and manganese). The economic slowdown in China has implications for the global economy, particularly those countries and companies that export raw materials to China (e.g., Brazil, Australia, and South Africa). Because of weak domestic demand for steel and subsequent falling prices, Chinese steel producers are exporting more high-valued steel products to other parts of Asia. Prices in general could rebound once excess production capacity is eliminated and high-cost producers discontinue operations or are merged with large-scale operations. The mining industry in China consists of many small and fragmented companies. China's national government seeks to consolidate its mining industry, eliminating obsolete and inefficient capacity, and has announced specific consolidation goals for certain sectors. Chinese consolidation plans intend to address energy efficiency along with air and water pollution concerns. The Chinese government has closed some obsolete iron ore smelting plants and mines around Beijing because of their negative impact on air quality. It also has begun to implement longer-term plans to improve the quality of the environment. The mining and metals industry is generally seeking technology upgrades that are more efficient and less polluting. Eliminating excess capacity will be the mining sector's biggest challenge, said Gu Zangqin, Head of the China National Petroleum and Chemical Planning Institute. Gu argues that China's move to more urbanization, a growing middle class, and industrialization will likely continue to drive up demand for raw materials and consumer products in the long run. One vice president, however, argued that overcapacity is not the biggest challenge, but rather innovation and sustainability. He stated further that China's industrialization and urbanization will bring opportunities, but government and consumers should focus on sustainability of raw materials used in the entire supply chain. In a recent InvestorIntel article, Jack Lifton, a metals analyst, concurs with a good part of the analysis by Gu stated above. Lifton acknowledges that there is already significant raw material industry restructuring taking place now, and he concludes that more changes, that is, consolidations, are likely for the raw materials sector in the 13 th Five Year Plan. Lifton reports that in 2014, China consumed 60% of the world's metals supply of all types and that China consumes as much as 80% of the world supply of various high-tech metals (e.g., rare earth elements, yttrium). Lifton reiterated that China's push is to manufacture more of the high-value consumer goods (e.g., electronics, appliances, and autos) as well as the intermediate materials and parts that are required to make them. Under this consumption-driven model, domestic consumption of parts, intermediate goods, and finished goods would accelerate. Having access to raw materials needed to sustain the emerging phase of the Chinese economy is still most important and will "underpin the growth of the high-tech manufacturing economy so that Chinese domestic consumption can grow," according to Lifton. The quality of goods produced and sold in China is an important factor for the rising middle class and generally important for its more recent consumption-driven economic model. The Chinese government announced plans for a more aggressive approach in its "go global" campaign designed to secure raw materials. The government policy to "go global" was established in 1999 but was not fully implemented until around 2002-2003. It articulated three main objectives: (1) to support national exports and expand into international markets; (2) to push domestic firms to internationalize their activities as a means of acquiring advanced technologies; and (3) to invest in the acquisition of strategic resources. Concern by the Communist Party of China (CPC) over "resource security" has increased during the past few years, which led to more outbound direct investment (ODI) in the mining sector as a policy to secure access to raw materials. Even as China's economy slows, the Chinese are positioning themselves more aggressively through their "go global" policy and continue to secure access to raw materials needed for sustained economic development. In some instances, lower-cost imports may be cheaper than producing high-cost domestic materials. The official goal of China, and part of its "go global" strategy, according to the Ministry of Commerce, is to invest another $390 billion in ODI over the next five years. Outbound direct investment in mining projects reached $106 billion at the end of 2013, accounting for 16% of China's overall ODI, according to reports discussed in the China Daily . Most of China's resource imports are purchased from corporations not owned by the Chinese, but there are some equity investments in the raw materials and metals sectors. A recent study by the Council on Foreign Relations (CFR) concluded that China's demand for resources will not slow anytime soon. According to the authors of the CFR study, "Leaders will need to take steps to respond as the world is transformed by China's growing presence and pursuit of natural resources." Further, they argue, there is the possibility that "Chinese companies will control larger amounts of natural resource production overseas and possibly impose a more rigid trading arrangement, possibly slowing the world's response to supply disruptions." And because of the emergence of market-based investment decisions in China, and a consumption-driven economy, the next 20 years will very likely not look like the previous 20. Many on Capitol Hill express a deep sense of skepticism and are not convinced that China's leaders are taking sufficient measures to address economic reforms or quality of life issues such as environmental pollution. In recent years, primarily because of China's raw material export policies (e.g., export restrictions and new export licensing requirements on rare earth elements, particularly the HREEs) there has been heightened congressional and executive branch interest in seeking legislative options that would facilitate continued U.S. access to reliable mineral supplies. This report will examine China's position in the global mineral and metal markets; its growth in mineral reserves; the growth of supply, demand, and imports; and the role of China's state-owned enterprises (SOEs). The report takes a look at U.S. mineral import dependence, U.S. import dependence on China, and selected policy options. There are Appendices on mineral end-use applications, and selected critical minerals legislation in the 113 th Congress. China's reserves in several mineral commodities have grown significantly (see Table 1 ). Large-scale refining and production facilities of aluminum, tantalum, and cobalt have been installed over the past 20 years in China. Over the past 20 years, selected mineral reserves grew in China at a faster pace than world reserves and refining capacity. Chinese firms continue to explore for, and discover, minerals inside China. For example, the Hunan Geology and Mineral Exploration and Development Bureau announced discoveries of zinc, lead, copper, and silver in Hunan province in 2014. Major copper discoveries were made in both the Uygun and the Xizang Autonomous Regions. The Mining Engineering Annual Exploration Review indicates that China accounted for about 4% of the global exploration budget in 2013. This, however, is much lower than other countries such as Canada and Australia, accounting for about 13% and 14% of the global exploration budget respectively. In terms of spending for major exploration projects, Canada and Australia have the most active exploration sites (22% and 21% respectively). Over the last 10 years, most countries' total exploration budgets peaked in 2012 then dropped significantly in 2013. When it comes to new mining projects, Canada and Australia rank the highest with 400 each, the EU with 200, while China ranks fourth at 120. For economic development to be successful under China's policy to "go global," investments were made in China and abroad in both raw material exploration and production, metal refining, and smelting capacity. China's pace of economic growth has been aggressive; its supply of, and demand for, raw materials has grown faster than its overall economy over the past 20 years. There was a 20% annual average increase in the demand for copper, steel, and aluminum over this time period. Overall, imports for copper concentrate and iron ore increased by 300% and 500%, respectively. From 2005 to 2010, China accounted for more than 80% of the rise in global demand for metals and metal products. In order to support its rapid rise of urbanization, China produced 717 million metric tons (mt) of steel in 2013, up from 220 million mt in 2003, requiring record levels of domestic iron ore production and iron ore imports. According to 2012 U.S. Geological Survey (USGS) data, China ranked as the number one producer of several minerals and metals, including all those listed in Table 2 (except lithium and manganese). The USGS data show a rapid surge of production over the past 10 years in iron ore and copper, both of which China also heavily imports. China's copper production doubled while iron ore production increased five-fold since 2003. China's gains in production far outpaced the rest of the world. By 2003, China had already dominated in the production of cement, graphite, indium, magnesium compounds, magnesium metal, rare earth elements (REEs), silicon, tungsten, vanadium, and yttrium, but in 2012 China solidified its number one producing status of these minerals, producing more than 50% of the world's total. While there are no single monopoly producers in China, as a nation, China is a near-monopoly producer of rare earth elements (90%) and yttrium (99%). Many of these raw materials (e.g., manganese, molybdenum, and vanadium) are used for steel-making and infrastructure projects, such as roads, housing, rail lines, and electric power grids. Others (e.g., REEs, lithium, indium, tantalum, gallium, and germanium) are used in the manufacturing of high-value electronic products, such as cell phones, laptops, batteries, renewable energy systems, and of other goods, such as automobiles and appliances. (See Appendix A for more details on mineral applications.) Analyst L. Song describes China's current phase of development as the "mid-phase of industrialization," which is more mineral and energy-intensive than the previous labor-intensive phase. Mid-phase development is noted by the higher proportion of manufacturing and high share of heavy industries, such as high-end steel production, and automobile manufacturing. China is currently the leading automobile producer in the world. Production inputs, such as steel and aluminum, play a major role. However, the rapid surge in production is not likely to be repeated in the next 10 years, due to slower growth, but a continuing increase in production and imports of raw materials is still anticipated. During this anticipated slower growth period, major iron ore producers outside China have announced capacity expansions that are coming soon, while many small and old (high cost and low value) iron ore mines in China are being closed. China will likely continue to shut down high-cost, inefficient domestic production capacity. China's demand for natural resources rose to historic levels and will likely continue to rise over the long term. Because of China's expanding middle class, many believe that China is not even close to its market saturation point for consumer goods. Ongoing urbanization, that is the building of new mega-cities and the expansion of the high-tech industry, will drive demand for industrial metals, base metals, and also high-tech metals such as lithium, indium, tellurium, cobalt, and REEs. In order for this increasing demand scenario to play out, the cities would need to fill up with enough people who are making high enough wages to support the economic growth that China is seeking. It is uncertain whether such a high level of consumer demand will materialize. Table 3 highlights the surge in demand of aluminum, zinc, and copper from 2003 to 2010. China's demand more than doubled during that time period and nearly doubled as a percent of global demand. China has also been the fastest growing market for niobium and in 2010 accounted for 25% of world consumption. Manganese consumption rose from about 2,200 metric tons (mt) in 2003 to about 9,000 mt in 2008. China's demand for vanadium paralleled that of steel demand and rose 13% annually from 2003 to 2009. In general, vanadium demand is projected to double from 2010 to 2025 because of its continued use in steelmaking and because of the potential for application in new battery technology used for renewable energy storage (e.g., lithium-vanadium-phosphate batteries). In 2010, China accounted for 85% of chrome ore import demand and is currently the world's leading producer of stainless steel, for which chrome is a major production input. Chrome imports will likely continue to increase as stainless steel demand at the global level remains a big part of China's high-valued exports, urbanization, and future industrial practices. Current indium consumption data are not readily available, but China's consumption of indium nearly doubled in one year, from about 40 tons in 2009 to 75 tons in 2010, because of its increased use in electronics that contain LCDs and in LED lighting. It was reported in 2009 that China accounted for about 25% of the world's cobalt demand. Refined cobalt is used with lithium for cell phone batteries. Overall, in 2012, 67% of cobalt demand in China went into batteries. In 2010, China accounted for about 25% of platinum demand and 20% of palladium demand, much of which is used in catalytic converters in automobiles. China is also the world's leading importer of copper, iron ore, chromium, manganese, cobalt, tantalum, niobium, PGMs, and lithium. Over the past several years there has been some concern in Congress that China was trying to "lock up" long-term supplies of raw materials, particularly iron ore. Long-term contracts have been established for some imports, but for others, Chinese companies have made equity investments or entered joint ventures in order to secure needed resources. An article in China Daily reported that China's iron ore imports may rise from 900 million metric tons (mt) in 2014 and grow to 1 billion mt in 2015 because of consistently high steel production. China may have produced as much as 820 million mt of steel in 2014, including about 110 million mt for a growing export market in other parts of Asia. Rio Tinto (a U.K.-based mining firm) is reported to be expanding its iron ore capacity from 290 million mt to 360 million mt by June 2015 despite lower prices. China will likely continue to import high volumes of lower cost iron ore, replacing its higher cost, lower quality domestic production. China imports most of its iron ore from Australia and because of China's huge increase in demand in the past decade, prices rose from $12.81/mt in 2001 to $187.18/mt in 2011. China has a relatively small investment in Chile but it accounts for about 25% of Chile's exports in value—primarily copper. Table 4 shows the enormous increase in imports over the 10-year period 2003-2012. Mining is an area long dominated by European, North American (United States and Canada), and Australian multinational corporations. China is a relative newcomer to the global mining stage, but in recent years, under its "go global" policy, China has become much more aggressive in pursuing raw materials from all over the world. The Communist Party of China (CPC) has tremendous control over the nation's State-Owned Enterprises (SOEs). Top SOE officials are often appointed by the CPC and may also be appointed to top party posts. The SOEs typically align themselves with the five-year plan and national objectives, but as others see it, the objectives within China are changing and some SOEs are beginning to practice more market-based decision making. New economic reforms, articulated in the Third Plenum, would increase private shareholdings in the nation's SOEs. Over the past several decades, SOEs have been important in generating revenues for the CPC and the government. China's mineral and metal producing sector is heavily dominated by SOEs. There are still many small-scale operators organized at the provincial level. Some analysts suggest that the Central government edicts are not always heeded by the provincial officials as their concerns may be to meet revenue goals and provide local jobs, while the Central government is promoting larger scale, more efficient, and less polluting operations. This new national policy often requires that the smaller local SOEs be merged into a larger conglomerate. There are government policy guidelines supporting industrial mergers with the objective to reduce production and transportation costs, upgrade technology, and use energy more efficiently. The government encouraged SOEs to diversify their business practices and invest in non-core business areas (e.g., the Aluminum Corporation of China has invested in rare earth mining and processing). The National Development Reform Commission (NDRC) and the Ministry of Land and Resources approved a plan for 15 mineral commodities as part of the government policy guidelines for mergers and acquisitions. In that plan, small mines would be integrated into larger operations. The NDRC has the authority to approve all major investment projects to improve the efficiency of investment. The Chinese government has proposed that rare earth producers be merged into six firms: Boatang Group (Baotou Steel and Rare Earth), Chinalco (Chalco Rare Earth), Minmetals Rare Earth, Ganzho Group, Fujian, and Guandong Rising Non Ferrous Metals. Iron and steel consolidations would likely involve the large players such as the Baogang Group, Hebei Iron and Steel Group, Tangshan Iron and Steel, and the Ashan Iron and Steel Group. Chinalco is a dominant firm in the aluminum and alumina sectors. Other major players in aluminum include China Power and Investment Group and the Xinjiang Nongliushi Aluminum Company, Ltd. The Central government's position to restrict expansion of some mining operations is not always taken well at the provincial level, where production and revenue goals are major drivers. And to the detriment of smaller operations, since 2012, new government regulations spell out minimum levels of production capacity. For iron ore, it is 1 million metric tons annually; for specialty steel, it is 300,000 mt annually. The government's policy would restrict overall production capacity in energy-intensive industries such as aluminum, steel, and cement, and may require possible capacity reductions. However, many of the small SOEs have continued high levels of production to increase revenues. A new regulation for the iron and steel industry is that they cannot use obsolete technology and their energy and water uses per ton of production are regulated. A common critique of the SOEs is that they possess too much market power, and can thus determine prices and earn enormous profits. China can also create barriers to entry by deciding who gets access to capital from its state-owned banks. The number of SOEs is getting smaller, but the average size of the firms is getting larger and more powerful. Many of the state-owned firms fall under the State Owned Assets Supervisor and Administration Commission (SOASAC), which owns or has controlling shares in over 100 SOEs. There has been a corporatization of SOEs. This reform has reorganized SOEs into limited liability corporations (LLC) or joint-stock companies. State-owned, shareholding companies account for 60% of state firms and 70% of industrial output. China created the SOASAC with the idea to turn some of the SOEs into "national champions." In 2007, new industrial policies were created that provided large SOEs an advantage over their smaller domestic and foreign competitors. More SOEs are motivated by profit now, but still incentivized by state government actions through its "go global" policy. Many SOEs are taking equity positions (which are supported by national policies) in resource companies abroad. The CFR reports that 37% of Chinese mining companies involved in foreign projects are state-owned. In 2011, former PRC President Hu Jintao said, "In the next five years China will make great efforts to pursue the strategy to go global and we will encourage enterprises of different structures to invest overseas." China offers three types of assistance to foreign countries for doing business with China: grants, low-cost loans (interest free loans), and concessional loans. There is an ongoing strategy to invest in overseas mineral projects to protect against "resource bottlenecks." The Bank of China provided $70 billion in loans in 2011 for foreign mineral acquisition. Australia is the top destination for Chinese mining investment dollars—mostly for iron ore. Sub-Saharan Africa and Mongolia are getting Chinese attention. In one example of the government's "go global" strategy, the Jinchuan Group International Resources Co., an SOE and the largest cobalt producer in China, is a vertically integrated company that recently acquired Meet Reese of South Africa. This merger added significant reserves and resources to the company's portfolio. Chinese companies, particularly SOEs, are being scrutinized more by host countries (especially in developed countries), particularly in terms of corporate governance (basically, how these mining firms are carrying out their operations overseas). In a recent book, Markets over Mao , Nick Lardy suggests that there is little support for an increased role of the SOE and that the future will be market-driven with less state intervention. Lardy concluded that SOASAC firms did not perform better or keep up with China's growth in GDP and that size did not matter (e.g., the size of the merger and acquisition did not result in better financial performance). He also argues that the SOASAC model has not been very efficient nor was it good at producing national champions and "... the private firms have become the major source of economic growth.... " In a separate Wall Street Journal interview, Nick Lardy said, "China would get a big lift if they opened up certain sectors (e.g., oil and gas) to competition which are now dominated by SOEs." This prospect may be unlikely under the current Chinese leadership. The United States has increased its mineral imports from China over the past 20 years. The United States has diversified its sources for some of its material requirements since 1993, but still imports significant quantities and became more dependent on China as either a primary or major provider of raw materials and several metals by 2014 (See Table 5 ). Aside from a small amount of recycling, the United States is 100% import reliant on 19 minerals that provide critical support for the U.S. economy and national security (see Appendix C ). The United States is more than 75% import reliant on several other minerals, including cobalt, titanium concentrate, germanium, zinc, and the platinum group metals. While import reliance may be a cause for concern and high levels of import reliance potentially a security risk, high import reliance is not necessarily the best measure, or even a good measure, of supply risk. A more important measure may be the reliability of the suppliers. The supply risk for bauxite, for example, may not be the same as that for REEs due to the multiplicity of potential sources. There are a number of factors that affect the availability of mineral supplies that may have little to do with import reliance. A company that is the sole supplier, or a single country as a primary source, with export restrictions, would likely constitute supply risks. But any number of bottlenecks that might arise among both domestic and foreign producers, such as limited electric power, skilled labor shortages, equipment shortages, labor unrest, weather or transportation delays, and opposition on environmental policy grounds, could also pose supply risks. Any of these above-mentioned potential supply disruptions could raise costs or prices, and exacerbate the tightness of supplies. For other minerals, such as iron ore and molybdenum, the United States is self-sufficient. For refined aluminum, zinc, and uranium, the United States' chief trading partner is Canada, a stable ally. Also, U.S. companies have invested in overseas operations—for example, copper and bauxite mines—and, thus, U.S. supply sources for some materials are diversified, of higher quality, or lower cost, and located in countries that have extensive reserves and production capacity. A 2008 National Research Council (NRC) report on minerals critical to the U.S. economy states that "most critical minerals are both essential in use (difficult to substitute for) and prone to supply restrictions." The NRC report is based on several availability criteria (e.g., geological, technical, environmental and social, political, and economic) used to rank minerals for criticality. The NRC produced a criticality matrix which has been used as a framework for analysis to determine whether selected minerals are critical to the U.S. economy. Out of 11 minerals assessed, indium, manganese, niobium, PGMs, and REEs were ranked critical, and assessed at a high supply risk with the possibility of severe impacts if supplies were restricted. Among the REE applications, some were viewed as more important than others and some are at greater risk than others, namely the heavy rare earth elements (HREEs), as substitutes are unavailable or not as effective. MIT examined supply and demand of a list of minerals, which it deemed critical to renewable energy-related systems, electric vehicles, and automobiles in general (and required in many high-valued consumer products). The MIT study referred to these as energy critical elements (ECE). The list is meant to be illustrative and not definitive and includes germanium, indium, tellurium, REEs, yttrium, lithium, PGMs, and cobalt. A DOE report published in 2011 also examined materials important for wind turbines, electric vehicles, photovoltaic thin films, and energy-efficient lighting. Five of the REEs (including yttrium) were considered to be critical by DOE, while others (e.g., cerium, lanthanum, indium, tellurium, and lithium) were ranked "near-critical" in the short or medium term. Cobalt, gallium, manganese, and nickel were ranked not critical by DOE, in the short or medium term. There are additional minerals and metals that do not come from China and for which both the United States and China are highly import dependent (see Table 6 ). The United States and China import these minerals from southern Africa, Australia, South America, and Canada. Mine production of cobalt, platinum, chromite, tantalum, and manganese occurs primarily in southern Africa, significant rutile (for titanium) production occurs in Australia and southern Africa, while niobium production occurs primarily in Brazil and Canada. Even though China has become the primary source or a major source of certain mineral and metal imports by the United States over the past 20 years, there appear to be sufficient reserves from several other countries; thus, there may be alternate sources for some of these materials if supply issues arise from China. While there may be adequate supplies overall in the short and medium terms, according to studies by the DOE and the NRC, a more important question may be who controls the supplies (i.e., reserves, production facilities, and stockpiles). Below are minerals (listed in Table 5 and Table 6 ) to keep a close watch on as competition for supplies around the world could heat up during an upturn in the global economy. The current goal of U.S. mineral policy is to promote an adequate, stable, and reliable supply of materials for U.S. national security, economic well-being, and industrial production. U.S. mineral policy emphasizes developing domestic supplies of critical materials and encourages the domestic private sector to produce and process those materials. But some raw materials do not exist in economic quantities in the United States, and processing, manufacturing, and other downstream ventures in the United States may not be cost competitive with facilities in other regions of the world. However, there may be public policies enacted or executive branch measures taken to offset the U.S. disadvantage of its potentially higher-cost operations. The private sector also may achieve lower-cost operations with technology breakthroughs. Based on this policy framework, Congress has held numerous legislative hearings on the impact of the U.S. economy's high import-reliance on many critical materials and on a range of potential federal investments that would support the development of increased domestic production and production from reliable suppliers. There has been a long-term policy interest in mineral import reliance and its impact on national security and the U.S. economy. Mineral exploration spending in the United States has been consistently around 7%-8% of the global total exploration budget over the past 10 years. The vast majority of exploration spending is for gold and copper resources. But the value of U.S. mineral production has more than doubled over the past 10 years because of record high prices for many commodities. Production volumes were only slightly higher for some (e.g., copper and zinc) while slightly lower for others (e.g., silver and gold). U.S. aluminum production declined by 25%, but molybdenum production nearly doubled. Most minerals listed on the USGS import reliance chart are locatable on public lands, and of the 19 minerals listed as 100% import dependent, the USGS lists nine as having either a small amount of domestic production or some reserves. There is uncertainty over how much production of these highly import-dependent minerals occurs on public lands. More information is needed on minerals located on federal lands and alternative sources of supply on federal lands and lands outside the United States, showing short- and long-term potential of development. Current information is not available from the Department of the Interior (DOI). The Government Accountability Office (GAO) noted in a July 21, 2008, report that the DOI does not have the authority to collect information from mine operators on the amount of hard rock minerals produced or the amount of reserves on public lands and there is no requirement for operators to report production information to the federal government. However, previous DOI and GAO reports completed in the early 1990s reported that gold, copper, silver, molybdenum, and lead were the five dominant minerals produced on federal lands under the 1872 Mining Law. Currently, the vast majority of mining activity on federal lands is for gold, based on past Department of Interior information. According to the latest data published by the DOI, gold accounted for 88% of the total dollar value of hardrock (base metals and nonmetals) minerals mined on federal lands. Although that report was written in the 1990s, it is unlikely that gold's dominance has decreased since then. The Interior report also showed that federal lands mineral production represented about 6% of the value of all minerals produced in the United States. This section provides a discussion of selected policy options that are included in legislation introduced in the 113 th Congress. Appendix B of this report summarizes much of the critical minerals-related legislation. Similar bills are likely to be introduced in the 114 th Congress. Investment in R&D is considered by many experts (e.g., DOE, MIT, and elsewhere) to play a critical role in the support for and development of new technologies that would address three primary areas: greater efficiencies in materials use; substitutes or alternatives for critical minerals; and recycling of critical minerals. While a small investment is underway at DOE (described below), larger investments in R&D are being discussed. Congress could authorize and appropriate funding for a USGS comprehensive global assessment to identify economically exploitable critical mineral deposits (as a main product or co-product), and locations where critical minerals could be exploited as a by-product. The USGS could establish a Minerals Information Administration for information and analysis on the global mineral/metal supply and demand picture. Companies producing minerals on public lands could be required to report production data to the federal agency. Supporting and encouraging greater exploration for critical minerals in the United States, Australia, Africa, and Canada could be part of a broad international strategy. There are only a few companies in the world that can provide the exploration and development skills and technology for critical mineral development. These few companies are located primarily in the above four regions and China, and may form joint ventures or other types of alliances for R&D, and for exploration and development of critical mineral deposits worldwide, including those in the United States. Whether there should be restrictions on these cooperative efforts in the United States is a question that Congress may ultimately choose to address. Other action by Congress could include frequent oversight of free trade issues associated with critical mineral supply. Recently, two raw material issues associated with China export restrictions were taken up by the World Trade Organization (WTO). One case, settled in 2011, was filed by the United States and was related to restrictions on bauxite, magnesium, manganese, silicon metal, and zinc, among others (using export quotas and export taxes). The other case, resolved in 2012, was filed by the United States, Japan, and the European Union on export restrictions of rare earth oxides, tungsten, and molybdenum. The WTO ruled against China in both cases, concluding that China did not show the link between conservation of resources or environmental protection (and protection of public health) and the need for export restrictions. The United States could support more trade missions; support U.S. commercial delegations to China and other mineral producing countries; and assist smaller and less-developed countries to improve their governance capacity. China's economic development will continue to have a major impact on the world supply and availability of raw materials and downstream products. Other countries will likely be faced with making adjustments to secure needed raw materials, metals, and finished goods for national security and economic development. Many firms have moved to China to gain access to its market, raw materials or intermediate products, and generally lower-cost production. At the same time, China is seeking technology transfer from many of these firms to expand its downstream manufacturing capacity. Despite China's current overcapacity and increased exports of some commodities, in the long run it may be in China's interest to use its minerals (plus imports) for domestic manufacturing of higher-valued downstream products (e.g., component parts and consumer electronics). Higher-cost, inefficient facilities and mines may close more rapidly, resulting in China seeking more imports as mining industry consolidations are implemented. One issue being raised by several economists is how China will respond to global market prices. Will Chinese firms continue to provide domestic industries with discounted prices, keeping more materials in-house, while selling materials at higher prices to the export market? Or will economic reforms and international pressure lead to more closely aligned domestic and export prices and the continuation of mineral and metal exports? China's dominance in the supply and demand of global raw materials could be addressed through consistent development of alternate sources of supply, use of alternative materials (substitutes) when possible, efficiency gains, aggressive R&D in development of new technologies, and comprehensive minerals information to support this effort. There may not be an immediate crisis, but China is likely entering an era of fewer raw material exports over the long run, which seems to call for some type of long-term planning by the private sector and government entities that want to meet U.S. national security, economic, and energy policy interests and challenges. It would be important to keep an eye on free trade issues and address any concerns through the WTO if needed, such as the previous cases of export restrictions of raw materials brought up and won against China. More analysis would be useful to investigate U.S. firms' capacity to adjust to supply bottlenecks such as restrictions in exports, underinvestment in capacity, China's materials use domestically, single source issues, strikes, power outages, natural disasters, political risk, and lack of substitutes. Having such analysis and understanding may be a matter of public policy. Congress may consider policies to minimize the risk of potential supply interruption of critical and strategic minerals and metals before a crisis emerges. Appendix A. Selected Minerals Major Applications Appendix B. Selected Critical Minerals-Related Legislation in the 113 th Congress H.R. 761 , the National Strategic and Critical Minerals Production Act of 2013 Introduced by Representative Mark E. Amodei on February 15, 2013, and referred to House Committees on Natural Resources and the Judiciary. H.R. 761 passed by a vote of 246-178 on September 18, 2013. The bill defines critical and strategic minerals and would seek to streamline the federal permitting process for domestic mineral exploration and development. It would establish responsibilities of the "lead" federal agency to set clear mine permitting goals, minimize delays, and follow time schedules when evaluating a mine plan of operations. The review process would be limited to 30 months, and the priority of the lead agency would be to maximize the development of the mineral resource while mitigating environmental impacts. S. 1600 , Critical Minerals Policy Act of 2013 Introduced by Senator Lisa Murkowski on October 29, 2013; referred to the Committee on Energy and Natural Resources. The bill would define what critical minerals are, but would request that the Secretary of the Interior establish a methodology that would identify which minerals qualify as critical. The Secretary of the Interior shall maintain a list of critical minerals not to exceed 20 at any given time. The bill would establish analytical and forecasting capability on mineral/metal market dynamics as part of U.S. mineral policy. The Secretary of the Interior would direct a comprehensive resource assessment of critical mineral potential in the United States, assessing the most critical minerals first and including details on the critical mineral potential on federal lands. S. 1600 would require the National Academy of Sciences to update its 1999 report Hardrock Mining on Federal Lands , examine the regulatory framework for mineral development in the United States, and provide the number and location of abandoned hardrock mines. Agency review and reports would be intended to facilitate a more efficient process for critical minerals exploration on federal lands, and specifically would require performance metrics for permitting mineral development activity and report on the timeline of each phase of the process. The Department of Energy would establish an R&D program to examine the alternatives to critical minerals and explore recycling and material efficiencies through the supply chain. The Department of the Interior would produce an Annual Critical Minerals Outlook report that would provide forecasts of domestic supply, demand, and price for up to 10 years. Title II of the bill recommends mineral-specific action (led by the Department of Energy) for cobalt, lead, lithium, thorium, and non-traditional sources for rare earth elements. For example, there would be R&D for the novel use of cobalt, grants for domestic lithium production R&D, and a study on issues associated with establishing a licensing pathway for the complete thorium nuclear fuel cycle. Title III would repeal the 1980 Minerals Policy Act and the Critical Minerals Act of 1984 and would authorize $60 million for appropriation. Appendix C. 2014 U.S. Net Import Reliance | China is the world's leading producer and consumer of many minerals and metals that are in high demand in the United States and on which the United States is highly import dependent. In the near future, China anticipates rapid urbanization, a rising middle class, and increased product manufacturing of high-value, high-quality goods and increased consumption. As China pursues this development path, will adequate supplies of critical and strategic raw materials and metals be available to the U.S. economy from reliable suppliers? Is there a possibility of material shortfalls? If China uses more of its raw materials and metals for its own downstream manufacturing sector instead of exporting them, as well as competing for raw materials and metals from outside China, then there may be a cause for concern. Materials such as the platinum group metals (PGMs), niobium, tantalum, manganese, and cobalt are heavily imported by the United States and China. Over the past several years there has been some concern in Congress that China was trying to "lock up" long-term supplies of raw materials, particularly iron ore. Long-term contracts have been established for some imports, but for others, Chinese companies have made equity investments or entered joint ventures in order to secure needed resources. China is a relative newcomer to the global mining stage, but in recent years, under its "go global" policy, China has become much more aggressive in pursuing raw materials from all over the world. The mining industry in China consists of many small and fragmented companies. China's government seeks to consolidate its mining industry, eliminating obsolete and inefficient capacity, and has announced specific consolidation goals for certain sectors. Aside from a small amount of recycling, the United States is 100% import reliant on 19 minerals that provide critical support for the U.S. economy and national security. The United States has diversified sources for some of its material requirements over the past several years, but still imports significant quantities and has become more dependent on China as either a primary or major provider of raw materials and several metals since 1993. China's dominance in the supply and demand of global raw materials could be addressed, if needed, through consistent development of alternate sources of supply, alternative materials (substitutes) when possible, efficiency gains, aggressive R&D, and comprehensive minerals information to support this effort. There may not be an immediate crisis, but China is likely entering an era of fewer raw material exports over the long run, which requires some type of long-term planning by the private sector and government entities that want to meet U.S. national security, economic, and energy policy interests and challenges. Congress is likely to keep an eye on free trade issues, such as export restrictions on rare earth oxides and other raw materials, which were brought before the World Trade Organization by the United States, Europe, and Japan and won against China. Legislation aimed at domestic mineral production was considered in the 113th Congress. H.R. 761, introduced by Representative Mark E. Amodei, passed the House by 246-178 on September 18, 2013. The bill would have defined critical and strategic minerals and sought to streamline the federal permitting process for domestic mineral exploration and development. There were hearings held on S. 1600, the Critical Minerals Policy Act of 2013, introduced by Senator Lisa Murkowski. The bill would have defined what critical minerals are, established analytical and forecasting capability on mineral/metal market dynamics as part of U.S. mineral policy, and required that the Secretary of the Interior direct a comprehensive resource assessment of critical mineral potential in the United States, including the critical mineral potential on federal lands. |
Although party divisions sprang up almost from the First Congress, the formally structured party leadership organizations now taken for granted are a relatively modern development. Constitutionally specified leaders, namely the Speaker of the House and the President pro tempore of the Senate, can be identified since the first Congress. Other leadership posts, however, were not officially recognized until about the middle of the 19 th century, and some are 20 th century creations. The following tables identify 15 different party leadership posts beginning with the year when each is generally regarded to have been formally established. The tables herein present data on service dates, party affiliation, and other information for the following House and Senate party leadership posts: House Positions 1. Speakers of the House of Representatives, 1789-2017 2. House Republican Floor Leaders, 1899-2017 3. House Democratic Floor Leaders, 1899-2017 4. House Democratic Whips, 1901-2017 5. House Republican Whips, 1897-2017 6. House Republican Conference Chairs, 1863-2017 7. House Democratic Caucus Chairs, 1849-2017 Senate Positions 8. Presidents Pro Tempore of the Senate, 1789-2017 9. Deputy Presidents Pro Tempore of the Senate, 1977-2017 10. Permanent Acting President Pro Tempore of the Senate, 1964-2017 11. Senate Republican Floor Leaders, 1919-2017 12. Senate Democratic Floor Leaders and Conference Chairs, 1893-2017 13. Senate Republican Conference Chairs, 1893-2017 14. Senate Democratic Whips, 1913-2017 15. Senate Republican Whips, 1915-2017 This information reflects the leadership elections and appointments at the start of the 115 th Congress. Included for each post are leaders' names, party and state affiliations, and dates and Congresses of service. For most Congresses, the report indicates years of service only, except in the tables for the House Speaker and the Senate President pro tempore, both of which include specific dates of service. When a Member died while holding a leadership office, however, the date of death is included as the end-of-service date (except in Table 13 ). In cases where a leadership change occurs during the course of a Congress, exact dates of service are indicated where possible. With respect to length of service, the report includes all instances in which a Member held a particular leadership post, regardless of whether the Member held the post for the entire Congress or only a portion of it. Official congressional documents ( House Journal and Senate Journal , Congressional Record , and predecessor publications) can be used to document the tenure of the constitutionally specified leaders (i.e., Speaker and President pro tempore). The actions of the party organizations in choosing other leaders, such as floor leaders or caucus or conference chairs, frequently went unacknowledged in these sources, however. In the frequent absence of party caucus records in the latter half of the 19 th century, scholars have had to rely on secondary sources, such as memoirs and correspondence, for evidence of party leadership position-holding. The concluding portion of this report, " Source Notes and Bibliography ," provides more information about sources and the reliability of leadership lists. The changing nature of congressional leadership provides additional challenges to identifying leaders not constitutionally specified (e.g., floor leader). Even for party elected posts, determining who held other positions can be problematic in earlier Congresses. For example, identifying each party's conference (or caucus) chair often requires reliance on incomplete historical records of conference meetings or inferences made from informal practices (e.g., noting which Member nominated his party's candidate for Speaker, a motion that often fell to the conference chair). In the House, for example, it was the common practice of President Thomas Jefferson and his immediate successors to designate a Member as their principal legislative spokesman. Often these spokesmen held no other formal leadership position in the House, and Presidents frequently designated new spokesmen, or even specialized spokesmen for individual measures, as their terms progressed. As these and other "leaders" were not chosen by a congressional party group or by a party leader such as the Speaker, these presidential designees have not been included here as "party leaders." Most historians who study the 19 th -century House acknowledge that an informal "positional leadership" system emerged possibly as early as the "War Hawk" Congress (1811-1813) under Speaker Henry Clay. Under this system, the Speaker—who at the time designated the chairmen of the standing committees—would name his principal lieutenant to be chairman of the Ways and Means Committee. After the Appropriations Committee was split from the Ways and Means Committee in 1865, the Speaker's principal floor lieutenant received either of these chairs. Sometimes, the Speaker chose a rival for the speakership to chair one of these committees in an effort to resolve intra-party disputes. It is somewhat inaccurate, however, to consider these early leaders to be majority leaders in the modern sense, and they have not been included here. The position of chair of the Appropriations or Ways and Means Committee inevitably made the incumbent a powerful congressional figure because of the important legislation reported from these committees. These chairs were not, however, chosen in a vote by the full party organization, as the majority or minority House leaders are now. Furthermore, other leading congressional figures, such as the Republican leader Thomas Brackett Reed, achieved their positions of influence within the House by service on other committees, such as—in Reed's case—the post-1880 Rules Committee. The Senate developed an identifiable party leadership later than the House. The few existing records of party conferences in the 19 th -century Senate are held in private collections. Memoirs and other secondary sources reveal the identities of party conference or caucus chairs for some, but not all, Congresses after about 1850; these posts, however, carried very little authority. It was not uncommon for Senators to declare publicly that within the Senate parties there was no single leader. Instead, through the turn of the 20 th century, individuals who led the Senate achieved their position through recognized personal attributes, including persuasion and oratory skills, rather than the current practice of election to most official leadership posts. The development of Senate party floor leaders was one of slow evolution, like the House, but they arose for the most part from the post of conference chair. Not until 1945 did Senate Republicans specify that the conference chair and floor leader posts must be held by separate Senators. Among Senate Democrats, the floor leader is also chair of the conference. In many secondary sources, Senators are identified as "floor leaders" before existing party conference records so identify them. In this report, footnotes to the tables attempt to clarify when a leader was identified through official sources such as caucus minutes or through secondary sources. Another problem in identifying party leaders in early Congresses is the matter of party affiliation. Secondary sources reporting on party leaders often relied upon the information compiled in early editions of the Biographical Directory of the United States Congress . As the editors of the 1989 edition of the Biographical Directory noted: The most serious source of error and confusion in previous editions [of the Biographical Directory ] [was] the designations of party affiliation. Many of the party labels added to the editions of 1913 and 1928 were anachronistic, claiming for the two modern parties Senators and Representatives elected to Congress before the [modern] Democratic or Republican parties existed. Other entries ignored the frequent shifts in party affiliation during the nineteenth century or omitted reference to short-lived and regional political parties and thus failed to reflect the vigor and diversity of nineteenth-century politics. The 1989 and 1997 editions of the Biographical Directory resolved these differences, and their designations of party affiliations are principal sources for this report. The 1997 edition of the Biographical Directory , in particular, included more complete notations where Members changed their party affiliations while serving in Congress. The main source for early party affiliations of Senator leaders, principally Presidents pro tempore, is volume four of Senator Robert C. Byrd's The Senate, 1789-1989 (Historical Statistics, 1789-1992) . An Appendix explains the abbreviations used to denote party affiliations in this report. The tables in this report exclude some leadership posts in order to render manageable the amount of data provided. Specifically, the Senate and House party conference secretaries and the chairs of party committees (e.g., steering committees, policy committees, committees on committees, and campaign committees) are not presented here. Junior party whips are also not identified. At least since the 1930s in the House, both parties have selected (or allowed the principal whip to designate) subordinate whips. The lack of adequate records makes it almost impossible to identify all deputy whips, regional whips, and zone whips who have been appointed in the past 70 years. The position of Speaker is constitutionally specified in Article 1, Section 2. The Speaker is the only party leader who is chosen by a roll-call vote of the full House of Representatives, which occurs after each party has nominated a candidate for the position when a new Congress convenes. House rules give the Speaker various formal duties. These include, for example, administering the oath of office to new Members, signing House-passed bills and resolutions, presiding over the House (and making rulings on the presence of a quorum, points of order, etc.), referring measures to committees, and naming the party's slate of members for certain committee positions. Each party conference cedes additional powers and responsibilities to a Speaker from its own party, including influence over the makeup of certain standing committees. For more information, consult CRS Report 97-780, The Speaker of the House: House Officer, Party Leader, and Representative , by [author name scrubbed], and CRS Report RL30857, Speakers of the House: Elections, 1913-2017 , by [author name scrubbed] and [author name scrubbed]. At an organizational meeting prior to the beginning of a new Congress, each party conference (or caucus) in the House selects its floor leader (also called majority leader or minority leader, as appropriate) in a secret-ballot vote. The majority party floor leader works closely with the Speaker and is largely responsible for the party's daily legislative operations in consultation with other party leaders. Similarly, the minority party floor leader directs the party's ongoing legislative strategies and operations and typically serves as the spokesperson for the party in the House. Each party assigns additional responsibilities to its respective floor leader. For more information on the majority party floor leader position, see CRS Report RL30665, The Role of the House Majority Leader: An Overview , by [author name scrubbed]. Each House party caucus currently elects its own party whip at organizational meetings as a new Congress begins. House Republicans (or a representative group of their conference) have always elected their party whips; Democrats in the House appointed a chief whip until 1986. Chief deputy whips are currently appointed by the party's chief whip; additional members to serve in the whip team are either similarly appointed or, instead, elected by subsets of the caucus. The whip organization is responsible for assessing the passage prospects for upcoming measures, mobilizing member support for leadership priorities, informing the party rank-and-file regarding legislative scheduling and initiatives, and informing the top party leadership regarding the sentiment of the rank-and-file. For more information, see archived CRS Report RS20499, House Leadership: Whip Organization , by [author name scrubbed]. The Republican Conference and the Democratic Caucus are the organizations of the members of the respective parties in the House. Each conference has an elected chair, who presides over its meetings. Decisions made by the conference (and often publicly promulgated by the chair) are generally regarded as the collective sentiment of the respective House party contingent. Pursuant to Article 1, Section 3, of the U.S. Constitution, the President pro tempore of the Senate is the chamber's presiding officer in the absence of the President of the Senate (the Vice President of the United States). The President pro tempore is elected by the full Senate as the formal institutional leader and, in current practice, is the longest-serving member of the majority party. Until 1890, the Senate elected a President pro tempore whenever the Vice President was not in attendance, whether for a day or permanently, as in the case of the Vice President's death or resignation. When the Vice President returned, the President pro tempore lost his place. When the Vice President was again absent, the Senate again elected a President pro tempore—in many cases the same Senator who had been chosen before. By the standing order agreed to on March 12, 1890, the Senate declared that the President pro tempore shall hold the office during "the pleasure of the Senate and until another is elected, and shall execute the duties thereof during all future absences of the Vice President until the Senate does otherwise order." The Senate's President pro tempore is, pursuant to statute, currently third in the line of presidential succession (behind the Vice President and the Speaker of the House). In the Succession Act of 1792, the position was initially designated to serve in line after the Vice President. An 1886 act altered the succession line by replacing congressional leaders with cabinet secretaries, but the President pro tempore post was reinstated in the line (in the current position) in 1947. As presiding officer, the President pro tempore has the power to decide points of order and enforce decorum on the floor. The President pro tempore has other formal powers (e.g., appointing conferees; appointing certain Senate officers; and serving on, or appointing others to, working groups, commissions, and advisory boards). However, because the direction of Senate business has fallen in modern times to the majority leader, almost all of these powers are actually exercised by the majority leader in practice. As explained in the notes to Table 9 and Table 10 below, the Senate has also had past occasion to select a Deputy President pro tempore and a Permanent Acting President pro tempore. For more information on the President pro tempore (and the deputy and acting posts), consult CRS Report RL30960, The President Pro Tempore of the Senate: History and Authority of the Office , by [author name scrubbed]. The Senate has, on occasion, created special offices connected to the position of President pro tempore. These two positions—detailed below—were created for specific individuals under narrow circumstances and are not currently in use. Pursuant to S.Res. 17 (95 th Congress), agreed to January 10, 1977, the Senate established (effective January 5, 1977) the post of Deputy President pro tempore of the Senate to be held by "any Member of the Senate who has held the Office of President of the United States or Vice President of the United States." Senator Hubert H. Humphrey was Deputy President pro tempore until his death on January 13, 1978. In the 100 th Congress, due to concerns over the health of the President pro tempore, Senator John S. Stennis, the Senate agreed on January 28, 1987, to S.Res. 90 , authorizing the Senate to designate a Senator to serve as Deputy President pro tempore during that Congress in addition to Senators who hold such office under the authority of S.Res. 17 (95 th Congress). Accordingly, on the same date, the Senate agreed to S.Res. 91 (100 th Congress), designating Senator George H. Mitchell Deputy President pro tempore. This post was initially established in 1963 after Senate Majority Leader Michael J. Mansfield became concerned that the stamina of then-President pro tempore Senator Carl T. Hayden would be overly taxed by presiding over the prolonged debate on civil rights legislation. In response, the Senate adopted S.Res. 232 and S.Res. 238 (88 th Congress), making Senator Lee Metcalf Acting President pro tempore from December 9, 1963, until the meeting of the second session of the 88 th Congress. Continuing concerns over the presiding officer's responsibilities led the Senate, on February 7, 1964, to authorize Senator Metcalf "to perform the duties of the Chair as Acting President pro tempore until otherwise ordered by the Senate" via S.Res. 296 (88 th Congress). Senator Metcalf held the post throughout his remaining 14 years in the Senate. Each Senate party conference selects its floor leader (also called majority leader or minority leader, as appropriate) in a secret-ballot vote at its organizational meeting prior to the beginning of a new Congress. While these positions developed later than (and arose from) the post of conference chair, they now represent the top post in each party. The majority leader is the lead spokesperson for the party in the chamber and is also responsible for scheduling the legislative activity of the Senate. By precedent established in 1937, the majority leader is afforded priority recognition on the floor. The minority leader leads and speaks for the minority party and is consulted by the majority leader in scheduling Senate floor activity; he also has preferential floor recognition, after the majority leader. The rules of each party conference assign additional responsibilities to each floor leader, as well. In current practice, the floor leader for Senate Democrats also serves as the party's conference chair. (See next section for description of conference chair positions.) Each party has a conference organization consisting of all the elected Senators from that party; it is the main body through which the party contingent at large decides and communicates its legislative priorities. While each party's conference chair posts were the first formal party leadership positions in the Senate, eventually floor leader positions were established as uppermost in each party's leadership hierarchy. Since 1945, Republicans have elected their conference chairs separately from other leadership posts, but the elected Democratic floor leader also serves as chair of the Democratic Conference. (See Table 12 for the list of Democratic floor leaders/conference chairs.) Senate Democrats first selected a party whip in 1913; Republicans followed in 1915. Some accounts of these early selections imply that the individuals were initially appointed, but other contemporary accounts refer to conference elections for the posts. (Republicans first formally codified their conference procedures in 1944, making it clear that the whip post was elected by the conference.) Today, each party conference elects a party whip (sometimes called the assistant majority leader or assistant minority leader, depending on the party). Typically, deputy whips are also appointed to assist the whip operation. The whips communicate leadership priorities to the party rank-and-file (and vice versa), provide leaders an assessment of member support for (or opposition to) pending legislative matters, and mobilize support for leadership-supported measures under consideration. For more information, see archived CRS Report RS20887, Senate Leadership: Whip Organization , by [author name scrubbed]. This report relies heavily on primary congressional sources and authoritative documents such as the privately printed Biographical Directory of the American Congress, 1774 to 1996 , and a similar online adaptation, the Biographical Directory of the United States Congress, 1774 to the Present . In addition, over the years, individual Members of Congress, legislative aides, and scholars have gained limited access to party conference journals. Reliable leadership lists have been compiled from these sources. Where these have been published, they have been used as a source in this report. This report also relies on secondary sources developed by scholars. The Congressional Research Service made no attempt to gain access to caucus or conference minutes in collecting data for this report. Inevitably, conflicting interpretations occur in these data, even among sources generally accepted as reliable. For example, there are disparities on the dates of elections and tenure of Senate Presidents pro tempore among Byrd's history, the 1911 Senate document, and Gamm and Smith's research. The report attempts to footnote these divergences where they occur. Unless otherwise noted, the following sources were used to compile the tables in this report: Berdahl, Clarence. "Some Notes on Party Membership in Congress." American Political Science Review , vol. 43 (April 1949), pp. 309-332; (June 1949), pp. 492-508; and (August 1949), pp. 721-734. Biographical Directory of the American Congress , 1774-1996 . Washington: CQ Staff Directories, Inc., 1997. Biographical Directory of the United States Congress, 1774 to the Present. Available at http://bioguide.congress.gov/biosearch/biosearch.asp . Byrd, Robert C. The Senate, 1789-1989 . 4 vols., 100 th Congress, 1 st session. S. Doc. 100-20. Washington: GPO, 1988-1993. Cannon, Clarence. "Party History." Remarks in the appendix, Congressional Record , vol. 89 (January 22, 1941), pp. A383-A384. Congressional Directory . Washington: GPO, various years. Congressional Globe . Washington, 1833-1873. Congressional Quarterly Weekly Report . Washington: Congressional Quarterly, Inc., various dates. Congressional Record . Washington: GPO, 1873-present. CRS Report RL30960, The President Pro Tempore of the Senate: History and Authority of the Office , by [author name scrubbed]. Deschler, Lewis. Deschler-Brown Precedents of the United States House of Representatives. 16 vols. Washington: GPO, 1977-2000. Galloway, George B. "Leadership in the House of Representatives." The Western Political Quarterly , vol. 12, no. 2, (June 1959), pp. 417-441. Gamm, Gerald and Steven S. Smith. "Last Among Equals: The Senate's Presiding Officer." In Burdett A. Loomis, ed., Esteemed Colleagues: Civility and Deliberation in the U.S. Senate , pp. 105-134. Washington: Brookings Institution Press, 2000. Martis, Kenneth C. The Historical Atlas of Political Parties in the United States Congress, 1789-1989. New York: Macmillan, 1989. Oleszek, Walter J. Majority and Minority Whips in the Senate : History and Development of the Party Whip System in the U.S. Senate . 99 th Congress, 1 st session. S. Doc. 99-23. Washington: GPO, 1985. ——. "John Worth Kern: Portrait of Floor Leader." In Richard A. Baker and Roger H. Davidson, eds., First Among Equals: Outstanding Senate Leaders of the Twentieth Century , pp. 7-37. Washington: CQ Press, 1991. Ripley, Randall B. Party Leaders in the House of Representatives. Washington: Brookings Institution Press, 1967. ——. "The Party Whip Organizations in the United States House of Representatives." American Political Science Review , vol. 58 (September 1964), pp. 561-576. Rothman, David J. Politics and Power . Cambridge, MA: Harvard University Press, 1966. U.S. Congress. Hinds' and Cannon's Precedents of the House of Representatives of the United States . 11 vols. Washington: GPO, 1907-1908, 1935-1941. ——. House. Journal of the House of Representatives of the United States , 1789-present, various publishers. ——. Senate. Journal of the Senate of the United States , 1789-present, various publishers. ——. Majority and Minority Leaders of the Senate: History and Development of the Offices of the Floor Leaders . Prepared by Floyd M. Riddick. 99 th Congress, 1 st session. S. Doc. 99-3. Washington: GPO, 1985. ——. President of the Senate Pro Tempore . 62 nd Congress, 2 nd session. S.Doc. 62-101. Washington: GPO, 1911. Widenor, William C. "Henry Cabot Lodge: The Astute Parliamentarian," In Richard A. Baker and Roger H. Davidson, eds., First Among Equals: Outstanding Senate Leaders of the Twentieth Century , pp. 38-62. Washington: CQ Press, 1991. | This report briefly describes current responsibilities and selection mechanisms for 15 House and Senate party leadership posts and provides tables with historical data, including service dates, party affiliation, and other information for each. Tables have been updated as of the report's issuance date to reflect leadership changes. Although party divisions appeared almost from the First Congress, the formally structured party leadership organizations now taken for granted are a relatively modern development. Constitutionally specified leaders, namely the Speaker of the House and the President pro tempore of the Senate, can be identified since the First Congress. Other leadership posts, however, were not formally recognized until about the middle of the 19th century, and some are 20th-century creations. In the earliest Congresses, those House Members who took some role in leading their parties were often designated by the President as his spokesperson in the chamber. By the early 1800s, an informal system developed when the Speaker began naming his lieutenant to chair one of the most influential House committees. Eventually, other Members wielded significant influence via other committee posts (e.g., the post-1880 Committee on Rules). By the end of the 19th century, the formal position of floor leaders had been established in the House. The Senate was slower than the House to develop formal party leadership positions, and there are similar problems in identifying individual early leaders. For instance, records of party conferences in the 19th century Senate are not available. Memoirs and other secondary sources reveal the identities of party conference or caucus chairs for some, but not all, Congresses after about 1850, but these posts carried very little authority. It was not uncommon for Senators to publicly declare that within the Senate parties, there was no single leader. Rather, through the turn of the 20th century, individuals who led the Senate achieved their positions through recognized personal attributes, including persuasion and oratorical skills, rather than election or appointment to formal leadership posts. The formal positions for Senate party floor leaders eventually arose from the position of conference chair. Owing to the aforementioned problems in identifying informal party leaders in earlier Congresses, the tables in this report identify each leadership position beginning with the year in which each is generally regarded to have been formally established. The report excludes some leadership posts in order to render the amount of data manageable. A bibliography cites useful references, especially in regard to sources for historical data, and an appendix explains the abbreviations used to denote political parties. This report will be updated as changes in House and Senate party leadership positions occur. |
On May 10, 2010, President Obama transmitted the proposed text of the U.S.-Russian civilian nuclear cooperation agreement to Congress for approval, along with the required Nuclear Proliferation Assessment Statement (NPAS) and his determination that the agreement promotes U.S. national security. The annexed classified NPAS was to be submitted separately. The agreement was signed by the two countries in Moscow on May 6, 2008. President George W. Bush first submitted it to Congress on May 13, 2008, but in September 2008 rescinded the national security determination following Russian military actions in the Republic of Georgia. This had the effect of removing the agreement from congressional consideration. President Obama stated his commitment to seeing the agreement enter into force in summit statements with Russian President Medvedev in April and July 2009. President Obama's May 10, 2010, letter of transmittal says that the situation in Georgia is no longer an obstacle and that "the level and scope of U.S.-Russian cooperation on Iran are sufficient to justify resubmitting the proposed agreement." According to President Obama's letter, the agreement meets all the terms of the Atomic Energy Act and therefore does not require any exemptions from the law's requirements. Therefore, the agreement would enter into effect 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 had the option of adopting either a joint resolution of approval with (or without) conditions, or standalone legislation that could approve or disapprove the agreement. The agreement permits the export, subject to licensing, of technology, material, equipment, and components for nuclear research and nuclear power production. The agreement does not permit transfer of restricted data. The agreement needs to be amended before any transfer of sensitive nuclear technology, sensitive nuclear facilities, and major critical components of those facilities. The parties would also need to agree to reprocessing of material transferred under the agreement. Some limited enrichment and blending or down-blending for LEU fuel production would be permitted. The bilateral nuclear cooperation agreement between the United States and Russia entered into force after an exchange of diplomatic notes on January 11, 2011. At the entry into force ceremony, U.S. officials emphasized that the agreement would improve cooperation in nuclear terrorism prevention, nonproliferation, and development of new nuclear technologies. Section 123 of the U.S. Atomic Energy Act (AEA) of 1954 (42 U.S.C. 2011 et seq.) governs significant nuclear cooperation between the United States and other states. The United States has agreements for civil nuclear cooperation in place with almost 50 countries. Such agreements, known as "123 agreements," provide the framework and authorization for cooperation, but do not guarantee certain exports, technology, or material. Before significant nuclear exports can occur, the State Department, with the advice of the Department of Energy, negotiates an agreement, which must meet criteria listed in Section 123.a., (1) through (9), 42 U.S.C. 2151. Cooperation between the United States and Russia on civilian nuclear energy is not new, but the level has fluctuated depending on broader political developments. The United States and the Soviet Union concluded a limited 10-year agreement for nuclear cooperation in 1973 to allow for cooperation in controlled thermonuclear fusion, fast breeder reactors, and fundamental research. The 1973 agreement also established a Joint Committee on Cooperation in the Peaceful Uses of Atomic Energy that was to meet annually. This agreement was extended in 1983 and in 1988, and exchanges on safety practices significantly increased after the 1986 Chernobyl power plant accident. The two superpowers convened a Joint Coordinating Committee for Civilian Reactor Safety starting in 1988. After the fall of the Soviet Union and prior to July 2006, Moscow's nuclear commerce with Iran presented the chief obstacle to concluding a broad U.S.-Russian nuclear cooperation under section 123. Project-specific agreements were concluded throughout this period. Several factors may have contributed to the shift in U.S. policy under the George W. Bush Administration: a tougher line by Moscow since 2003 with respect to Iran, especially Russia's agreement with Iran to take back spent nuclear fuel from the Russian-built Bushehr reactor; President Bush's embrace of nuclear power as an alternative to reliance on hydrocarbons; President Bush's proposals to multi-lateralize the nuclear fuel cycle and develop proliferation-resistant technologies through the Global Nuclear Energy Partnership (GNEP); and Russia's own proposals to host an international fuel center that would store and reprocess spent fuel and enrich uranium for fresh fuel. Under the Obama Administration, officials have expressed support for the nuclear cooperation agreement with Russia, but were waiting for the "appropriate time" to submit the agreement to Congress. President Obama's letter of May 10, 2010, outlines ways in which the current Administration sees this agreement as being beneficial for U.S. interests, primarily in that it would contribute to "the growth of clean, safe and secure nuclear energy for peaceful purposes." The letter cites several areas of recent "progress" in cooperation between the United States and Russia: Russian support for a new United Nations Security Council Resolution on Iran. Signature on April 8, 2010, of the New START Treaty that would reduce the number of deployed strategic nuclear weapons. Signature on April 13, 2010, of the Protocol to amend the 2000 U.S. Russian Plutonium Management and Disposition Agreement, which will dispose of at least 34 metric tons of excess weapons plutonium in each country. Russia's establishment of an international nuclear fuel reserve in Angarsk. Continued joint support for the Global Initiative to Combat Nuclear Terrorism. Congressional debate over the agreement in the past has focused on several key issues: the nature of Russian-Iranian cooperation, the impact of a U.S.-Russian agreement on the future of nuclear fuel cycle policies, and the impact of the agreement on bilateral relations including nuclear nonproliferation cooperation. While some view the agreement as promoting bilateral cooperation on U.S. nonproliferation goals and as a recognition of recent Russian cooperation, others believe the United States could gain leverage on negotiations with Russia on Iran and other matters by delaying approval of the agreement. Congressional consideration of the agreement ended on December 8, 2010. No joint resolutions disapproving the agreement were adopted, paving the way for entry into force. Even before the crisis in the Republic of Georgia in August 2008, approval of a U.S.-Russia 123 agreement by Congress was not certain. Legislation both supporting and opposing the agreement was introduced in the 110 th Congress: Representative Edward Markey on May 14, 2008, introduced H.J.Res. 85 expressing disfavor of the agreement. On June 24, 2008, Chairman of the Senate Foreign Relations Committee Joseph Biden and Senator Richard Lugar submitted a joint resolution of approval, S.J.Res. 42 . It was discharged from committee but indefinitely postponed by unanimous consent in September 2008. Chairman of the House Committee on Foreign Affairs Howard Berman and Ranking Member Ileana Ros-Lehtinen introduced a resolution of disapproval, H.J.Res. 95 , on June 24, 2008. The House Committee on Foreign Affairs reported H.R. 6574 on July 23, 2008. This bill would have approved the U.S.-Russia 123 agreement, notwithstanding the AEA, with certain conditions. Under this resolution, no license could be issued for the export of nuclear material, equipment, or technology to Russia unless the President certified to Congress that Russia (1) is not transferring sensitive nuclear, biological- or chemical-weapons-related, ballistic or cruise missile technologies, goods, or services to Iran; (2) is cooperating with the United States on international sanctions on Iran; and (3) had ratified appropriate nuclear liability conventions or enacted domestic laws to protect U.S. firms. In response to Russian actions in August over the conflict in Georgia, some members of Congress called on the Bush Administration to withdraw the agreement from congressional consideration. There was no precedent for the President withdrawing a 123 from congressional consideration, and the Atomic Energy Act does not specify procedures for doing so. On September 8, 2008, the Secretary of State issued a statement saying that the President would notify Congress that "he has today rescinded his prior determination" regarding the agreement and therefore there is no basis for Congress to consider it. Secretary Rice states that "the U.S. nonproliferation goals contained in the proposed Agreement remain valid: to provide a sound basis for U.S.-Russian civil nuclear cooperation, create commercial opportunities, and enhance cooperation with Russia on important global nonproliferation issues." She expresses regret for the decision but says that "unfortunately, given the current environment, the time is not right for this agreement." In his message to Congress, President Bush wrote that this decision is "in view of recent actions by the Government of the Russian Federation incompatible with peaceful relations with its sovereign and democratic neighbor Georgia." In the original determination of May 5, 2008 (Presidential Determination 2008-19), the President determined that the agreement will promote and will not pose an unreasonable risk "to the common defense and security." The President's message of September 8 says this determination "is no longer effective." It also says that "if circumstances should permit future reconsideration of the proposed Agreement, a new determination will be made and the proposed Agreement will be submitted for congressional review pursuant to section 123 of the Act." Additional legislation proposed in the 110 th Congress focused on Iran's nuclear programs and also sought to condition nuclear cooperation with Russia. The Iran Counter-Proliferation Act of 2007 ( H.R. 1400 ), passed by the House, would prohibit any "agreement for cooperation between the United States and the government of any country that is assisting the nuclear program of Iran or transferring advanced conventional weapons or missiles to Iran." Similarly, S. 970 specifically would have prohibited a 123 agreement with Russia until "Russia has suspended all nuclear assistance to Iran and all transfers of advanced conventional weapons and missiles to Iran" or "Iran has completely, verifiably, and irreversibly dismantled all nuclear enrichment-related and reprocessing-related programs." The Iran Sanctions Act of 2008 ( S. 3227 ) included a prohibition on entering into a nuclear cooperation agreement with Russia or granting licenses for the direct or indirect export or the direct or indirect transfer of nuclear-related goods, services, or technologies to Russia until certain presidential certifications are made. S. 3227 was reported out of the Senate Finance Committee on July 7, 2008, but was not passed by the full Senate. The Security through Termination of Proliferation Act of 2008 ( H.R. 6178 , introduced on June 4, 2008) included similar provisions, including that a nuclear cooperation agreement with a country proliferating to Iran, North Korea, or Syria may not enter into force. These bills, as well as letters sent to the President from members of Congress after submittal of the 123 agreement to the Congress, showed a linkage between Russia's policies toward Iran and support for a bilateral civilian nuclear accord in Congress. In 2008, some members of Congress raised concerns about the information contained in the Nuclear Proliferation Assessment Statement (NPAS). The NPAS is described in section 123.a. (42 U.S.C. 2153(a)) and is a required part of a 123 agreement package for Congress. An unclassified NPAS is submitted along with the proposed text of the agreement, and a classified annex is submitted separately. The NPAS is to be prepared by the State Department in consultation with the Director of National Intelligence. Its purpose is to explain how the agreement meets the AEA nonproliferation requirements. The unclassified NPAS usually includes an overview of the country's nuclear energy program and related infrastructure, nuclear weapons program (if relevant), nonproliferation policies, and relations with third countries of concern in the nuclear arena. Some members of Congress were concerned that the 2008 NPAS for the US-Russia 123 agreement excluded information regarding nuclear trade between Russia and Iran. This prompted then-Chairman of the House Energy and Commerce Committee John Dingell and Subcommittee on Oversight and Investigations Chairman Bart Stupak to request that the Government Accountability Office (GAO) evaluate the inter-agency process for development of U.S.-Russia NPAS, whether the NPAS conclusions were supported, and whether any information was omitted that might change these conclusions. The GAO also lists Chairman Henry Waxman and Representative Edward Markey as report requesters. The GAO issued its report in July 2009. The findings were related primarily to the inter-agency review process and recommended that the State Department should clarify interagency roles, allow adequate time for review by the intelligence community and the Nuclear Regulatory Commission, and establish written procedures for development and review of 123 agreements and associated documents. Upon the Obama Administration's transmittal of the agreement to Congress in 2010, Chairman of the House Foreign Affairs Committee Howard Berman said that the top nonproliferation policy priority should be preventing Iran from obtaining nuclear weapons and that "at the appropriate time, we will examine the agreement more fully." Three joint resolutions were introduced in the House, and referred to the House Foreign Affairs Committee, two expressing disfavor and one providing for approval of the agreement: On May 21, 2010, Representative Edward Markey and co-sponsor Representative Jeff Fortenberry introduced a joint resolution ( H.J.Res. 85 ) expressing disfavor of the proposed agreement. On June 21, 2010, House Foreign Affairs Committee Chairman Howard Berman and co-sponsor Representative Dana Rohrabacher introduced a joint resolution that provides for approval of the proposed agreement ( H.J.Res. 91 ). On June 21, 2010, House Foreign Affairs Committee Ranking Member Ileana Ros-Lehtinen, with Representatives Dan Burton and Edward Royce, introduced a joint resolution that provides for disapproval of the proposed agreement ( H.J.Res. 92 ). Senate Foreign Relations Committee Chairman John Kerry and Ranking Member Richard Lugar introduced a joint resolution ( S.J.Res. 34 ) that would approve the proposed agreement on June 21, 2010. It was referred to the Senate Foreign Relations Committee. As stated above, no positive action by Congress is required for the agreement to enter into force after the congressional review period expires. The Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA) of 2010 was signed by the President on July 1, 2010 ( P.L. 111-195 ). Section 3 (9) of the bill says that it is the sense of Congress that no export licenses should be given under a civilian nuclear cooperation (123) agreement if the recipient country "is providing similar nuclear material, facilities, components, or other goods, services, or technology to another country that is not in full compliance with its obligations under the Nuclear Non-Proliferation Treaty, including its obligations under the safeguards agreement between that country and the International Atomic Energy Agency," unless the President determines that such transfers would not undermine U.S. nonproliferation objectives. Section 102, subsection a, of the bill prohibits the issuance of 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 have been 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. An earlier House report ( H.Rept. 111-342 ) states that "the Committee believes that a country that is, as a matter of policy or through willful inaction, allowing its citizens or companies to provide equipment, technology or materials to Iran that make a material contribution to its nuclear capabilities should not at the same time benefit from nuclear cooperation with the United States." The United States and Russia cooperate on a variety of nuclear nonproliferation and nuclear energy initiatives, under ad hoc agreements. While this cooperation is focused primarily on nuclear nonproliferation measures, in recent years the United States and Russia have explored ways to develop civilian nuclear energy cooperation. Presidents Bush and Putin in July 2006 established a working group whose report defined an Action Plan for cooperation that led to the bilateral Presidential Declaration on Nuclear Energy and Nonproliferation of July 3, 2007. In an effort to continue this process and as part of the Obama Administration's "reset" of relations with Russia, in July 2009 Presidents Obama and Medvedev established a Bilateral Presidential Commission that included a Working Group on Nuclear Energy and Security chaired by Sergei V. Kiriyenko, Head of Rosatom, and Daniel Poneman, Deputy Secretary of Energy. The July 2009 Joint Statement reaffirmed their intention to bring a bilateral nuclear cooperation agreement into force and said that the two countries would focus on: development of prospective and innovative nuclear energy systems; research into methods and mechanisms for the provision of reliable nuclear fuel cycle services; research into international approaches for the establishment of nuclear fuel cycle services to secure the nuclear weapons nonproliferation regime; and improvement of the international safeguards system. The working group agreed on an Action Plan for nuclear security and civil nuclear energy cooperation in September 2009. A commission report said that the working group identified research and development areas for collaboration and is working on a "new fuel services framework." An argument in favor of the agreement is that the United States could gain from Russian advanced fuel cycle research and development experience. Because the United States does not operate fast neutron reactors or reprocess, testing of fuels could be done in Russia, including post-irradiation examination. Supporters argue that U.S. partnership in developing these technologies could help ensure that proliferation resistance remains a priority. On the other hand, critics point out that the agreement risks entrenching a policy of accepting reprocessing as a necessary part of the future of nuclear energy and that this would raise proliferation risks. The proposed agreement could provide Russia with access to U.S. nuclear technologies and markets, and would open the possibility of receiving U.S.-origin nuclear materials into Russia for storage or processing. Some argue that the agreement might be construed as a U.S. stamp of approval for Russia's civilian nuclear industry when safety and environmental problems with the Russian nuclear industry remain. Others counter that only through such an agreement will U.S. safety technology and standards be available to Russia. Russia could potentially expand its reach into new nuclear power markets by adding U.S. safety and automated control systems to its exported reactors, or partnering with U.S. multinationals. Russia could also potentially improve the operational efficiency of its own reactors with U.S. technology. The United States and Russia both promote a future global nuclear energy framework that addresses emerging nuclear energy states' fuel needs while dissuading them from pursuing indigenous enrichment and reprocessing technologies. This includes a "cradle to grave" approach to nuclear fuel. As part of this effort, recent Russian nuclear power plant exports, such as with Turkey, are a "package deal" that would include construction, operation, fuel services, and spent fuel return. Broader proposals to discourage new states from building fuel cycle facilities include the development of multilateral fuel assurances and international fuel service centers. For this purpose, Russia has set up the joint venture International Uranium Enrichment Center at Angarsk, which is under international safeguards. An international LEU fuel reserve will also be hosted at the site. Proponents of the agreement say that collaboration between the United States and Russia on providing nuclear fuel cycle services to nonnuclear weapon states could increase the confidence of customer states and therefore increase participation. Experts and policy makers have also been exploring what role Russia could play in addressing the issue of nuclear waste and spent fuel disposition. Some have proposed that a 123 agreement with Russia could open the possibility of reprocessing U.S.-origin spent fuel from third countries (although Russia has not yet decided to do this) or long-term spent fuel storage of such material in Russia. The enrichment of U.S.-obligated reprocessed uranium, and the re-enrichment of U.S. uranium tails or U.S.-origin tails, using Russian enrichment facilities, could likewise occur only if a 123 agreement was in force. Under Article 9 of the proposed agreement, conversion and enrichment to less than 20%, fabrication of LEU fuel, irradiation, blending, or down-blending to LEU would be permitted under the agreement. The parties would have to agree to reprocessing of U.S.-origin spent fuel before this occurred. For these potential areas of cooperation to be realized, however, nuclear liability coverage for U.S. companies doing business in Russia would need to be clarified. The Russian Federation has been party to the Vienna Convention on Civil Liability for Nuclear Damage since 2005. However, Rosatom Corporation enjoys sovereign immunity as a partially state-owned enterprise. Russia has not yet signed or ratified the Convention on Supplementary Compensation for Nuclear Damage (CSC). Currently, ad hoc bilateral agreements with liability coverage are in place for U.S. safety and nonproliferation assistance programs. Some U.S. companies have stated that they would need Russia to ratify the CSC or adopt domestic laws that would provide liability protection for U.S. firms before doing business in Russia. In a 2003 letter to the Bush Administration, the Contractors International Group on Nuclear Liability (CIGNL) wrote that "the various bilateral and multilateral indemnity agreements that have been concluded to date are not considered to provide adequate nuclear liability protection by most large, well-capitalized U.S. companies." As cited above, the proposed legislation reported out of the House Foreign Affairs Committee ( H.R. 6574 ) in 2008 would have approved the agreement with conditions that included the stipulation that Russia would have to ratify appropriate nuclear liability conventions or enact domestic laws to protect U.S. firms before a license under the agreement could be issued. The main focus of U.S.-Russia relations at the beginning of the Obama Administration was the negotiation of a follow-on Strategic Arms Reduction Treaty. However, Presidents Obama and Medvedev set up a process to review engagement in many sectors, as part of a "reset." The NATO-Russia Council resumed its meetings in April 2009, and in July 2009, the Russian president announced that Russia would grant supply rights to NATO forces in Afghanistan overland and in Russian airspace. Differences remain over a number of foreign policy issues, particularly Russian military bases in and diplomatic recognition of Abkhazia and South Ossetia, characteristics of future missile defense systems in Eastern Europe, the expansion of NATO and how to deal with the Iranian nuclear program. In this context, some argue that expanding cooperation with Russia on civilian nuclear energy is premature. Others argue that nonproliferation, nuclear terrorism prevention, and nuclear energy may have particular value for the bilateral relationship in this context, and that a 123 agreement could be used to influence Russian policies. U.S. Ambassador Burns remarked at the May 2008 signing ceremony that the 123 agreement marks Washington and Moscow's transition from "nuclear rivals" to "nuclear partners." Although a 123 agreement does not itself stipulate new programs or collaborative projects, it may have symbolic value and remove a longtime irritant in bilateral relations. Supporters of the agreement with Russia argued that rejecting the agreement could embolden anti-U.S. sentiment and be counter-productive to cooperation in other areas. Critics countered that its symbolic value is a reason not to enact it—it could be viewed as a reward for a Russian government that critics view as antidemocratic and repressive, and whose foreign policy often has been at odds with U.S. interests. President Bush's rescission of the national security determination as related to the proposed 123 agreement in 2008 following Russian military actions in Georgia clearly demonstrated the possibility of other foreign policy priorities overshadowing U.S.-Russian nuclear energy cooperation. During the Clinton Administration and the early Bush Administration, the United States had a policy not to conclude a civilian nuclear cooperation agreement with Russia while it was building a nuclear power reactor for Iran at Bushehr. After details about Iran's clandestine nuclear activities came to light during 2002-2006, Russia began to step up cooperation with the United States and other countries negotiating with Iran over its nuclear program. Russia has insisted on IAEA safeguards on any transfers to Iran's civilian nuclear reactor at Bushehr. The 2005 Russian-Iranian agreement on fuel supply for Bushehr requires the return of spent fuel to Russia, in order to prevent Iran from extracting plutonium from the spent fuel. Moscow also invited Tehran to participate in its newly established international uranium enrichment center at Angarsk, as an alternative to an indigenous Iranian enrichment capability—an offer that Iran has rejected. The Bush Administration supported this approach and since 2002 no longer objected to Russia's building the Bushehr nuclear power plant in Iran. The Bush and Obama Administrations viewed the Russian provision and take-back of nuclear fuel for the Bushehr reactor as demonstrating that it is possible for Iran to have access to nuclear energy without developing its own fuel cycle. Russia has generally been only reluctantly supportive of U.N. Security Council Resolutions (UNSCRs) imposing sanctions on Iran, preferring a primarily diplomatic solution to the crisis. However, President Putin signed decrees to fully implement UNSCRs 1737, 1747, and 1803 in 2008, and Russia also supported UNSCR 1835. In 2009, Russia and the United States worked closely on proposals to supply the Tehran Research Reactor with fuel. In June 2010, Russia supported a new U.N. Security Council sanctions resolution (UNSCR 1929). In general, analysts argue that Russian and American views about the nature of the Iranian nuclear program have come closer in recent years, particularly following the revelation in September 2009 of the enrichment facility being built at Qom. Continued questions about the nature and extent of Russian cooperation with Iran were an obstacle to approval of the 123 agreement by Congress. The 2006 Iran Freedom Support Act ( P.L. 109-293 ) stated the sense of Congress that no nuclear cooperation agreement should be entered into with a country that is assisting the nuclear program of Iran. As noted above, the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2009 ( H.R. 2194 ) amended the Iran Support Act to prohibit peaceful nuclear cooperation with a country if one of its citizens or companies was assisting Iran in its nuclear weapons program. Both the 2008 and 2010 NPAS state that the United States "has received assurances from Russia at the highest levels that its government would not tolerate cooperation with Iran in violation of its U.N. Security Council obligations." Some reports in 2008 said that Russian entities had transferred sensitive nuclear technology to Iran, but this activity was ended by high-level Russian governmental intervention and assurances were given to the highest levels of the U.S. government. Additional details on the proliferation concerns associated with Russian-Iranian cooperation are possibly part of the classified annex. The 2009 Director of National Intelligence report to Congress on WMD Acquisition says that "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…. Russian entities have provided assistance to missile and civil nuclear programs in Iran and India." The report also says that Russian entities have been a source of dual-use biotechnology equipment and expertise, including for Iran. Another issue of congressional interest is the planned Russian sale of five S-300 air defense systems to Iran. Russia has so far stalled on completing this transaction. It is expected to be deployed near Iranian nuclear facilities. The May 2010 draft of the U.N. Security Council sanctions resolution on Iran would not prohibit this transfer. Air defense systems are not prohibited under international export control regimes, nor would the transfer automatically fall under any current U.S. sanctions. On May 21, 2010, the State Department announced it was removing sanctions on four sanctioned entities in Russia. Since 1998, at least 19 different Russian entities have been placed under proliferation-related sanctions on over 20 different occasions. However, with the removals on May 21, there appear to be no current proliferation-related sanctions against Russian entities. Some observers have asserted that removal of sanctions was done in exchange for Russian support for a draft U.N. Security Council resolution that strengthens sanctions against Iran. The State Department spokesman has said that, regardless, there was no evidence that the companies removed from the sanctions list were currently transferring arms or technology. In March 2010, the Administration lifted sanctions on two other Russian entities, Glavkosmos and the Baltic State Technical University, both sanctioned in 1998 for helping Iran's missile and weapons programs. Additionally, the Department of Commerce lists entities subject to license requirements for proliferation-related end-use or end-user controls under Part 744 Supplement of the Export Administration Regulations (EAR). As of February 19, 2010, there were eight Russian entities on this list. Three of these entities' license applications are reviewed on a case-by-case basis, while five are under "presumption of denial." According to Commerce Department officials, this list is currently under review. Some argue that maximum leverage has already been gained in coaxing Russian behavior on Iran in exchange for the signing of a 123 agreement, and that there will be opportunities in the future to exercise further leverage if necessary, because each transaction under a 123 agreement must be approved for licensing. Supporters may also see the 123 agreement as a way to encourage Russia to continue pressing Iran on such issues as the Bushehr reactor safeguards. Some argue that engaging Russia on the scientific level would improve transparency and could provide a deterrent to Russian technical cooperation with Iran. Others were reluctant to approve the agreement when questions remain unanswered about the Russian government's control over transfers to Iran's nuclear and missile programs. | The bilateral nuclear cooperation agreement between the United States and Russia entered into force after an exchange of diplomatic notes on January 11, 2011. The United States and Russia signed a civilian nuclear cooperation agreement on May 6, 2008. President Bush submitted the agreement to Congress on May 13. The agreement was withdrawn from congressional consideration by President George W. Bush on September 8, 2008, in response to Russia's military actions in Georgia. President Obama transmitted the proposed text of the agreement to Congress on May 10, 2010, along with the required Nuclear Proliferation Assessment Statement (NPAS) and his determination that the agreement promotes U.S. national security. Under U.S. law, Congress had 30 days of continuous session for consultations with the Administration, followed by an additional 60 days of continuous session to review the agreement. Since it was not opposed by a joint resolution of disapproval or other legislation, the agreement was considered approved at the end of this time period on December 8, 2010. This report discusses key policy issues related to the agreement, including future nuclear energy cooperation with Russia, U.S.-Russian bilateral relations, nonproliferation cooperation, and Russian policies toward Iran. These issues were relevant to the debate when the agreement was being considered in the 111th and 110th Congresses. This report will be updated as events warrant. |
Americans obtain health insurance coverage in different settings and through a variety of methods. Although many receive coverage through publicly funded programs (e.g., Medicare and Medicaid), private health insurance is the predominant form of health coverage in the United States. In 2014, about 66.6% of the U.S. population had private health insurance. The private market is often described as having three segments: non-group (or individual), small group, and large group. Most individuals and families obtain private insurance through small- or large-group coverage, such as employer-sponsored insurance; some individuals and families purchase private insurance on their own in the non-group market. The Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) includes several provisions that affect the private health insurance market. These provisions create federal rules and incentives for entities and individuals in the market that build on and modify the existing market structure. Collectively, the provisions reflect an overall goal of the ACA—to increase access to health insurance coverage. Nearly all individuals can obtain private coverage regardless of preexisting conditions or health status, and insurers have limited ability to vary premiums based on an applicant's health status and other characteristics. To help accommodate individuals who have access to private health insurance as a result of these (and other) provisions, individuals and small businesses can shop for and purchase private coverage in health insurance exchanges (marketplaces). In addition, some individuals can receive financial assistance toward coverage obtained in an exchange. The ACA's individual mandate requires most individuals to maintain health insurance coverage or pay a penalty for noncompliance. Many have argued that unless healthy individuals are encouraged to participate in the private market, insurance pools will consist primarily of individuals who are high users of health care services, potentially creating financially unstable situations for insurers and enrollees. The ACA created three risk mitigation programs—reinsurance, risk corridors, and risk adjustment—to help health insurance issuers adjust to the reformed private health insurance landscape, particularly the new entrants to the market and the changes to how issuers set premiums. Reinsurance and risk corridors are temporary programs, providing issuers assistance from 2014 through 2016. The risk adjustment program, which also began in 2014, is permanent, designed to help issuers address the ongoing issue of adverse selection. The ACA provides financial incentives to employers to consider when determining whether to offer employer-based health insurance to employees. Some small employers are eligible to receive tax credits for their contributions toward their employees' health insurance premiums. Certain large employers are subject to a shared responsibility provision (often called the employer mandate). This provision does not explicitly mandate that a large employer offer employees health insurance; instead, it has the potential to impose penalties on large employers that do not provide affordable and adequate coverage to their employees. The ACA also includes some provisions that states may choose to implement. For example, states have the option of creating a Basic Health Program to provide state-designed assistance to lower-income individuals in lieu of those individuals obtaining coverage through an exchange. State-option provisions give states some flexibility to continue existing programs or create new programs better suited to their specific health insurance markets. This report provides an overview of many of the ACA provisions that affect the private health insurance market. More detailed information about these provisions can be found in other Congressional Research Service (CRS) reports. For a list of related reports, see the " Related CRS Reports " section below. A number of ACA provisions focus on changing how insurers and sponsors of insurance (e.g., employers) offer coverage. Collectively, these market reforms establish federal minimum requirements regarding access to coverage, premiums, benefits, cost-sharing, and consumer protections while generally giving states the authority to enforce the reforms and the ability to expand on the reforms. The market reforms do not apply uniformly to all types of private health plans. The application of some reforms varies by market segment—non-group, small group, or large group. Some reforms apply to all three market segments, but many focus specifically on the non-group and small-group insurance markets. These reforms are intended to address perceived failures in those markets, such as limited access to coverage and higher costs of coverage, and provide some parity with the large-group market, which may already have many of these features. The application of group market reforms also varies by whether the group sponsor (e.g., employer) is fully insured or self-insured. In addition, certain types of private plans are exempt from complying with some or all of the market reforms. See the text box for more details. When market reforms were implemented under the ACA, some of them were new to certain insurance markets; others had been in place in some capacity due to either state or federal laws. For example, guaranteed issue requires that an insurer accept every applicant for coverage as long as the applicant agrees to the terms and conditions of the insurance offer (e.g., the premium). In the early 1990s, some states passed laws requiring guaranteed issue in their small-group markets, with fewer states adopting types of guaranteed-issue laws in their non-group markets. In 1996, Congress passed the Health Insurance Portability and Accountability Act (HIPAA; P.L. 104-191 ), which requires guaranteed issue in the small-group market in all states. The ACA extends these efforts by requiring, as of 2014, that all non-grandfathered non-group and group plans (except those that are self-insured) offer coverage on a guaranteed-issue basis. Table 1 provides a brief overview of the market reforms in the ACA. By January 1, 2014, every state had to establish a health insurance exchange. The ACA exchanges are marketplaces in which individuals and small businesses can shop for and purchase private health insurance coverage. Exchanges are intended to simplify the experience of providing and obtaining coverage. They are not intended to supplant the private market outside of exchanges. Plans offered through an exchange must be, for the most part, qualified health plans (QHPs). In general, to be a QHP, a plan has to offer the essential health benefit (EHB) package and meet certain standards related to marketing, choice of providers, and plan networks. To facilitate the purchase of private insurance, the exchanges have two parts. One is the individual exchange , in which individuals can buy non-group insurance for themselves and their families. The other is the small business health options program (SHOP) exchange, designed to assist qualified small employers and their employees with insurance purchases. For SHOP exchange eligibility in 2016 and beyond, a small employer is one with 50 or fewer employees, but states may elect to define a small employer as one with 100 or fewer employees. In 2017, a state will have the option to allow large employers to use the SHOP exchange, regardless of how the state defines large employer. Individuals purchasing non-group coverage through an exchange may be eligible to receive financial assistance in the form of premium tax credits and cost-sharing reductions. Small employers purchasing small-group coverage through a SHOP exchange may be eligible for small business health insurance tax credits. Premium tax credits are generally available to lower-income individuals who are part of a tax-filing unit and who purchase non-group coverage through an exchange. To be eligible, individuals must have household income at or above 100% of the federal poverty level (FPL) but not more than 400% FPL. (For 2016, the corresponding income range is $11,880-$47,520 for a single individual and $24,300-$97,200 for a family of four, provided the individuals live in the 48 contiguous states.) Premium tax credit eligibility is also contingent on an individual's eligibility for other minimum essential coverage. Individuals who are eligible for minimum essential coverage are generally ineligible for premium tax credits, because the credits are directed at individuals who do not have access to coverage outside the non-group market. An exception is individuals who are eligible for employer-sponsored insurance that is not considered affordable or adequate. If an individual's offer of employer-sponsored insurance is considered unaffordable or inadequate, the individual may purchase non-group coverage through an exchange with the assistance of a premium tax credit (provided the individual is otherwise eligible for the credit). The premium tax credits are advanceable and refundable, meaning tax filers need not wait until the end of the tax year to benefit from the credit and may claim the full credit amount even if they have little or no federal income tax liability. The amount of the premium tax credit varies from person to person. The credit is based on the household income of the tax filer (and dependents), the premium for the exchange plan in which the tax filer (and dependents) is enrolled, and other factors. The amount a tax filer receives in credits must be reconciled when filing a federal tax return. Any additional credit amounts owed to the tax filer will be included in the filer's tax refund for that year, and any excess amount that was overpaid in premium credits to the tax filer will have to be repaid to the federal government as a tax payment. Some individuals are eligible to receive subsidized financial assistance for cost-sharing expenses—deductibles, coinsurance, and co-payments. In general, to qualify, individuals must be eligible for premium tax credits and enrolled in a non-group silver plan through an exchange. Cost-sharing assistance is provided in two forms, and both forms are based on income. Some individuals may receive both types of cost-sharing subsidies if they meet applicable eligibility requirements. The first form reduces annual out-of-pocket limits for individuals with income between 100 % FPL and 250% FPL. The second form, which also applies to individuals with income between 100% FPL and 250% FPL, involves reducing individuals' cost-sharing requirements to ensure that the plans in which they have enrolled cover a certain percentage of allowed health care expenses, on average. This form of cost-sharing assistance directly affects deductibles, coinsurance, and co-payments. Certain small employers may be eligible for a tax credit, which reduces the cost of premiums, making small-group coverage more affordable for small employers. The tax credit is generally available to qualifying nonprofit and for-profit employers with fewer than 25 full-time equivalent (FTE) employees with average annual wages that fall under a statutorily specified cap. To qualify for the credit, employers must cover at least 50% of the cost of each of their employees' self-only health insurance coverage. The full credit covers up to 50% of the for-profit employer's contribution and 35% of the nonprofit employer's contribution to employees' health insurance premiums. As of 2014, the credit is generally available only to an employer that obtains coverage through a SHOP exchange, and it is only available for two consecutive tax years. In other words, if a qualified employer first obtains coverage through a SHOP exchange in 2016, the credit would be available to the employer only in 2016 and 2017. Since January 1, 2014, the ACA has required that most individuals maintain health insurance coverage or pay a penalty for noncompliance. To comply with the individual mandate, individuals need to obtain minimum essential coverage , which includes most types of private (e.g., employer-sponsored insurance and non-group coverage) and public coverage (e.g., Medicare and Medicaid). Certain individuals are exempt from the individual mandate or its associated penalty. The exemptions as outlined in statute and regulations include religious conscience, membership in a health care sharing ministry, and membership in an Indian tribe. Individuals who are incarcerated, cannot afford coverage, and not lawfully present in the United States may also be exempt. Those individuals who do not comply with and are not exempt from the mandate may be required to pay a penalty for each month of noncompliance. The penalty is calculated as the greater of either a percentage of applicable income , defined as the amount by which a taxpayer's household income exceeds the applicable tax filing threshold for the tax year; or a flat dollar amount assessed on each taxpayer and any dependents. As of 2016, the annual penalty is the greater of 2.5% of applicable income or $695 (the $695 will be adjusted for inflation in subsequent years). Taxpayers are required to include any payable penalty for themselves and their dependents in their federal income tax return for the taxable year. Taxpayers who fail to pay the penalty will be notified by the Internal Revenue Service (IRS). The IRS can attempt to collect any unpaid funds by reducing the amount of a taxpayer's refund for that year or future years. However, individuals who fail to pay the penalty will not be subject to any criminal prosecution or additional penalty for such failure. The Secretary of the Treasury cannot file a lien against or a levy on any taxpayer's property for failing to pay the penalty. The individual mandate is often described as working in conjunction with certain ACA market reforms, including guaranteed issue and renewability, nondiscrimination based on health status, coverage of preexisting health conditions, and rating restrictions (see Table 1 ). These reforms are intended to improve access to coverage for sick individuals or those at high risk of becoming ill. The individual mandate works in tandem with these reforms by encouraging healthy individuals to participate in the market so that insurers' risk pools are not entirely composed of individuals who are at high risk of using health care services. An insurer calculates and charges a premium in order to finance the health coverage it provides. The premium reflects several components, including the expected cost of claims for health care use during a plan year. To accurately estimate this expected cost and set appropriate premium levels, it is useful for an insurer to have information about the population it covers (i.e., to have information about the risk it is taking on). ACA provisions—particularly the market reforms and the financial assistance available through exchanges—have expanded access to the non-group and small-group markets and limited the methods insurers can use to manage risk. As a result, insurers face increased uncertainty about who will enroll in their plans and the risk levels of those enrollees. For example, individuals who were previously uninsured may apply for coverage on a guaranteed-issue basis, and insurers must accept these applicants despite having little information about their health status and pent-up demand for services. The increased uncertainty about enrollees and their risk levels makes it more difficult for insurers to accurately set premiums. The ACA establishes three risk programs to address different aspects of this uncertainty and help mitigate the financial risks associated with it. The reinsurance program and the risk corridors program are temporary programs designed to assist insurers in 2014 through 2016. The risk adjustment program is a permanent program that began in 2014. The transitional reinsurance program is a temporary program (2014-2016) designed to compensate insurers for a portion of the cost of particularly high-cost enrollees in the non-group market, both inside and outside the exchanges. Prior to the ACA, little information was available on health care usage and demand for the previously uninsured, as well as any pent-up demand due to the lack of health insurance. Accordingly, insurers would likely raise premiums to the extent possible to protect themselves against the potential high cost associated with delayed care. However, some of the new ACA market reforms limit the degree to which insurers can vary premiums. The transitional reinsurance program is designed to mitigate the financial risk associated with individuals who had delayed needed health care while they were uninsured. This temporary program assumes that any care that was delayed due to a lack of insurance would be provided in the early years of the program. All insurers and third-party administrators of group health plans (including self-insured plans) must contribute to a reinsurance program. Non-grandfathered non-group plans (offered inside and outside of exchanges) are eligible for transitional reinsurance payments to help offset the medical claims associated with high-cost enrollees. The risk corridors program is another temporary program (2014-2016) designed to mitigate the risk that insurers faced in setting premiums for QHPs in the non-group and small-group markets, both inside and outside the exchanges. Insurers were faced with many questions in regard to rate setting in this new and unfamiliar market, such as whether young, healthy individuals would sign up for insurance. The insurers' assumptions about the answers to these questions can have an impact on the premiums they set. But if the insurers' assumptions are wrong, they may end up underestimating or overestimating the premiums necessary to pay for their enrollees' claims. Under the program, payments between an insurer and the Department of Health and Human Services (HHS) are adjusted according to a formula based on each insurer's actual, allowed expenses in relation to a target amount. HHS is to make payments to an insurer that experiences losses greater than 3% of the insurer's projections, whereas an insurer whose gains are greater than 3% of its projections is to remit payments to HHS. The risk corridors program assumes that insurers will be better able to estimate premiums under the new market reforms after three years. The risk adjustment program is a permanent program (which began in 2014) intended to mitigate the effects of adverse selection in the non-group and small-group markets, both inside and outside the exchanges. Adverse selection is a function of the asymmetry of information between insurers and individuals. Individuals know more about their relative need for coverage than insurers. Individuals who expect or plan for high use of health services tend to seek out coverage and enroll in more generous (and consequently more expensive) plans, whereas individuals who do not expect to use many or any health services may not obtain coverage and, if they do, they tend to enroll in less generous (and less expensive) plans. The relative generosity of the insurance plan will thus attract higher- or lower-spending enrollees. Risk adjustment more accurately compensates insurers for the higher cost of sicker enrollees who tend to enroll in more generous plans, and it more accurately compensates insurers for the lower cost of healthier enrollees who tend to enroll in less-generous plans. Under the risk adjustment program, the relative risk for each enrollee is based on demographic and health history information. Those individual risk scores are used to calculate an adjusted average risk score for each insurer's book of business (i.e., non-group and small-group markets). These adjusted average scores are compared with a market average, and the HHS Secretary calculates transfer payments between insurers based on the relative risks of their enrollment as compared with the market average. All non-grandfathered non-group and small-group market plans (offered inside and outside the exchanges) are subject to risk adjustment. Because adverse selection is a phenomenon that is always present, risk adjustment is a permanent risk mitigation program. Certain employers are subject to a shared responsibility provision (often called the employer mandate). This provision does not explicitly mandate that an employer offer employees health insurance; instead, it has the potential to impose penalties on employers that do not provide affordable and adequate coverage to full-time employees (and those employees' dependents). The provision applies to large employers—those with 50 or more FTE employees. A large employer is subject to a penalty only if one of its full-time employees obtains coverage through an exchange and receives a premium tax credit. If a large employer offers its full-time employees coverage that is considered affordable and adequate, the employer may not be subject to a penalty because its employees are not eligible to receive premium tax credits. However, if a large employer does not offer coverage or if the coverage offered does not comply with the affordability or adequacy requirements, then the employer may be subject to a penalty because its full-time employees may be eligible to receive premium tax credits. No employer may be subject to a penalty based upon health coverage for any part-time employee, even if the part-time employee receives a premium tax credit. Calculation of the penalty amount depends on whether the employer offers coverage and the total number of full-time employees working for the employer. The Consumer Operated and Oriented Plan (CO-OP) program is intended to foster nonprofit, member-run health insurance issuers. The program was included in the ACA to increase the competitiveness of state health insurance markets and improve choice in the markets. The HHS Secretary must use funds appropriated to the CO-OP program to finance low-interest start-up and solvency loans for organizations applying to become qualified nonprofit issuers of health plans. Awarded entities (referred to as CO-OPs) are to use the start-up loans for assistance with costs associated with creating the CO-OP, and the solvency loans must be used to help the entity meet state solvency requirements. All loans must be repaid with interest; the start-up loans must be repaid within 5 years and the solvency loans must be repaid within 15 years (from the date of disbursement). The ACA appropriated $6 billion of federal funds for the CO-OP program. Subsequent legislation rescinded $2.6 billion from the program, leaving it with $3.4 billion. The American Taxpayer Relief Act of 2012 ( P.L. 112-240 ) rescinded all but 10% of the CO-OP funds that were unobligated at the end of 2012. The remaining funds were to be used to support the entities that had already received CO-OP loans. The Centers for Medicare & Medicaid Services (CMS) awarded loans to 24 CO-OPs. One of the 24 was dropped from the program prior to offering health plans. Among the remaining 23 CO-OPs, 11 are offering health plans in 2016. The other 12 offered health plans at one time but are not currently offering health plans and are in various stages of shutting down. CMS awarded about $2.4 billion to the 23 CO-OPs that ever offered health plans. To increase the number of plan choices offered through the exchanges, the Office of Personnel Management (OPM) must contract with private health insurance issuers in each state to offer at least two health plans through exchanges in every state. The health plans are known as multi-state plans (MSPs). OPM administers the MSP contracts similar to how it administers the Federal Employee Health Benefits (FEHB) Program. OPM negotiates plan benefits, monitors performance, and oversees compliance with ACA provisions. In general, MSPs must comply with the same requirements as QHPs offered through exchanges, and MSP issuers must be licensed in each state and comply with state laws. Individuals who enroll in MSPs have the same access to financial assistance (e.g., premium tax credits) as individuals who enroll in other QHPs offered through the exchanges. States may choose to implement certain ACA provisions. The flexibility inherent in these state-option provisions allows states to continue existing programs or create new programs that may be better suited to their specific health insurance markets. Since 2015, states may opt to offer coverage to certain low-income individuals through a basic health program (BHP). A BHP is a health insurance program for individuals under the age of 65 with household incomes between 133% FPL and 200% FPL who are not eligible for Medicaid or otherwise eligible to enroll in other minimum essential coverage and available to individuals. A BHP is offered in lieu of these individuals obtaining coverage through an exchange; however, coverage must be at least as comprehensive and affordable as what the individuals could have obtained through an exchange. A state that chooses to establish a BHP can receive funds from the federal government to operate the program. A state may apply for the waiver of any or all of the provisions listed below for plan years beginning on or after January 1, 2017. Part I of S ubtitle D of the ACA : Requirements related to the establishment of QHPs. Part II of S ubtitle D of the ACA : Requirements related to the establishment of health insurance exchanges. Section 1402 of the ACA : Provision of cost-sharing subsidies to eligible individuals who purchase non-group health insurance through a health insurance exchange. Section 36B of the Internal Revenue Code (IRC) : Provision of premium tax credits to eligible individuals who purchase non-group health insurance through an exchange. Section 4980H of the IRC: Employer mandate for large employers. Section 5000A of the IRC: Individual mandate. Waiving some or all of the allowed provisions could result in the residents of the state not receiving the "premium tax credits, cost-sharing reductions, or small business credits under sections 36B of the Internal Revenue Code of 1986 or under part I of subtitle E [of ACA] ... for which they would otherwise be eligible." If this occurs, the state is to receive the aggregate amount of subsidies that would have been available to the state's residents had the state not received a state innovation waiver. The state must use the funds for purposes of implementing the plan or program established under the waiver. A state must submit its application for a state innovation waiver to the HHS Secretary, who must share the responsibility of reviewing the application with the Treasury Secretary, as appropriate. Either Secretary may grant a request for a state innovation waiver if it is determined by the relevant Secretary that the state's plan or program meets the following criteria: Provides coverage that is at least as comprehensive as the EHB, as certified by the Office of the Actuary of CMS; Provides coverage and cost-sharing protections that are at least as affordable as the provisions of Title I of the ACA; Provides coverage to at least a comparable number of the state's residents as the provisions of Title I of the ACA would provide; and Does not increase the federal deficit. Two or more states may create a health care choice compact. The compact would allow the states to enter into an agreement whereby one or more QHPs could be offered in the non-group market in all states in the compact. In this arrangement, a QHP would only be subject to the laws and regulations of the state in which the plan was issued; however, the issuer of such QHP would be subject to other rules and requirements (e.g., market conduct rules, consumer protection rules) imposed by the state(s) in which the consumer resides. The issuer would be required either to be licensed in each state in the compact or to submit to each state's standards for offering insurance, and the issuer would have to notify all consumers that its QHPs may not comply with their state's rules. A state must have a law that specifically authorizes it to enter into a compact. The HHS Secretary may approve a compact if the agreement meets certain requirements. The ACA directed the HHS Secretary to promulgate regulations on this provision no later than July 31, 2013; as of the publication date of this report, the regulations have not been promulgated. Approved compacts could not go into effect before January 1, 2016. CRS Report RL32237, Health Insurance: A Primer CRS Report R42069, Private Health Insurance Market Reforms in the Patient Protection and Affordable Care Act (ACA) CRS Report R44163, The Patient Protection and Affordable Care Act's Essential Health Benefits (EHB) CRS Report R42735, Medical Loss Ratio Requirements Under the Patient Protection and Affordable Care Act (ACA): Issues for Congress CRS Report R44065, Overview of Health Insurance Exchanges CRS Report R44425, Eligibility and Determination of Health Insurance Premium Tax Credits and Cost-Sharing Subsidies: In Brief CRS Report R41331, Individual Mandate Under the ACA CRS Report R43981, The Affordable Care Act's (ACA) Employer Shared Responsibility Determination and the Potential ACA Employer Penalty CRS Report R44414, Consumer Operated and Oriented Plan (CO-OP) Program: Frequently Asked Questions | Private health insurance is the predominant form of health insurance coverage in the United States, covering about two-thirds of Americans in 2014. The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) builds on and modifies existing sources of private health insurance coverage—the non-group (individual), small-group, and large-group markets. The ACA provisions follow a federalist model in which they establish federal minimum requirements and give states the authority to enforce and expand those federal standards. The ACA includes provisions that restructure the private health insurance market by implementing market reforms that impose requirements on insurers and sponsors of health insurance (e.g., employers); creating health insurance exchanges (marketplaces) in which individuals and small businesses can shop for and purchase private health plans that meet or exceed federal standards; providing financial assistance to qualified individuals and small employers who purchase health plans through an exchange; establishing an individual mandate, which requires most individuals to either maintain health insurance coverage or pay a penalty; creating three risk mitigation programs to help health insurance issuers adjust to the reformed private health insurance landscape; assessing penalties on certain employers that either do not provide health insurance or provide health insurance that does not meet certain criteria; and including some state-option provisions, which states may choose to implement. This report provides a broad overview of some of the private health insurance provisions in the ACA and directs readers to more in-depth CRS reports. |
In the United States, and elsewhere, a growing number of organizations and individuals who are not subject to mandatory emission caps are buying or selling carbon offsets. These exchanges are voluntary because there is no requirement for these parties to curtail their greenhouse gas (GHG) emissions. The motivation for exchanges can vary. Some businesses or organizations may be seeking to enhance their public image. For example, buyers may be interested in offsetting some or all of their GHG emissions from various activities, reducing their "carbon footprint," or becoming "carbon neutral." Buyers might also be preparing for future mandatory federal GHG emission reductions, getting into the market while prices are relatively low with the expectation that today's carbon offsets will be usable to achieve future federal emission ceilings or caps. Sellers are interested in receiving income for various activities, which, without the voluntary market, would likely not occur. The concept of purchasing carbon offsets has spurred both interest and debate in recent years. This report provides an overview of carbon offsets and examines some of the issues that are generating debate (and controversy). Although there is some overlap of issues between voluntary carbon offsets and the offsets used to comply with mandatory reduction regimes, this report focuses on the voluntary offsets market. Unless otherwise stated, the carbon offsets in this report refer to those exchanged in the voluntary market. A carbon offset is a measurable avoidance, reduction, or sequestration of carbon dioxide (CO 2 ) or other greenhouse gas (GHG) emissions. Offsets generally fall within the following four categories (discussed in greater detail later in the report): biological sequestration, renewable energy, energy efficiency, and reduction of non-CO 2 emissions. Carbon offsets are sometimes described as project-based because they typically involve specific projects or activities that reduce, avoid, or sequester emissions. Because offset projects can involve different GHGs, they are quantified and described with a standard form of measure: either metric tons of carbon-equivalents (mtC-e) or metric tons of CO 2 -equivalents (mtCO 2 -e). To be considered a credible offset, the emissions reduced, avoided, or sequestered need to be additional to business-as-usual: that is, what would have happened anyway. In the context of a mandatory GHG emission reduction regime, an offset can come only from sources not covered by the reduction program (i.e., outside the emissions cap). Emission reductions from regulated sources would be required under the cap, and thus would not be additional . By comparison, a reduction activity may be additional if it occurs from a source in a nation that does not limit the source's GHG emissions. As more nations (or U.S. states) establish mandatory caps or similar standards on emission sources, the universe of potential carbon offsets will shrink. A primary concern regarding voluntary carbon offsets is their integrity. It is generally agreed that a credible offset should equate to an emission reduction from a direct emission source, such as a smokestack or exhaust pipe. Several criteria determine the integrity or quality of an offset project. This is generally considered to be the most significant factor that determines the integrity of the carbon offset. Additionality refers to whether the offset project (e.g., wind farm) would have gone forward on its own merits (or own financial benefits) without the support of the offset market. In other words, would the project have happened anyway? If the project would have occurred without the financial support of the offset buyer, the emission reductions generated from the project would not be additional. The additionality criterion is at the crux of an offset's integrity, but additionality can be difficult to assess in practice. The standards used to analyze a project's additionality vary, and some groups may downplay the importance of this attribute. An offset seller who employs a more stringent additionality analysis will likely offer "higher quality" offsets. It is generally much simpler to measure and quantify an emission reduction from a direct source than from an offset project. Two issues concerning measurement are further discussed below. To determine the amount of emissions avoided by an offset project, project managers must establish an emissions baseline: an estimate of the "business-as-usual" scenario or the emissions that would have occurred without the project. If project managers inaccurately estimate the baseline, the offsets sold may not match the actual reductions achieved. For example, an overestimated baseline (projecting more emissions than would have been emitted in the project's absence) would generate an artificially high amount of offsets. Baseline measurement may present technical challenges. In addition, project developers would have a financial incentive to err on the high side of the baseline determination, because the higher the projected baseline, the more offsets generated. A carbon offset is meaningful if it is only counted once. To be credible, when an offset is sold, it should be retired and not sold again or counted in other contexts. However, opportunities for double-counting exist. For example, a U.S. buyer may purchase offsets generated through the development of a wind farm in a country, state, or locality that has established GHG emissions targets. The U.S. buyer will count the offsets, which may have been purchased to counter an increase in personal air travel. In addition, the nation (state or locality), in which the wind farm is located, may see an emissions reduction due to the wind farm. This decrease will be reflected in the nation's GHG emissions inventory. Thus, the offset project (wind farm) may replace other reduction activities that the nation might have taken to meet its target. A tracking system needed to avoid such double-counting does not exist. Some may argue that double-counting is less of a problem if the offset project occurs in a U.S. state (county or city) with only a voluntary target (as opposed to a nation subject the Kyoto Protocol). However, the impact would be the same if the state is eventually part of a federal emissions reduction program, and the state is allowed to take credit for the earlier reductions associated with the offset project. By taking credit for an earlier reduction, the state will need to make fewer reductions to be in compliance with the new mandatory program. When carbon offsets are generated from a project, there should be confidence that the emission offsets are permanent—that the emissions are not merely postponed. This characteristic is most pertinent to biological sequestration projects, specifically forestry activities. For example, buyers need some assurance that the land set aside for forests will not be used for a conflicting purpose (e.g., logging or urban development) in the future. Although natural events (fires or pests) are hard to control, human activity can be constrained through legal documents such as land easements. In addition, an offset could come with a guarantee that it would be replaced if the initial reduction is temporary. In the voluntary market, carbon offsets can be generated from multiple economic sectors. This report discusses carbon offsets grouped into the four categories identified above. Each category contains a list of possible carbon offset examples. Specific integrity issues may be associated with particular offset categories. These issues are discussed below. The potential problems highlighted below should not necessarily rule out entire carbon offset categories. If offset project developers can address these potential obstacles, the offsets may be credible. However, it may be difficult for offset buyers to know if these problems were addressed (as discussed later in the report). Trees, plants, and soils sequester carbon, thereby reducing its amount in the earth's atmosphere. Biological sequestration projects generally involve activities that either increase sequestration or preserve an area's existing sequestration ability that is under threat (e.g., from logging or development). This offset category includes sequestration that results from activities related to agriculture and forests, and is sometimes referred to as land use, land use change and forestry (LULUCF) projects. Examples of these projects include: Planting trees on previously non-forested land (i.e., afforestation) Planting trees on formerly forested land (i.e., reforestation) Limiting deforestation by purchasing forested property and preserving the forests with legal mechanisms (e.g., land easements) Setting aside croplands from production to avoid emissions released during crop production Promoting practices that reduce soil disruption (e.g., conservation tillage) Compared to the other offset categories, biological sequestration projects offer the most potential in terms of volume (particularly forestry projects). However, this category is arguably the most controversial, because of several integrity issues that are typically associated (or perceived to be associated) with biological sequestration projects. Some agricultural sequestration offsets may raise concerns of additionality: that is, the sequestration activity would have happened regardless of the payments received from offset buyers. For example, farmers may be able to generate offsets by conducting no-till operations on their land, but for the offsets to be credible, the impetus to adopt this practice should be driven by the financial gain from the offset market. If the no-till practice was part of normal operations before the offset market, then the offset would fail the additionality test. There is anecdotal evidence indicating that some farmers have been using the no-till technique for years, but still received compensation for the offsets. If this is the case, this would be a fairly straightforward example of a non-additional offset. Should this bar other farmers, who have not been practicing conservation measures (e.g., no-till farming), from receiving offsets for initiating such measures? Arguably the measures provide some benefit on their own (e.g., less fuel use), because some farmers have been using the techniques for years. However, the offset incentive may be a primary driver at some farms. This example demonstrates the difficulties associated with proving that a project is additional. Biological sequestration offset projects may present challenges in terms of measurement. This issue is especially relevant to forestry-related offsets. The carbon cycle in trees and soils is complex: variations across tree species, ages, and geographic locations increase the measurement challenge. In addition, other variables complicate the measurement of reductions from forestry projects. For example, a recent study in the Proceedings of the National Academy of Sciences stated: We find that global-scale deforestation has a net cooling influence on Earth's climate, because the warming carbon-cycle effects of deforestation are overwhelmed by the net cooling associated with changes in albedo and evapotranspiration. Latitude-specific deforestation experiments indicate that afforestation projects in the tropics would be clearly beneficial in mitigating global-scale warming, but would be counterproductive if implemented at high latitudes and would offer only marginal benefits in temperate regions. As mentioned earlier, biological sequestration projects often raise questions of permanence: that is, whether the activity that generates offsets will continue. Although many observers expected biological sequestration offsets to dominate the international market, this has not been observed in practice. Concern of permanence has been one of the issues that has hindered the development of biological sequestration offsets in developing nations. Renewable energy sources generate less GHG emissions (wind and solar energy produce zero emissions) than fossil fuels, particularly coal. Therefore, use of renewable energy sources would avoid emissions that would have been generated by fossil fuel combustion. These avoided emissions could be sold as carbon offsets. Historically, renewable energy sources—wind, solar, biomass—have been more expensive (per unit of energy delivered) than fossil fuels in most applications. Sales of renewable energy offsets may provide the financial support to make a renewable energy more economically competitive with fossil fuels. Potential renewable energy offset projects may include: Constructing wind farms to generate electricity Installing solar panels Retrofitting boilers to accommodate biomass fuels Some renewable energy offsets may raise concerns of additionality. Several offset sellers offer renewable energy certificates or credits (RECs) as carbon offsets. One REC represents the creation of 1 megawatt-hour of electricity from a renewable energy source. RECs generally convey the environmental attributes of renewable energy projects, and RECs may be sold to promote further use of renewable energy. However, a REC does not necessarily equate with a carbon offset. A credible offset must be additional to the status quo; RECs are not subject to the same standard. Although some offset sellers closely scrutinize the RECs they offer for sale as offsets, there is no system or standard in place to ensure that RECs are additional. Several factors, other than CO 2 emission reductions, may drive the development of a renewable energy project. Although renewable energy has historically been more expensive, higher fossil fuel prices and tax incentives have made renewable energy more competitive in recent years. Moreover, many states have enacted or are developing Renewable Portfolio Standards (RPS). An RPS requires that a certain amount or percentage of electricity is generated from renewable energy resources. Twenty-eight states have implemented or are developing some type of RPS. Although some sellers will not issue RECs that were counted towards an RPS, it is uncertain whether all sellers follow this protocol. These factors complicate the determination of additionality regarding renewable energy offsets projects, particularly offsets based only on RECs. An improvement in a system's energy efficiency will require less energy to generate the same output. Advances in energy efficiency generally require a financial investment. These capital investments may pay off in the long run, but may be unprofitable in the short-term, particularly for small businesses or in developing nations. Examples of possible energy efficiency offset projects include: Upgrading to more efficient appliances or machines Supporting construction of more energy efficient buildings Replacing incandescent light bulbs with fluorescent bulbs Energy efficiency improvements are sometimes described as a "no regrets" policy, because the improvements would likely provide net benefits (e.g., cost savings) regardless of their impact on other concerns (climate change or energy independence). Thus, the issue of additionality may be a particular concern for energy efficiency offsets. For example, in some cases, it may be difficult to discern if the improvements would have been made regardless of the offset market. Offset ownership is another potential challenge regarding some energy efficiency offsets. Energy efficiency improvements may occur at a different location than the actual reduction in emissions. For example, a business that runs its operations with purchased electricity will use less electricity if energy efficiency improvements are made, but the actual emission reductions will be seen at a power plant. This may create a double-counting situation. Although the federal government has not set a mandatory GHG emission reduction, several states and local governments have enacted limits. If the state counts the emission reductions at the electricity plant towards its goal, while the business sells the offsets, the reductions will be counted twice. There are multiple GHG emissions sources, whose emissions are not generally controlled through law or regulation. These sources—primarily, agricultural, industrial, and waste management facilities—emit non-CO 2 GHGs as by-products during normal operations. In many cases, the individual sources emit relatively small volumes of gases, but there are a large number of individual sources worldwide. In addition, these non-CO 2 gases emitted have greater global warming potentials (GWP) than carbon dioxide. Offset projects in this category could provide funding for emission control technology to capture these GHG emissions. Examples of emission capture opportunities include: Methane (CH 4 ) emissions from landfills, livestock operations, or coal mines (GWP = 25) Nitrous oxide (N 2 O) emissions from agricultural operations or specific industrial processes (GWP = 298) Hydrofluorocarbon (HFC) emissions from specific industrial processes, such as HFC-23 emissions from production of HCFC-22 (GWP of = 14,800) Sulfur Hexafluoride (SF 6 ) from specific industrial activities, such as manufacturing of semiconductors (GWP = 22,800) This offset category is relatively broad, as it can involve many different industrial activities. As such, there are offset types in this category that are generally considered high quality, and others that have generated some controversy. For example, methane capture (and destruction through flaring) from landfills or coal mines has a reputation as a high quality offset. These projects are relatively easy to measure and verify, and in many cases would not have occurred if not for the offset market. The precise size or value of the voluntary offset market is unknown, because there is currently no registry or tracking system that follows exchanges in the voluntary market. However, several organizations—the World Bank, Point Carbon, Ecosystem Marketplace —have provided estimates for recent years. Table 1 includes data from the last group. The estimates indicate that the size of the market has increased rapidly every year since 2004. The World Bank report cites forecasts of increasing growth in coming years. One projection (described as "optimistic" by the World Bank) indicates that the volume of transactions in the international voluntary market will be 400 MtCO 2 -e by 2010. To put this figure in context, U.S. GHG emissions were approximately 7,125 MtCO 2 -e in 2007. The primary components of the voluntary market are retail offsets and offsets generated through the Chicago Climate Exchange. These markets, in addition to voluntary reporting and registry programs, are discussed below. In general, the voluntary offset market refers to retail or "over-the-counter" offsets that may be purchased by anyone. Purchasing a retail offset is as simple as online shopping. More than 200 organizations—private and nonprofit entities—develop, provide, or sell retail offsets to businesses and individuals in the voluntary market. The quality of the retail offsets in the voluntary market varies considerably, largely because there are no commonly accepted standards. Some sellers offer offsets that comply with standards generally regarded as quite stringent, such as the CDM or the Gold Standard. Other sellers offer offsets that meet the seller's self-established guidelines, which may not be publicly available. These self-established protocols can vary considerably, raising questions of integrity. The Chicago Climate Exchange (CCX) was established in 2003 as a trading system for buyers and sellers of offset projects to reduce GHG emissions. Buyers (i.e., GHG emitters) make voluntary but legally binding commitments to meet GHG emission reduction targets; those who emit more than their targets comply by purchasing CCX Carbon Financial Instrument (CFI) contracts, which can be generated by qualifying carbon offset projects (from sellers). CCX has guidelines and rules for determining eligible projects and their resulting carbon offsets. However, recent studies have been critical of the quality of the offsets generated by the CCX. Numerous companies and organizations sell carbon offsets to individuals or groups in the international, voluntary carbon market. The quality of the offsets may vary considerably, largely because there are no commonly accepted standards. Some offset sellers offer offsets that comply with standards that are generally regarded as the most stringent: for example, the Clean Development Mechanism or the Gold Standard. These standards generally have a robust test for additionality, as well as more substantial monitoring and verification procedures. As such, offsets meeting these standards incur higher transaction costs, adding to the cost per ton of carbon. Some offset sellers offer offsets that meet the seller's self-established guidelines. These self-established protocols can vary considerably, raising questions of integrity. Are the protocols addressing additionality concerns? Are the offsets accounted in such a way as to avoid double-counting? Are the offset projects verified by independent third parties? Assessing the standards can be challenging for a consumer. Moreover, some company's standards are not made public, but may be considered proprietary information. Two studies examined approximately 30 companies and/or groups that sell carbon offsets on the voluntary market. The following list highlights findings from the analyses: The prices for carbon offsets range between $5 and $25 per ton of carbon. Offset prices show a correlation with offset quality. Overhead costs can vary substantially by seller. However, this factor may not be a good indicator of offset quality. The tax status of a seller (profit firm vs. nonprofit group) was not a good indicator of offset quality. Arguably, the most significant finding of the two studies is the general correlation between offset price and offset quality. This correlation is more striking, considering the range of offset prices ($5 to $25 per ton of carbon reduced). Carbon offset purchases are intended to generate emission reductions that would not have occurred otherwise. In terms of global climate change mitigation, an emission reduction, avoidance, or sequestration is beneficial regardless of where or how it occurs. For example, a ton of carbon reduced at a power plant will have the same atmospheric effect as a ton of carbon reduced, avoided, or sequestered through an offset project. The core issue for carbon offset projects is: do they actually offset emissions generated elsewhere? If the credibility of the voluntary offsets is uncertain, claims of carbon neutrality may lack merit. Evidence suggests that not all offset projects are of equal quality, because they are developed through a range of standards. Although some standards are considered stringent, others are less so. In some cases, the standards used are not even made available to the purchaser. Due to the lack of common standards, some observers have referred to the current voluntary market as the "wild west." This does not suggest that all carbon offsets are low quality, but that the consumer is forced to adopt a buyer-beware mentality when purchasing carbon offsets. This places the responsibility on consumers to judge the quality of carbon offsets. The voluntary carbon offset market raises several issues that Congress may consider. The viability—both actual and perceived—of the offset market may influence future policy decisions regarding climate change. For instance, some people are concerned that the range in the quality of voluntary market offsets may damage the overall credibility of carbon offsets. If this occurs, it may affect policy decisions concerning whether or not to include offsets as an option in a mandatory reduction program. This is an important policy question for Congress. Although some oppose the use of offsets based on supplementarity concerns (see discussion above), other argue that credible offsets would expand the compliance alternatives and likely lower the costs of a GHG emissions reduction program. The voluntary program may inform the climate change policy debate in another manner. If Congress were to enact a federal GHG emissions control program that included the use of offsets, all of the integrity concerns—for example, additionality, permanence, accounting—would need to be addressed in some fashion. The experiences gained in the voluntary market may help policymakers develop standards or a process by which the integrity of offset projects could be assessed. | Businesses and individuals are buying carbon offsets to reduce their "carbon footprint" or to categorize an activity as "carbon neutral." A carbon offset is a measurable avoidance, reduction, or sequestration of carbon dioxide (CO2) or other greenhouse gas (GHG) emissions. Offsets generally fall within the following four categories: biological sequestration, renewable energy, energy efficiency, and reduction of non-CO2 emissions. In terms of the carbon concentration in the atmosphere, an emission reduction, avoidance, or sequestration is beneficial regardless of where or how it occurs. A credible offset equates to an emission reduction from a direct emission source, such as a smokestack or exhaust pipe. The core issue for carbon offset projects is: do they actually offset emissions generated elsewhere? If the credibility of the voluntary offsets is uncertain, claims of carbon neutrality may be challenged. Evidence suggests that not all offset projects are of equal quality, because they are developed through a range of standards. In the voluntary market, there are no commonly accepted standards. Although some standards are considered stringent, others are less so. Numerous companies and organizations (domestic and international) sell carbon offsets to individuals or groups in the international, voluntary carbon market. Recent studies have found a general correlation between offset price and offset quality. Due to the lack of common standards, some observers have referred to the market as the "wild west." This does not suggest that all carbon offsets are low quality, but that the consumer must necessarily adopt a buyer-beware mentality when purchasing carbon offsets. This places the responsibility on consumers to judge the quality of carbon offsets. The viability of the voluntary offset market may influence future policy decisions regarding climate change mitigation. For example, credible offsets could play an important role, particularly in terms of cost-effectiveness, in an emissions control regime. There is some concern that the range in the quality of voluntary market offsets may damage the overall credibility of carbon offsets. If this occurs, it may affect policy decisions concerning whether or not to include offsets as an option in a mandatory reduction program. |
The Federal Trade Commission Act (FTC Act) established the Federal Trade Commission (FTC or Commission) in 1914. Its creation was prompted by efforts to "bust the trusts," which were late 19 th century monopolistic corporations that frequently engaged in unethical commercial practices and stifled competition. The protection of consumers from anticompetitive, deceptive, or unfair business practices is at the core of the FTC's mission. As part of that mission, the FTC has been at the forefront of the federal government's efforts to protect sensitive consumer information from data breaches, and to regulate cybersecurity. Data breaches occur when there is a loss or theft of, or other unauthorized access to, sensitive personally identifiable information (PII) that could result in the potential compromise of the confidentiality or integrity of data. As the number of data breaches continues to soar, so too do the number of FTC investigations into lax data security. Data breaches have become almost ubiquitous in every sector of the economy. Businesses, financial and insurance services, retailers and merchants, educational institutions, government and military agencies, healthcare entities, and non-profit organizations have suffered cyber intrusions into their computer networks. Cybercriminals have targeted the payment systems of several of the nation's largest retailers in order to obtain credit and debit card information to conduct fraudulent transactions. In the last year alone, large scale hacks were disclosed by Target, Neiman Marcus, Michaels, and Home Depot. Since 2002, the FTC has investigated the data security practices of many companies, and brought enforcement actions against 50 companies that have engaged in "unfair or deceptive" practices that put consumers' personal data at unreasonable risk in violation of the FTC Act. Section 5 of the FTC Act prohibits unfair or deceptive acts or practices. The FTC's authority to regulate data security under Section 5 of FTC Act is being challenged in two pending cases. In FTC v. Wyndham Worldwide Corp. , a federal district court judge denied a motion to dismiss, thereby effectively lending support to the FTC's position that it possesses jurisdiction to regulate data security under its unfair or deceptive practices authority. In another data security case, In the Matter of LabMD , the commission rejected a motion to dismiss in an administrative enforcement action brought against a medical diagnostics laboratory. Both decisions are currently being appealed. The Wyndham district court granted the hotel chain's motion for immediate appeal of the ruling to the U.S. Court of Appeals for the Third Circuit (Third Circuit) to consider the commission's authority to bring data security cases. The FTC's administrative action against LabMD was stayed by the commission pending a congressional hearing investigating the firm, Triversa, a key player in the FTC's case. Separately, LabMD has asked the U.S. Court of Appeals for the Eleventh Circuit (Eleventh Circuit) for the third time to dismiss the administrative action. Both cases are the subject of a great deal of interest from Congress, businesses, trade groups, corporate law firms, and legal scholars. Outside of government, there has been an academic debate over the scope of the FTC's authority respecting data security. Some scholars have argued that specific legislation is needed to give the FTC express authority to take action, under well-defined regulations against companies that experience data security breaches. Other information privacy law scholars counter that the "FTC enforcement has certainly changed over the course of the past fifteen years, but the trajectory of development has followed a predictable set of patterns. These patterns are those of common law development." This report will discuss the FTC's legal authority under Section 5 of the FTC Act in relation to data security, and the two aforementioned cases. The FTC first became involved with consumer privacy issues in 1995. Initially, the FTC promoted industry self-regulation as the preferred approach to protecting consumer privacy. After assessing its effectiveness, however, the FTC reported to Congress that self-regulation was not working. Thereupon, the FTC began taking legal action against entities that violated their own privacy policies, asserting that such actions constituted "deceptive trade practices" under Section 5(a) of the FTC Act which prohibits unfair or deceptive acts or practices. The FTC acknowledged that, although it had the power under Section 5 of the FTC Act to pursue deceptive practices, such as a website's failure to abide by a stated privacy policy, the agency could not require companies to adopt privacy policies. To remedy this, the FTC proposed legislation that would provide it with the authority to issue and enforce specific privacy regulations. In 2001, a change in presidential administrations and in FTC leadership caused the agency to shift its priorities from seeking new privacy legislation to expanding enforcement of consumer protection laws in order to target companies that had inadequate data security practices. The FTC's new focus resulted in the filing of numerous investigations, based on its Section 5 unfairness authority against companies that experienced data security breaches resulting in a loss or theft of, or other unauthorized access to, sensitive personal information. In general, the FTC's most recent unfair practices complaints allege that a company's failure to maintain reasonable and appropriate data security for consumers' sensitive personal information caused, or was likely to cause, substantial injury to consumers; that consumers cannot reasonably avoid such injury; and the company's failure in this regard is not outweighed by countervailing benefits to consumers or competition. Such failures are alleged to be in violation of Section 5 of the FTC Act. In March 2012, the FTC issued a Privacy Report which articulated "best practices" for companies collecting and using data that can be reasonably linked to a consumer, computer, or device. Entities that collect only non-sensitive data from fewer than 5,000 consumers per year and that do not share the data with third parties would not have to adhere to the practices. In 2014, in tandem with the announcement of its fiftieth settlement in a data security case, the FTC issued a statement outlining, among other things, its approach to data security: The touchstone of the Commission's approach to data security is reasonableness: a company's data security measures must be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Through its settlements, testimony, and public statements, the Commission has made clear that it does not require perfect security; reasonable and appropriate security is a continuous process of assessing and addressing risks; there is no one-size-fits-all data security program; and the mere fact that a breach occurred does not mean that a company has violated the law. In addition, the commission provides educational materials to industry and the public about what "reasonable" data security generally entails. The FTC's approach to reasonable data security is based on broad principles. According to the FTC, the basic principles of a reasonable data security program are that companies should (1) know what consumer information they have and what employees or third parties have access to it; (2) limit the information they collect and retain based on their legitimate business needs; (3) protect the information they maintain by assessing risks and implementing protections in certain key areas—physical security, electronic security, employee training, and oversight of service providers; (4) properly dispose of information that they no longer need; and (5) have a plan in place to respond to security incidents, should they occur. The FTC has not been delegated explicit authority to regulate data security. Rather, the FTC has broad authority under Section 5 of the Federal Trade Commission Act to prohibit "unfair or deceptive acts or practices in or affecting commerce.... " Under Section 5 of the FTC Act, an act or practice is unfair if the act or practice (1) "causes or is likely to cause substantial injury to consumers," (2) "which is not reasonably avoidable by consumers themselves," and (3) "not outweighed by countervailing benefits to consumers or to competition." Indeed, it is widely acknowledged that "[t]he Commission and the Federal courts have been applying these three "unfairness" factors for decades and, on that basis, have found a wide range of acts or practices that satisfy the applicable criteria to be "unfair," even though—like the data security practices alleged in this case—"there is nothing in Section 5 explicitly authorizing the FTC to directly regulate" such practices." Congress chose not to enumerate the types of acts or practices that would constitute unfairness. As explained in the conference report accompanying the FTC Act's passage in 1914, It is impossible to frame definitions which embrace all unfair practices. There is no limit to human inventiveness in this field. Even if all known unfair practices were specifically defined and prohibited, it would be at once necessary to begin over again. If Congress were to adopt the method of definition, it would undertake an endless task. Failure to protect consumers' personal information is considered by the FTC to be an unfair or deceptive act or practice. The FTC is generally authorized by the FTC Act to "gather and compile information concerning, and to investigate from time to time the organization, business, conduct, practices, and management of any person, partnership, or corporation engaged in or whose business affects commerce.... " The FTC conducts data security investigations on a case-by-case basis to examine whether a company has "reasonable and appropriate security measures" to protect consumers' personal information. Following an investigation, the commission may initiate an enforcement action through administrative or judicial processes if it has "reason to believe" that the law is being or has been violated. The FTC Act authorizes the FTC to seek injunctive and other equitable relief, including consumer redress, for violations. The FTC does not possess explicit authority to issue civil penalties for data security violations of the FTC Act and is limited to fining companies for violating a settlement order. Fines issued by the FTC must reflect the amount of consumer loss. If the respondent elects to settle the charges, it may sign a consent agreement (without admitting liability), consent to entry of a final order, and waive all right to judicial review. If the FTC accepts such a proposed consent agreement, it places the order on the record for public comment. If the respondent contests the charges, an Administrative Law Judge (ALJ) issues an "initial decision" recommending either entry of an order to cease and desist or dismissal of the complaint. Either party, or both, may appeal the initial decision to the full FTC. The respondent may file a petition for review of the full FTC decision with any court of appeals. If the court of appeals affirms the commission's order, it enters an order of enforcement. The losing party may seek Supreme Court review. The FTC also enforces several other statutes that impose obligations upon businesses to protect consumer data. The FTC's Safeguards Rule implements the Gramm-Leach-Bliley Act's (GLBA) data security requirements for non-bank financial institutions. The Fair Credit Reporting Act (FCRA) requires consumer reporting agencies to use reasonable procedures to ensure that the entities that disclose sensitive consumer information have a permissible purpose for receiving that information. The Children's Online Privacy Protection Act (COPPA) requires website operators and online services to maintain reasonable procedures to protect the confidentiality, security, and integrity of personal information collected from children. The FTC also oversees the EU-U.S. Safe Harbor Agreement. Since 2002, under its unfair and deceptive practices authority, the FTC has brought and settled 50 data security enforcement actions against companies for failure to adequately safeguard customers' sensitive personal information. According to recent testimony by FTC Chairwoman Edith Ramirez, using the deceptive prong of its statute, the FTC has settled more than 30 matters challenging companies' express and implied claims about the security they provide for consumers' personal data, and the FTC has also settled more than 20 cases alleging that a company's failure to reasonably safeguard consumer data was an unfair practice. Because most of the FTC's privacy and data security cases, and almost all of its COPPA and GLBA cases, were resolved with settlements or abandoned, there are few judicial decisions addressing the FTC's authority to regulate the data security practices of companies which have suffered a data breach. In 2006, The FTC brought its first data security enforcement action against the data broker ChoicePoint after ChoicePoint disclosed a data breach involving the personal information of 163,000 persons. ChoicePoint ultimately agreed to pay $10 million in civil penalties and $5 million in consumer redress to settle the FTC's charges. The FTC settlement required ChoicePoint to implement new procedures to ensure that it provides consumer reports only to legitimate businesses for lawful purposes, to maintain a comprehensive information security program, and to obtain audits by an independent third-party security professional every other year for twenty years. These measures are typical of the measures required of companies in the FTC's consent agreements to remedy failures to provide reasonable security protections. In 2014, the FTC pursued its 50 th data security enforcement action. The complaint against GMR Transcription Services—an audio file transcription service that relies on service providers and independent typists to transcribe files for their clients, which include healthcare providers. The FTC alleged that as a result of GMR's failure to implement reasonable security measures and oversee its service providers, at least 15,000 files containing sensitive personal information—including consumers' names, birth dates, and medical histories—were available to anyone on the Internet. Under the terms of the FTC'S consent order with GMR, the company and its owners are prohibited from misrepresenting the extent to which they maintain the privacy and security of consumers' personal information; must establish an information security program that will protect consumers' sensitive personal information; and must have the program evaluated every two years by a certified third party. The settlement will be in force for 20 years. Many other companies have been subjected to FTC data security enforcement actions under its Section 5 authority. Recently, the FTC announced that it is also investigating the Target data breach . FTC v. Wyndham Worldwide Corp . is widely viewed as an important case to test the authority of the FTC to respond to data breaches, and it could have far-reaching implications for the liability of companies whose computer systems suffer a data breach. After a data breach occurred involving the personal information of Wyndham Hotels and Resorts' customers in 2012, the FTC filed suit against the hotel chain and three of its subsidiaries, alleging that Wyndham's privacy policy misrepresented the security of customer information and that its failure to safeguard personal information caused substantial consumer injury. Specifically, the FTC alleged that wrongly configured software, weak passwords, and insecure computer servers led to three data breaches by at Wyndham hotels from 2008 to 2010, compromising more than 619,000 payment card accounts and transfer of customers' payment card account numbers to Russia. The FTC alleged that the computer intrusions led to more than $10.6 million in fraud losses. The agency ultimately alleged that Wyndham's security practices were "unfair and deceptive" in violation of Section 5 of the FTC Act. Rather than settle the case as other companies facing FTC complaints have done, Wyndham contested the allegations and argued, among other things, that the FTC had exceeded its statutory authority to assert an unfairness claim in the data security context. Wyndham relied on the Supreme Court's ruling in Food and Drug Administration v. Brown & Williamson Tobacco Corp. , which held that the Food and Drug Administration (FDA) could not utilize its general authorities with respect to drugs to mandate disclaimers on tobacco packaging because of the lack of explicit legal authority over tobacco products. The Brown & Williamson Court reached such a conclusion because, among other reasons, (1) the agency had disclaimed authority over tobacco products in the past; (2) the FDA's authorizing statute did not clearly indicate the agency had such authority; (3) Congress had already passed tobacco-specific legislation in the past without giving the FDA such authority; and (4) it appeared unlikely that Congress would delegate a policy decision of such economic and political magnitude to the FDA through its general authority to regulate drugs. In Wyndham, the hotel chain, relying on Brown & Williamson, argued that just as Congress did not grant the FDA through its general authority to regulate drugs the specific authority to regulate tobacco products, Congress likewise did not give the FTC the necessary authority to regulate data security through the FTC's general authority to regulate unfair or deceptive trade practices. In making this argument, Wyndham noted the FTC's lack of clear statutory authority over data security; that the FTC had previously disclaimed its authority over data security; and, that Congress has enacted narrowly tailored data security legislation in FCRA, GLBA, and COPPA without providing the FTC with any broader authority. Moreover, Wyndham argued that it was unlikely that Congress would delegate a policy decision of such economic and political magnitude as setting data security standards through so general a delegation as the FTC's unfairness authority. In addition, Wyndham cited the Obama Administration's recent release of a cybersecurity framework by the National Institute of Standards and Technology (NIST) as evidence that Congress did not provide the FTC with authority to regulate data security. The FTC, in response, made several arguments. First, the agency argued that Brown & Williamson was distinguishable because here the agency's assertion of authority would not result in any statutory inconsistencies. The agency explained that the FTC Act provided the agency with a baseline authority to act in unfairness cases where it can prove substantial harm to consumers and asserted that regulating data security was consistent with that broad authority. Second, the FTC contended that specific data security laws like FCRA or HIPPA do not displace the FTC's authority, but instead supplement the FTC's Section 5 authority; grant the FTC additional powers; and affirmatively compel the FTC to use its consumer protection authority in specified ways, unlike the FDA's earlier disclaimer of authority to regulate tobacco. The FTC also argued that it had never disclaimed its "unfairness" authority over data security. Finally, the FTC claimed that any question about the FTC's authority in the data security context was put to rest by the recent decision in the FTC's administrative action against LabMD (discussed below) . On April 7, 2014, a federal district court judge in New Jersey, in FTC v. Wyndham Worldwide Corp., denied Wyndham's motion to dismiss the case, rejecting Wyndham's position that the FTC lacked statutory authority to regulate data security. Although the judicial opinion did not address the merits of whether Wyndham's security policies were inadequate, the judge did undertake, in a 42-page opinion, an in-depth analysis of the authority of the FTC to regulate data security. The district court in Wyndham began by noting that it was not ruling on a finding of liability, but only on the validity of FTC's legal theory of liability. The district court also cautioned that it was not handing the FTC a "blank check" to go after every company that suffers a data breach. As to Wyndham's claim that the FTC's unfairness authority does not include data security, the district court distinguished Wyndham from the Brown & Williamson reasoning. The court noted that in Brown & Williamson Congress had clearly intended to exclude tobacco products from FDA enforcement, whereas the case before it the court found no such congressional intent to create a data security carve out from the FTC's unfairness authority under Section 5 of the FTC Act. In fact, the court recognized that data security was a rapidly evolving area, and that nothing in Congress's several specific data security enactments (e.g., the FCRA, GLBA, and the COPPA) contradict or are otherwise incompatible with holding that the FTC possesses authority to enforce data security as an unfair trade practice under the FTC Act. Wyndham moved for and was granted permission to appeal the district court's ruling. It is uncertain when a decision from the Third Circuit can be expected. In the Matter of LabMD involves another challenge to the authority of the FTC to regulate data security breaches as unfair trade practices under the FTC Act . As was the case in Wyndham , the FTC's authority to bring enforcement actions for data security breaches was challenged, and in this instance, the commission found that the FTC had authority to bring such enforcement actions. However, unlike in Wyndham , the administrative hearing resulted in something sought by a defendant company: an order issued by the ALJ compelling the FTC to explicitly disclose what kinds of data security measures it expected the company to take and rejecting the agency ' s argument that its existing general guidance was sufficient . In the Matter of LabMD began in 2013 when the FTC filed a complaint, through its administrative process, against a Georgia medical cancer diagnostics company, LabMD, Inc. Under the FTC Act, the FTC is authorized to initiate enforcement action s either through administrative or judicial processes. The administrative complaint against LabMD alleged that the company failed to reasonably protect the security of 10,000 consumers' personal data, including medical information; that these practices harmed consumers; and that consequently LabMD engaged in unfair practices in violation of the FTC Act. LabMD argued in a motion to dismiss that the FTC has no authority to address private companies' data security practices as unfair practices because the lab is a Health Insurance Portability and Accountability Act (HIPAA) covered entity. In January 2014, four commissioners, on behalf of the FTC, unanimously denied LabMD's motion to dismiss and concluded that the FTC Act's prohibition of unfair practices applies to a company's failure to implement reasonable and appropriate data security measures. According to the order denying LabMD's motion, the commission's authority to regulate data security practices to determine which practices are unfair was consistent with the FTC Act and its legislative history, other statutes, and extensive case law. The commission further asserted that legislative history of the FTC Act demonstrated that Congress decided to delegate broad authority to the commission to determine what practices were unfair. The commission likewise rejected LabMD's contention that Congress, by enacting more specific data security statutes, implicitly repealed the FTC's preexisting authority to enforce Section 5 of the FTC Act in the field of data security. The commission, noting that "[t] he cardinal rule is that repeals by implication are not favored," found nothing in HIPAA or any of the other cited statutes that reflected a "clear and manifest" intent of Congress to restrict the commission's authority over allegedly "unfair" data security practices. The commission also rejected LabMD's argument that the FTC's decision to proceed through adjudication without first conducting a rulemaking violates LabMD's constitutional due process rights. According to the ruling, administrative agencies must enforce the statutes that Congress has directed them to implement regardless of whether they have issued regulations addressing the specific conduct. The FTC ultimately found the three-part statutory standard governing whether an act or practice is "unfair" sufficient to provide fair notice of what conduct is prohibited. In reaching that conclusion, the commission noted that given the difficulty of drafting generally applicable regulations in this rapidly changing area, questions relating to data security practices in an online environment are particularly well-suited to case-by-case development in enforcement proceedings. After the FTC C ommissioners affirmed the agency ' s authority to sue , the case 's focus shifted to whether the FTC must disclose the data security standards it uses to determine whether a company's efforts to protect consumers' information could be considered reasonable. In the same proceeding, LabMD accused the FTC of holding the company to data security standards that do not exist officially at the federal level. In response, the FTC argued that it should not be required to disclose the standards it uses to determine whether a company's data security practices are unfair under the FTC Act because of legal privileges. In May 2014, the FTC's Chief Administrative Law Judge ruled that the FTC can be compelled to disclose the data security standards it uses to determine whether a company has reasonable security measures. The administrative law judge ultimately held that the company has the right to know what data security standards the commission uses when pursuing enforcement actions. The judge ordered the FTC to provide deposition testimony as to what data security standards, if any, have been published by the FTC which it intends to rely on at trial. The FTC's testimony will present companies with the first opportunity to obtain more specificity from the agency about the data security standards driving the FTC's data breach enforcement actions. As part of efforts to enact cyber and data security legislation , several bills before Congress include provisions that would provide the FTC with enhanced enforcement authority by, for example, explicitly authorizing the FTC to promulgate rules to implement data security standards and to assess civil penalties. In recent FTC testimony before Congress, the agency has called for federal legislation that would (1) strengthen its existing authority governing data security standards on companies and (2) require companies to provide notification to consumers where there is a data security breach. In both of those areas the FTC seeks the ability to impose civil penalties and the authority to issue administrative rules. Several bills have been introduced in the Senate in the 113 th Congress that could, in varying ways, impact the FTC's powers. S. 1193 (Senator Toomey), S. 1897 (Senator Leahy), S. 1927 (Senator Carper and Senator Blunt), S. 1976 (Senator Rockefeller), and S. 1995 (Senator Blumenthal) would expressly give the FTC the power to levy civil penalties with respect to companies that fail to comply with certain data security standards. S. 1897 would permit the FTC to impose civil penalties for violations for failing to comply with federal cybersecurity standards. S. 1976 would provide the FTC with explicit authority to promulgate "information security" regulations that could extend to certain non-profits. The bill would further allow the FTC to enforce violations of these regulations with various civil penalties. Likewise, S. 1995 would give enforcement authority to the FTC. | The Federal Trade Commission Act established the Federal Trade Commission (FTC or Commission) in 1914. The protection of consumers from anticompetitive, deceptive, or unfair business practices is at the core of the FTC's mission. As part of that mission, the FTC has been at the forefront of the federal government's efforts to protect sensitive consumer information from data breaches and regulate cybersecurity. As the number of data breaches has soared, so too have FTC investigations into lax data security practices. The FTC has not been delegated specific authority to regulate data security. Rather, the FTC has broad authority under Section 5 of the Federal Trade Commission Act (FTC Act) to prohibit unfair and deceptive acts or practices. In 1995, the FTC first became involved with consumer privacy issues. Initially, the FTC promoted industry self-regulation as the preferred approach to combatting threats to consumer privacy. After assessing its effectiveness, however, the FTC reported to Congress that self-regulation was not working. Thereupon, the FTC began taking legal action under Section 5 of the FTC Act. Section 5 of the FTC Act prohibits unfair or deceptive acts or practices. Since 2002, the FTC has pursued numerous investigations under Section 5 of the FTC Act against companies for failures to abide by stated privacy policies or engage in reasonable data security practices. It has monitored compliance with consent orders issued to companies for such failures. Using the deception prong of its statute, the FTC has settled more than 30 matters challenging companies' claims about the security they provide for consumers' personal data and more than 20 cases alleging that a company's failure to reasonably safeguard consumer data was an unfair practice. Because most of the FTC's privacy and data security cases were resolved with settlements or abandoned, there have been few judicial decisions. Against this backdrop, there are now two pending cases testing the FTC's unfairness authority under Section 5 of FTC Act as a means to respond to data breaches. These cases could have far-reaching implications for the liability of companies whose computer systems suffer a data breach. Both cases are the subject of a great deal of interest from Congress, businesses, trade groups, corporate law firms, and legal scholars. In April 2014, in FTC v. Wyndham Worldwide Corp., a federal district court denied a motion to dismiss, thereby effectively lending support to the FTC's position that it possesses jurisdiction to regulate data security practices under its authority to bring enforcement actions against unfair or deceptive practices. In another case, In the Matter of LabMD—an administrative enforcement action brought against a medical diagnostics laboratory—the commission rejected a motion to dismiss that challenged the FTC's authority to impose sanctions under the FTC Act. Both decisions are currently being appealed. Wyndham is on appeal to the Third Circuit, and LabMD has asked the Eleventh Circuit for the third time to intervene. The FTC's administrative action against LabMD was stayed this summer pending a related congressional hearing. Several cyber and data security bills before Congress include provisions that would explicitly authorize the FTC to issue rules to implement data security standards and assess civil penalties. The FTC has called for federal legislation that would strengthen its existing authority governing data security standards and require companies to provide breach notification to consumers. This report provides background on the FTC and its legal authorities in the context of data security, and discusses the two aforementioned cases. |
Congress established the Federal Depository Library Program (FDLP) to provide free public access to federal government information. The program's origins date to 1813, when Congress authorized the printing and distribution of additional copies of the Journals of the House and Senate, and other documents the chambers ordered printed. Quantities were to be "sufficient to furnish one copy to each executive, one copy to each branch of every state and territorial legislature, one copy to each university and college in each state, and one copy to the Historical Society incorporated, or which shall be incorporated, in each state." At various times, the program was expanded to include federal executive branch publications. The current structure of the FDLP program was established in 1962. Access to government information is provided through a network of depository libraries across the United States. In the past half-century, information creation, distribution, retention, and preservation has expanded from a tangible, paper-based process to include digital processes managed largely through computerized information technologies. Today, government (and most other) information is typically "born digital," or originated as a digital product such as a word processing document or spreadsheet. The material may then be produced in tangible, printed form, but is with greater frequency distributed by electronic means via website or other electronic dissemination technology, and retained for archival purposes in searchable electronic databases. In many cases, born digital material that previously appeared only in paper form is available only in digital form. In other cases, digital information, including websites, blogs, datasets, and audio or video content, is not intended for tangible distribution. Some materials are available in both tangible and digital forms. The transition to digital information raises a number of issues that may be of interest to Congress. Some of the possible concerns focus on access to government information in an environment in which tangible and digital materials are available, and issues related to the security and authentication of digital materials. Other areas of possible concern include the management and digitization of tangible materials, permanent retention and preservation of digital content, and costs associated with these activities. While issues related to the emergence of digital information have implications for a number of government programs and policies, this report discusses those implications as they affect FDLP. These concerns may be addressed in their own right, or in the context of user demand for FDLP information, for which there is no uniform metric over time, or comparatively among current FDLP institutions. Acronyms or abbreviations used in this report are summarized in Table 1 . A glossary in the Appendix provides definitions for the specialized information management terms used in this report. FDLP is administered under the provisions of Chapter 19 of Title 44 of the United States Code by the Government Printing Office (GPO), under the direction of the Assistant Public Printer, Superintendent of Documents (SuDocs). Under the law, FDLP libraries receive from SuDocs tangible copies of new and revised government publications authorized for distribution to depository libraries, and are required to retain them in either printed or micro facsimile form. Depository libraries—which include state, public and private academic, municipal, and federal libraries—are required to make tangible FDLP content available for use by the general public, which GPO defines as including all people in a depository library's relevant region and congressional district. In support of that effort, depository libraries provide resources to manage collection development, cataloging, bibliographic control, adequate physical facilities, collection security and maintenance, and staffing. Neither statute nor current GPO guidance specifies how depository libraries must deploy those resources in support of FDLP. Ownership of publications provided by SuDocs to depository libraries remains with the United States government. Observers note that distributing publications to depository libraries has the effects of long-term preservation of federal government information in widely dispersed settings, and free, local access to that information. The costs of providing preservation and access are also widely distributed. Under 44 U.S.C. 1912, not more than two depository libraries may be designated as regional depository libraries (hereinafter, regional libraries) in each state and Puerto Rico. Regional libraries are required to retain tangible government publications permanently, with the exceptions of superseded publications, or unbound publications that are issued later in bound form, which may be discarded as authorized by SuDocs. There are 47 regional libraries in the FDLP. Among their duties is to provide materials to patrons directly, or through interlibrary arrangements with selective libraries within their areas of responsibility. Further discussion related to regional libraries is provided in " Regional Library Activities ," below. Selective depository libraries (hereinafter, selective), are partially defined in Title 44, and include all FDLP participants that are not regional libraries. Whereas regionals receive all FDLP tangible content provided by GPO, selectives may choose among classes of documents made available. Selective libraries that are served by a regional library may dispose of tangible government documents after retention for five years, subject to certain conditions. Those selective libraries that are not served by a regional library are required to retain government publications permanently, subject to the same limitations placed on regional libraries. There are approximately 1,150 selective libraries in the FDLP. Authorities governing FDLP are based on a paper-based information creation and distribution environment. Some tangible government publications are still distributed to depository libraries; during FY2011, GPO distributed approximately 2 million copies of 10,200 individual tangible items to depository libraries. Some tangibles may have no publicly available digital counterpart if the owner of the information does not authorize GPO to make it available. SuDocs maintains a list of titles that "contain critical information about the U.S. Government or are important reference publications for libraries and the public." As a consequence, the agency has determined that "their availability … in paper format has been deemed essential for the purposes of the FDLP." Nevertheless, much of the content that SuDocs has provided previously in tangible formats is now available in digital formats through GPO's FDLP Electronic Collection, which provides access to government information to Internet users without cost. The Collection consists of four elements: Core legislative and regulatory products that reside permanently on GPO servers and are made available through GPO's Federal Digital System (FDSys); Other remotely accessible products managed by GPO or other institutions with which GPO has established formal agreements. Access to some of the products in this category is provided by GPO through resources outside the scope of FDSys. Access to the products of official GPO content partners is provided by those entities. GPO provides access to those materials through the Catalog of U.S. Government Publications (CGP); Remotely accessible electronic government information products that remain under the control of the originating agencies that GPO identifies, describes, and to which it provides links; and Tangible electronic government information products distributed to federal depository libraries. The emergence of a predominantly digital FDLP may call into question the capacity of GPO to manage the program given its existing statutory authorities. Whereas GPO is the central point of distribution for tangible, printed FDLP materials—an activity that it continues—its responsibilities are more diverse, and may be less explicitly specified, regarding its distribution of digital information. In some instances, GPO carries out activities to distribute digital information that are similar to its actions regarding print materials. In others, GPO provides access to digital content that it does not produce or control. SuDocs has archiving and permanent retention authorities for tangible materials, which are exercised by the distribution of materials to depository libraries. At the same time, those authorities do not envision digital creation and distribution of government publications. GPO appears to have some authority to manage digital FDLP materials and other aspects of the program, subject to congressional approval. At the same time, explicit digital distribution authorities that provide for online access to publications, including core legislative and regulatory products, do not directly address GPO's retention and preservation responsibilities for digital information. A number of efforts related to the program have been initiated by GPO and groups representing a number of libraries that participate in FDLP. These have included certain regional library activities; studies of the program by a private organization; proposals by a consortium of FDLP libraries to advance the consolidation, digitization, and cataloging of tangible collections; and a study of FDLP coordinated by GPO. Although each state may have up to two regional libraries, the FDLP currently has 47 regional libraries. Six states have two regional libraries; seven regionals serve more than one state, territory, or the District of Columbia; and three states have no designated regional library. Arrangements allowing multi-state regional libraries do not appear to be sanctioned in 44 U.S.C. Chapter 19, but according to GPO, some multi-state agreements date to the years following the passage of the 1962 FDLP program revisions. In recent years, proposals have been offered by private research groups, individual FDLP libraries, and consortia of FDLP institutions for certain regional libraries to share or assume responsibilities for selective libraries in other states. One proposal, submitted to GPO in 2007, would have created a "shared" regional between the depository libraries of the University of Kansas and the University of Nebraska. Another proposal, submitted in 2011, would have authorized the Minnesota regional to assume responsibility for selective libraries in Michigan. GPO submitted the Kansas-Nebraska regional plan to the Joint Committee on Printing (JCP), which oversees the agency. On February 27, 2008, Representative Robert A. Brady, JCP chair, denied committee approval of the plan, based on an analysis "that neither the language nor legislative history of 44 U.S.C. 1914 supports" authorizing the creation of a shared regional library. In the summer of 2011, the Library of Michigan, which then served as the regional for that state, proposed that the University of Minnesota assume responsibility to provide regional services for Michigan selectives. In a September 15, 2011, response to the Library of Michigan, GPO noted that existing FDLP authorities do not explicitly authorize multi-state regionals and that "such arrangement should be approved by the Joint Committee on Printing under the provision of 44 U.S.C. 1914." GPO stated that it would not be submitting the proposal that the University of Minnesota serve as the regional depository for Michigan selectives to JCP due to concerns about the capacity of the University of Minnesota to serve Michigan selectives, collection management procedures, and what the agency described as "the lack of equal and equitable access for government publications for the people of Michigan." In September 2010, GPO contracted with Ithaka S+R (Ithaka), a private consulting and research entity, "to develop practical and sustainable models for the FDLP that retain and support the long-standing vision, mission, and values of the Program in an environment increasingly dominated by digital technology." The resulting report, Modeling a Sustainable Future for the United States Federal Depository Library Program's Network of Libraries in the 21 st Century: Final Report of Ithaka S+R to the Government Printing Office (Ithaka Report), was delivered to GPO in May 2011. Ithaka reported that their research drew conclusions in three categories, including collections and formats, services, and the network of depository libraries. The report stated that users of government information increasingly prefer to access government documents and other collections in electronic form. At the same time, the report found that tangible collections support some types of access demand. Consequently, tangible and digital collections are expected to exist together for the foreseeable future. The report noted that since more content is available online, libraries are no longer exclusive points of access to collections, but remain a source of unique services such as search and reference assistance. The report asserted that current levels of support within the FDLP "are inadequate to effectively meet the needs of the American public," and suggested that some program growth may be possible by improving opportunities for libraries principally interested in providing government information services. The report did not specify which opportunities might be available to depository libraries. The report noted that there may be new opportunities within FDLP related to the management and preservation of digital collections, and that some opportunities might be addressed by having existing networks of libraries work in collaboration on various projects. One particular challenge cited by Ithaka is the distribution of regional libraries by state boundaries (instead of other factors like population density or collections usage), which the report argues creates strain on some regional libraries to provide services to selectives in their states or regions. Ithaka incorporated its findings into a number of research, analytic, and modeling activities, and proposed a broad direction in which GPO and depository libraries might proceed to provide access to government information. Without making specific recommendations, Ithaka focused on three broad areas in which the report asserted there was general agreement among depository libraries to support the following activities: respond to the demands of providing access to tangible materials; provide access to and preservation of digital materials; and provide government information services. In support of those efforts, Ithaka identified several themes it deemed important to sustaining FDLP, including allowing depository libraries to define their activities to match their local missions and circumstances; and embracing collaboration and coordination among depository libraries beyond the current state-centered regional and selective model. Ithaka asserted that some of the various themes it suggested might require statutory changes, new operating practices by GPO, or consideration of a better match between depository libraries' interests and capacities to participate in FDLP. In August 2011, GPO rejected the Ithaka Report, stating that "[a]fter a very comprehensive analysis by GPO, the final report prepared by Ithaka was deemed unacceptable under the terms of the contract. The models proposed by Ithaka are not practical and sustainable to meet the mission, goals, and principles of the FDLP. Nonetheless, GPO believes that the final report has some value as we move forward with the library community to develop new models and increase flexibility in the FDLP to ensure the vibrant future of the Program in the digital age." GPO did not provide a detailed, publicly available explication of its decision. At the same time, some Ithaka recommendations appear to be beyond the scope of GPO's current statutory authority to oversee FDLP, and the responsibilities of FDLP participants. On April 27, 2011, the Association of Southeastern Research Libraries (ASERL) approved an implementation plan for the management and disposition of federal depository library collections in its member libraries. The implementation plan was a step in ASERL's efforts to develop what it called a "Collaborative Federal Depository Program." In its implementation plan, the group asserted "that the best means of providing broad public access to these collections is through online access to digital and digitized copies. Management of the tangible collections should include efforts to support or participate in initiatives to create a comprehensive, authentic digital collection in the public domain." ASERL argued that its plan would complement efforts to manage the tangible collections held by depository libraries in its member institutions. The ASERL plan would make efforts to define what constitutes a comprehensive FDLP tangible collection; establish two such comprehensive collections; and establish "centers of excellence," FDLP regional libraries that would focus on cataloging, inventorying, and acquiring publications in an effort to establish a comprehensive collection of agency-specific materials. Part of the ASERL effort included the development of a documents disposition database. Under the ASERL plan, materials that depository libraries intend to withdraw from their collections would be made available for a period of 45 days prior to being withdrawn. During that period, the materials could be requested first by centers of excellence, and second by FDLP regional libraries, followed by FDLP selectives in the southeast region. At the end of the 45-day selection period, the ASERL plan called for the discarding of materials, "items not requested by another library within the southeast region, unless the items are rare or likely to be of significant interest beyond the region and therefore should be included in the national 'Needs and Offers List' maintained by the Superintendent of Documents." On November 4, 2011, SuDocs responded to ASERL, writing that the proposed disposition tool was "not in compliance with the legal Requirements & Program Regulations of the Federal Depository Library Program (FDLP)." SuDocs recommended that ASERL's disposition tool be revised to allow FDLP regionals to acquire materials from among collections of selective libraries within the state the regional serves, followed by other selectives in the state, followed by FDLP libraries outside the state. On February 12, 2012, ASERL proposed to amend its implementation plan to give priority to regional and selective libraries within states, followed by depository libraries within the southeast region. On February 13, 2012, SuDocs approved the proposed revisions and requested the opportunity to review a revised implementation plan. Further response from ASERL and a final decision by SuDocs are pending at the time of this writing. Since an October 20, 2011, public forum for the FDLP community, GPO has been developing a study of the FDLP program "to effectively assess the current needs and future direction of the FDLP for both individual libraries and states." The study will be based in part on data collected through a questionnaire sent to individual depositories to identify issues. Data generated by individual depository libraries will be incorporated into state-focused action plans incorporating the feedback of depository libraries within a state. GPO states that "[c]onsensus of opinion about the key issues facing depository libraries today and in the future is the key to moving forward with change," and notes that the current study is a component of "a larger FDLP study that will also examine primary and secondary data, laws governing the program, and possible program models." in an effort to develop a plan "for the future of the Program … based on a shared vision with member libraries." GPO has not publicly announced when the results of the depository survey or the state action plans will be available, or when those results will be integrated into the larger study of FDLP. A number of issues regarding FDLP and policy related to the transition to digital government information that might be of interest to Congress arise as a consequence of digital creation, distribution, and preservation of government information. These issues are in some cases interrelated, and may have been addressed in part in the Ithaka Report and ASERL proposals, or may receive further consideration in GPO's studies. Some of the issues may affect FDLP, and extend beyond the program to a variety of contexts related to the management of government information in tangible and digital forms, and include Maintenance and availability of the FDLP tangible collection; Retention and preservation of born digital information; Access to FDLP resources; Authenticity and accuracy of digital material; Robustness of the FDLP Electronic Collection; and Cost of the FDLP and other government information distribution initiatives. The FDLP collection, which incorporates materials dating to 1813, is estimated to contain approximately 2.3 million items. As much as one-third of the tangible collection, including most items created prior to 1976, is not catalogued. Most depository libraries do not have a full complement of depository materials because they joined the program at various times after 1813, and are not required to acquire materials retrospectively, or retroactively in the event of collection loss. Estimates of the usage of tangible FDLP materials are not readily available. This is due in part to the highly decentralized manner in which materials are stored and accessed, differences in the ways depository libraries might track collection use, and the lack of requirements to develop and maintain utilization metrics. There are some suggestions that parts of the collection might be underutilized, due to the lack of cataloging information for much of the collection distributed prior to 1976, when GPO began creating cataloging information. Others suggest that some materials that are cataloged and available receive little use. On the other hand, it has been suggested that some tangible items that had not been used were more frequently accessed when made available online. In the absence of any systematic inquiry, it cannot be determined whether the lack of utilization is the result of minimal demand, lack of catalogue information for some materials in the FDLP collection, or inadequate communication of the collection's availability. As seen in the ASERL proposals, some depository libraries see opportunities to digitize tangible FDLP collections to ensure their preservation and to make them more available to users who are better able to access the materials online than to visit libraries. Such efforts might provide broader access to the public, assuming that technological infrastructure is in place to ensure sufficient access to the Internet. Provision of digital government information in digital form could reduce the costs of maintaining a tangible collection, or provide the opportunity to reduce the number of copies of tangible government publications held by depository libraries through consolidation of collections. On the other hand, as discussed in more detail below, there is no consensus on what constitutes a sufficient number of paper copies. Further, it is possible that the costs of ongoing maintenance and technology upgrades necessary to support digitized materials could be higher than the current costs to maintain tangible collections. See " Retention and Preservation of Born Digital Information " and " Costs of FDLP and Other Government Information Distribution Programs ," below. Any effort to digitize or reduce the number of tangible copies appears to be beyond the scope of authorities granted to SuDocs or depository libraries under current law. Nevertheless, the question of how to retain and preserve government information contained in tangible form alone, and to provide access to that information to all who wish to see it, raises a number of questions. At the outset, these questions may lead in two directions: one related to the retention and preservation of tangible materials in their original form, the second focused on efforts to transition tangibles to digital formats. Questions related to the retention and preservation of tangible materials in tangible formats arise with regard to the following: preservation of decaying tangibles; establishing how many complete, tangible copies may be necessary to ensure permanent retention of records of government activities; and access for the general public when digital materials do not meet user needs. With regard to preservation, it would be necessary to have a more fully cataloged FDLP collection to be able to determine what the preservation requirements are. On questions about the number of tangible copies to be retained permanently, there is little consensus. Some studies note the opportunities to consolidate collections to free up storage space, and potentially reduce costs, while still ensuring that library users' needs are met. Others cite a lack of data to demonstrate how many copies might be needed to meet those needs. The ASERL plan calls for the development of two complete sets for the use of libraries within the southeast region. Another proposal calls for the creation by GPO of two national retrospective collections, to be housed separately in secure facilities. One study, focusing not on government documents, but on the number of copies of scholarly journals in academic settings that must be retained in print form to ensure enduring access, ranges from as few as 6 to as many as 96 copies, depending on the manner of storage and the time period during which the materials are expected to be available. A number of questions related to the retention and preservation of digitized materials are similar to issues that arise in the consideration of born digital materials, and are discussed in more detail in " Retention and Preservation of Born Digital Information ," below. Questions specifically related to digitized tangibles arise in the following areas: The costs of digitizing tangible collections; The authenticity and ownership of digitized versions of tangible publications; The disposition of original publications that are digitized; The extent to which the costs of these efforts represent a resource savings or increase in comparison to current FDLP practices or a redistribution among FDLP participants; and Whether these efforts change the extent and nature of public access to government information. In addition to the technical and procedural aspects, any discussion of tangible materials would likely involve consideration of the costs of activities necessary to preserve them in their original manifestations, or to ensure their access through cataloging or digitization. Estimates of the cost of such efforts across the FDLP program do not appear to have been developed. Digitization has a relatively short history. As a consequence, less is known about the long-term, archival retention of digitized or born digital materials than about the retention of information in paper or other tangible forms. Differences between the production and distribution processes for tangible items and digital materials affect distribution in the short term, and may have implications for accessibility over longer terms. For example, whereas tangible items are produced and distributed through FDLP, born digital materials may be accessible through the FDLP Electronic Collection, or available only through federal executive branch agency websites, or the websites of GPO content partners. This may have implications for the systematic collection and cataloging of materials, or, as just mentioned, public access to them. Born digital materials—such as databases, websites, and publications—may also be dynamic, and their content more readily changed than tangible materials. This may raise questions about version control, or strategies for identifying and capturing different versions of materials in their entirety for evaluation for archival retention. Other areas of concern are the formats in which born digital materials are produced, the media on which they are stored, and the implications of changes in either for the accuracy or authenticity of the information preserved. The potential consequences of format obsolescence, media failure resulting in data loss, and the challenges of migrating government information to newer formats or storage solutions appear to be incompletely addressed by those who create information technology systems, government agencies that create and distribute information, information professionals who curate and preserve those materials, and users who may rely on contemporary and historical government information in digital formats. Consideration of the questions and challenges surrounding the permanent retention of digital information has occurred in the past four decades, but has yet to identify solutions that are widely accepted. The emergence of digital delivery of government information outside the FDLP program may offer increased access to government information to those who might not be able to visit depository libraries. An underlying assumption of the Ithaka Report, for example, is that FDSys is functional and available, and that most users have access. While this model appears to go beyond the current statutory framework for FDLP, the apparent reliance on the FDLP Electronic Collection raises a number of questions for FDLP participants and users of government information. Unlike tangible collections, digital government information is not physically provided to depository libraries, but is provided through the Internet by GPO and its content partners to depository libraries and directly to users with Internet access. The information itself is contained on a server and in any backup facility that may be utilized. For depository libraries, this may raise concerns related to their collection development practices. If digital access is assured, it may be possible to reduce tangible collections. On the other hand, if digital access is not robust, it may be necessary for depository libraries to support access to digital materials while maintaining tangible collections. Potential users may or may not benefit from digital delivery arrangements if their Internet access is not sufficient to access resource intensive, authenticated materials served through FDSys. Another set of concerns may focus on the availability of information that is not physically present in depository libraries. Other concerns may arise if available search resources do not yield the information a user seeks. In addition to the user and depository concerns, the emergence of the FDLP Electronic Collection as a digital repository raises question about the security and availability of government information. One of the purported benefits of the tangible-based FDLP program is that widely distributed publications would provide a safeguard against the unavailability of that information if some copies were lost or destroyed. The use of the FDLP Electronic Collection may raise the following concerns in the context of digital information: Where do FDLP Electronic Collection data reside? Are current data management protocols sufficient to ensure no loss of data availability, and assured access? Are those protocols similar in GPO, other federal agencies, and non governmental partners that provide content? What backup, and information distribution and assurance policies, are in place? Depository libraries appear largely to have borne the costs of the FDLP program since its establishment. There is no mechanism in 44 U.S.C., Chapter 19, to fund depository costs of managing materials, staff, and physical plant needs, and providing public access. In an era characterized by dwindling resources, particularly in state and local governments and public libraries, the costs of maintaining FDLP tangible collections, which, according to GPO, remain the property of the United States government, have become prohibitive to some depository libraries. The emergence of digital delivery has had cost implications for information providers. Whereas the costs of tangible support rest largely with depository libraries, the costs of providing digital materials, including storage of digital materials, Web development, maintenance, and upgrades, fall on GPO for FDSys and other entities that provide content through the FDLP Electronic Collection. Over time, the costs of digital delivery could require additional appropriations for GPO and other federal content providers, or force those agencies to revaluate service levels in a hybrid system of tangible and digital delivery. Whereas the costs of a tangible FDLP fall largely on depository libraries, GPO, in its FY2013 budget submission, notes that in "a primarily electronic FDLP, the costs of the program are increasingly related to identifying, acquiring, cataloging, linking to, authenticating, modernizing, and providing permanent public access to electronic Government information, which involves recurring costs" to GPO. These costs may continue to increase as more digital information is created, and older data, software, and hardware must be upgraded to ensure ongoing digital availability. There is no publicly available estimate of what those costs might be over time. The emergence of digital information has had notable effects on the types of information created, including databases, video, audio and Web-only materials, and the manner in which that information is distributed beyond tangible, paper copies. A clear consequence of those changes is the emergence of general agreement that the statutes governing FDLP, and last visited by Congress before the digital era of information creation, collection, and distribution, are insufficient to regulate contemporary processes carried out by government and depository institutions. A related question is whether existing authorities can support GPO and depository libraries as they address the demands of users of government information and the general public. A particularly complex question is what solutions might create a more robust FDLP that is better equipped to meet the demands of providing government information to American citizens. It appears that a number of social, political, and technical concerns must be addressed more systematically before a policy regarding the future of FDLP can be developed. In moving toward the development of a more contemporary FDLP, Congress might consider the following issues: Development of methods, materials, and technologies to ensure the long-term preservation of digitized and born digital information; A more inclusive definition of materials to be included in FDLP collections. Under current law, "government publications" are defined as "informational matter which is published as an individual document at Government expense." While seemingly broad with regard to tangible materials, the law does not take into account government publishing programs outside GPO authority. The somewhat vague language could also lead to differences by agency in the type of materials that get into FDLP collections. In addition, there is no clear link to which digital material should be included in FDLP collections; The extent to which there is a need to expand the current institutional model of FDLP beyond regional and selective libraries. Information management is a more specialized activity now than when the current version of FDLP was established. Activities that might be of benefit to the program could include curatorial services, tangible preservation or digitization, information integrity assurance (e.g., digital signatures or other authentication schemes), and the cataloging of older tangible materials. These activities could occur within current FDLP institutions or by other libraries or other entities that could provide assistance without managing collections; and The costs of the program to the federal government and depository institutions, and how long-standing funding models might affect the program in the digital era. This selected glossary provides definitions for the specialized information management terms used in this report. Sources for the terms include the Government Printing Office; General Services Administration, GSA Federal Agencies Digitization Guidelines Initiative Glossary, http://www.digitizationguidelines.gov/glossary ; Institute of Museum and Library Services and Heritage Preservation, "Collaboration in the Digital Age Glossary," http://test.imls.gov/collections/resources/Glossary.pdf ; Digital Preservation Coalition, Maggie Jones and Neil Beagrie, "Introduction: Definitions and Concepts," Preservation Management of Digital Materials: A Handbook, http://www.dpconline.org/text/intro/definitions.html ; Joan M. Reitz, ODLIS- Online Dictionary for Library and Information Science, http://www.abc-clio.com/ODLIS/searchODLIS.aspx ; and American Library Association, Association for Library Collections & Technical Services, Preservation and Reformatting Section, Definitions of Digital Preservation, http://www.ala.org/ala/alcts/newslinks/digipres/index.cfm . | Congress established the Federal Depository Library Program (FDLP) to provide free public access to federal government information. The program's origins date to 1813; the current structure of the program was established in 1962 and is overseen by the Government Printing Office (GPO). Access to government information is provided through a network of depository libraries across the United States. In the past half-century, information creation, distribution, retention, and preservation has expanded from a tangible, paper-based process to include digital processes managed largely through computerized information technologies. The transition to digital information raises a number of issues of possible interest to Congress. This report discusses those possible concerns as they affect FDLP. These issues, which are in some cases interrelated, may not only affect FDLP, but also extend beyond the program to a variety of contexts related to the management of government information in tangible and digital forms. Issues include the following: maintenance and availability of the FDLP tangible collection; retention and preservation of digital information; access to FDLP resources; authenticity and accuracy of digital material; robustness of the FDLP Electronic Collection; and the costs of FDLP and other government information distribution initiatives. The emergence of a predominantly digital FDLP may call the capacity of the statutory authorities GPO exercises into question. Whereas GPO is the central point of distribution for tangible, printed FDLP materials, its responsibilities are more diverse, and may be less explicitly specified, regarding its distribution of digital information. In some instances, GPO carries out activities to distribute digital information that are similar to its actions regarding printed materials. In other instances, GPO provides access to digital content that it does not produce or control. The agency has archiving and permanent retention authorities for tangible materials, but those authorities do not envision digital creation and distribution of government publications. Digital distribution authorities provide for online access to publications, but are silent on GPO's retention and preservation responsibilities for digital information. These concerns may be addressed in their own right, or in the context of user demand for FDLP information, for which there is no uniform metric. A number of efforts related to FDLP have been initiated by GPO and groups representing a number of libraries that participate in FDLP. These have included certain regional library activities; studies of the program by a private organization; proposals by a consortium of FDLP libraries to advance the consolidation, digitization, and cataloging of tangible collections; and a study of FDLP coordinated by GPO. |
By the end of 2017, the People's Republic of China (PRC) had the world's largest number of internet users, estimated at over 750 million people. At the same time, the country has one of the most sophisticated and aggressive internet censorship and control regimes in the world. PRC officials have argued that internet controls are necessary for social stability, and are intended to "enhance people's cultural taste" and "strengthen spiritual civilization." The PRC government employs a variety of methods to control online content and expression, including website blocking and keyword filtering; regulating and monitoring internet service providers; censoring social media; and arresting "cyber dissidents" and bloggers who broach sensitive social or political issues. The government also monitors the popular mobile app WeChat. WeChat began as a secure messaging app, similar to WhatsApp, but it is now used for much more than just messaging and calling (e.g., mobile payments)—and all the data shared through the app is also shared with the Chinese government. During the 2017 Communist Party Congress, censors took steps to "restrict with one hand and disseminate with the other." Censors using a variety of tools sought to eliminate certain words and expressions from appearing on social media (e.g., attempts to protest or ridicule senior political figures), while disseminating information supportive of the government and its leaders. In its 2017 Annual Report, Reporters Without Borders (Reporters Sans Frontières, RSF) called China the "world's biggest prison for journalists" and warned that the country "continues to improve its arsenal of measures for persecuting journalists and bloggers." China ranks 176 th out of 180 countries in RSF's 2017 World Press Freedom Index, surpassed only by Turkmenistan, Eritrea, and North Korea in restrictions on press freedom. At the end of 2017, RSF asserted that China was holding 52 journalists and bloggers in prison. This report describes the current state of internet freedom in China, U.S. government and private sector activity to support internet freedom around the world, and related issues of congressional interest. The U.S. government continues to advocate policies to promote internet freedom in China's increasingly restrictive environment and to mitigate the global impact of Chinese government censorship. The Department of State, the Broadcasting Board of Governors (BBG), and Congress have taken an active role in fighting global internet censorship. Since 2008, the Department of State has invested over $145 million in global internet freedom programs. These programs support digital safety, policy advocacy, technology, and research to help global internet users overcome barriers to accessing the internet. The State Department's Internet Freedom and Business and Human Rights Section within the Bureau of Democracy, Human Rights, and Labor leads U.S. government policy and engagement on internet freedom issues. Efforts include the following: raising concerns about internet restrictions with foreign governments; collaborating with like-minded governments to advance internet freedom, including in multilateral fora such as the United Nations Human Rights Council, the G-7, and the G-20; working with interagency partners and civil society stakeholders to advance internet freedom, including at the annual Internet Governance Forum, an international multistakeholder venue for addressing global internet governance; convening discussions on emerging and critical internet freedom challenges; and building awareness within the U.S. government by conducting training on internet freedom issues for federal officials. The State Department was also a founding member and is an ongoing participant in the Freedom Online Coalition (FOC), a group of governments collaborating to advance human rights online. Examples of FOC work include building cross-regional support for internet freedom language in key international documents and joint statements on issues of concern to help shape global norms on human rights online. The Digital Defenders Partnership is a project of the Freedom Online Coalition. The partnership, established in 2012, provides emergency support for internet users who are under threat for peacefully exercising their rights online. It awards grants around the world for a number of purposes, including establishing new internet connections when existing connections have been cut off or are being restricted; developing methods to protect bloggers and digital activists; developing tools needed to respond to emergencies; developing decentralized, mobile internet applications that can link computers as an independent network; supporting digital activists with secure hosting and distributed denial of service mitigation; and building emergency response capacity. In 2016, the BBG created the Office of Internet Freedom (OIF) to oversee the efforts of BBG-funded internet freedom projects, including the work carried out by the Open Technology Fund, a joint endeavor managed by BBG and Radio Free Asia. OIF manages and supports the research, development, deployment, and use of BBG-funded internet freedom (IF) technologies. OIF provides anticensorship technologies and services to citizens and journalists living in repressive environments. OIF also supports global education and awareness of IF matters, to enhance users' ability to safely access and share digital news and information without fear of repressive censorship or surveillance. The FY2018 budget for the OIF is included in the State Department's appropriation for satellite transmissions. The Consolidated Appropriations Act, 2018, provides that "in addition to amounts otherwise available for such purposes, up to $34,508,000 of the amount appropriated under this heading may remain available until expended for satellite transmissions and internet freedom programs, of which not less than $13,800,000 shall be for internet freedom programs." Internet freedom programs are also funded through grants by the Open Technology Fund. There has been one hearing in the 115 th Congress about Internet Freedom in China by the Congressional-Executive Commission on China (CECC). In 2000, Congress created the CECC to monitor China's compliance with international human rights standards, to encourage the development of the rule of law in the PRC, and to establish and maintain a list of victims of human rights abuses in China. On April 26, 2018, the CECC held a hearing on "digital authoritarianism and the global threat to free speech." The Commission heard from three witnesses about aspects of China's restrictions to free speech: Sarah Cook Senior Research Analyst for East Asia and Editor, China Media Bulletin, Freedom House Clive Hamilton Professor of Public Ethics, Charles Sturt University, Canberra, Australia, and author, Silent Invasion, China 's Influence in Australia Katrina Lantos Swett President, Lantos Foundation The hearing explored issues such as China's desire to control the internet, such as through the shutdown of popular social media apps that do not meet the country's standards of "core socialist values." The hearing also examined U.S. policies promoting internet freedom and firewall circumvention, and the global impact of Chinese government censorship and efforts to "export" its system and values. No legislation has been introduced in the 115 th Congress related to global internet freedom in authoritarian regimes. In response to criticism, particularly of their operations in China, a group of U.S. information and communications technology (ICT) companies, along with nongovernmental organizations, investors, and universities, formed the Global Network Initiative (GNI) in 2008. The GNI aims to promote best practices related to the conduct of U.S. companies in countries with poor internet freedom records. The GNI uses a self-regulatory approach to promote due diligence and awareness regarding human rights. For example, GNI has adopted a set of principles and supporting mechanisms to provide guidance to the ICT industry and its stakeholders on how to protect and advance freedom of expression and the right to privacy when faced with pressures from governments to take actions that infringe upon these rights. Participating companies voluntarily agree to undergo third-party assessments of their compliance with GNI principles. While some human rights groups have criticized the GNI's guidelines for being weak or too broad, GNI's supporters argue that the initiative sets realistic goals and creates real incentives for companies to uphold free expression and privacy. In May 2018, the GNI continued its participation in RightsCon, a yearly summit that explores issues affecting free expression and protection of global journalism, gender diversity and digital inclusion, encryption and cybersecurity, and other topics related to internet freedom. For many years, the development of the internet and its use in China have raised U.S. congressional concerns, including those related to human rights, trade and investment, and cybersecurity. Congressional interest in the internet in China has been tied to human rights concerns in a number of ways, including the use of the internet as a U.S. tool for promoting freedom of expression and other rights in China; the use of the internet by political dissidents in the PRC, and the political repression that such use often provokes; and the role of U.S. internet companies in both spreading freedom in China and complying with or enhancing PRC censorship and social control efforts. Congress has funded a variety of activities to support global internet freedom, including censorship circumvention technology development, internet and mobile communications security training, media and advocacy skills, and public policy. China and Iran have been the primary targets of such efforts, particularly circumvention and secure communications programs. In past years, U.S. congressional committees and commissions have held hearings on the internet and China, including the roles of U.S. internet companies in China's censorship regime, cybersecurity, free trade in internet services, and the protection of intellectual property rights. Freedom on the Net 2017 : Manipulating Social Media to Undermine Democracy Freedom House November 2017 https://freedomhouse.org/report/freedom-net/freedom-net-2017 How to Circumvent Online Censorship Electronic Frontier Foundation Updated August 10, 2017 https://ssd.eff.org/en/module/how-circumvent-online-censorship The Impact of Media Censorship: Evidence from a Field Experiment in China Yuyu Chen David Y. Yang January 4, 2018 https://stanford.edu/~dyang1/pdfs/1984bravenewworld_draft.pdf China's G reat F irewall I s R ising: How H igh W ill I t G o? The Economist January 4, 2018 https://www.economist.com/news/china/21734029-how-high-will-it-go-chinas-great-firewall-rising Online C ensorship: W ho A re the G atekeepers of O ur D igital L ives? Engineering and Technology Magazine The Institution of Engineering October 11, 2017 https://eandt.theiet.org/content/articles/2017/10/online-censorship-who-are-the-gatekeepers-of-our-digital-lives/ | By the end of 2017, the People's Republic of China (PRC) had the world's largest number of internet users, estimated at over 750 million people. At the same time, the country has one of the most sophisticated and aggressive internet censorship and control regimes in the world. PRC officials have argued that internet controls are necessary for social stability, and intended to protect and strengthen Chinese culture. However, in its 2017 Annual Report, Reporters Without Borders (Reporters Sans Frontières, RSF) called China the "world's biggest prison for journalists" and warned that the country "continues to improve its arsenal of measures for persecuting journalists and bloggers." China ranks 176th out of 180 countries in RSF's 2017 World Press Freedom Index, surpassed only by Turkmenistan, Eritrea, and North Korea in the lack of press freedom. At the end of 2017, RSF asserted that China was holding 52 journalists and bloggers in prison. The PRC government employs a variety of methods to control online content and expression, including website blocking and keyword filtering; regulating and monitoring internet service providers; censoring social media; and arresting "cyber dissidents" and bloggers who broach sensitive social or political issues. The government also monitors the popular mobile app WeChat. WeChat began as a secure messaging app, similar to WhatsApp, but it is now used for much more than just messaging and calling, such as mobile payments, and all the data shared through the app is also shared with the Chinese government. While WeChat users have recently begun to question how their WeChat data is being shared with the Chinese government, there is little indication that any new protections will be offered in the future. The U.S. government continues to advocate policies to promote internet freedom in China's increasingly restrictive environment and to mitigate the global impact of Chinese government censorship. The Department of State, the Broadcasting Board of Governors (BBG), and Congress have taken an active role in fighting global internet censorship: Since 2008, the State Department has created programs that support digital safety, policy advocacy, technology, and research to help global internet users overcome barriers to accessing the internet, including the Freedom Online Coalition. In 2016, the BBG created the Office of Internet Freedom to oversee the efforts of BBG-funded internet freedom projects, including the research, development, deployment, and use of BBG-funded internet freedom technologies. In 2000, Congress created the Congressional-Executive Commission on China (CECC) to monitor China's compliance with international human rights standards, to encourage the development of the rule of law in the PRC, and to establish and maintain a list of victims of human rights abuses in China. Additionally, the U.S. information and communications technology (ICT) industry has taken steps to advance internet freedom. In 2008, a group of U.S. ICT companies, along with nongovernmental organizations, investors, and universities, formed the Global Network Initiative (GNI). The GNI aims to promote best practices related to the conduct of U.S. companies in countries with poor internet freedom records. In the 115th Congress, the CECC held a hearing on April 26, 2018, on "digital authoritarianism and the global threat to free speech." No legislation has been introduced in the 115th Congress related to global internet freedom in authoritarian regimes. |
The William Wilberforce Trafficking Victims Protection Reauthorization Act of 2008 ( H.R. 7311 ), passed both the House and the Senate on December 10, 2008. The President signed it into law on December 23, 2008, P.L. 110 - 457 , 122 Stat. 5044 (2008). It bolsters federal efforts to combat both international and domestic traffic in human beings. Among other initiatives, it expands pre-existing law enforcement authority and the criminal proscriptions in the area. For instance, it authorizes the Attorney General to use administrative subpoenas in sex trafficking investigations and to seek preventive detention of those charged with such offenses. It clarifies the reach of earlier prohibitions and outlaws anew obstructing anti-trafficking enforcement efforts, conspiring to traffic, as well as reaping any benefit from trafficking. Congress has condemned human trafficking almost from the beginning of the Republic. Early on, it joined in the international endeavor to eliminate the African slave trade—an enterprise in which William Wilberforce was a moving force. Later, it crafted, and presented to the states for ratification, the Thirteenth Amendment which abolished slavery and involuntary servitude in the United States and which it then implemented with a ban on peonage. Shortly thereafter, it passed the Padrone statute which outlawed bringing individuals, particularly children, from overseas in order to hold them in involuntary servitude in this country. When early in the Twentieth Century Congress enacted the Mann Act outlawing transportation of unlawful sexual purposes, it included a prohibition on importing foreign "women and girls" for such purposes. Although these statutes or their successors have remained in place, Congress believed more was needed. Having found that "[a]t least 700,000 persons annually, primarily women and children, are trafficked within or across international borders," and that roughly 50,000 of them were imported into the United States a year, Congress responded with the Victims of Trafficking and Violence Protection Act of 2000, Division A of which (Trafficking Victims Protection Act of 2000) is its centerpiece. The 2000 Trafficking Act sought to prevent trafficking through international cooperation, to protect and assist trafficking victims, and punish traffickers. Later legislation added further refinements. As a consequence at the dawn of the 110 th Congress, it was a federal crime to: hold a person in peonage (18 U.S.C. 1581(a)) obstruction a §1581 investigation (18 U.S.C. 1581(b)) prepare a vessel to engage in the slave trade (18 U.S.C. 1582) entice or carry an individual into slavery (18 U.S.C. 1583) sell or hold a person in involuntary servitude (18 U.S.C. 1584) engage in the slave trade (18 U.S.C. 1585) serve on a vessel in the slave trade (18 U.S.C. 1586) command a vessel with slaves aboard (18 U.S.C. 1587) transport slaves from the United States (18 U.S.C. 1588) obtain labor by force or threat (18 U.S.C. 1589) traffic in the victims of peonage, slavery, involuntary servitude, or forced labor (18 U.S.C. 1590) engage in sex trafficking of children or by force, fraud, or coercion (18 U.S.C. 1591) engage in document abuse in aid of trafficking, peonage, slavery, involuntary servitude, or forced labor (18 U.S.C. 1592) coerce or entice another to travel for illicit sexual purposes (18 U.S.C. 2422) transport a child for illicit sexual purposes (18 U.S.C. 2423(a)) conspire to oppress another in the enjoyment of federally protected rights (18 U.S.C. 241) The reported legislative history of the changes in criminal law produced by the Wilberforce Act is relatively sparse. Representative Lantos introduced H.R. 3887 , the William Wilberforce Trafficking Victims Protection Reauthorization Act of 2007, on October 18, 2007. Hearings were held, and on November 6, 2007, the House Committee on Foreign Affairs reported an amended version. Following statements of support from several Members, the measure passed the House under suspension of the rules and without recorded vote on December 4, 2007. Although much of the Wilberforce Act originated in H.R. 3887 , most of its criminal provisions did not. Most appeared first in Senate bill S. 3061 , the William Wilberforce Trafficking Victims Protection Reauthorization Act of 2008, which Senator Biden introduced with a brief accompanying statement on May 22, 2008. Hearings had been held earlier, and on September 8, 2008, the Senate Committee on the Judiciary reported an amended version without written report. Congress ultimately elected to proceed with a clean bill rather than use either H.R. 3887 or S. 3061 as a vehicle for final passage. Representative Berman introduced H.R. 7311 , the William Wilberforce Trafficking Victims Protection Reauthorization Act of 2008, which mixed features from the earlier House and Senate proposals, on December 9, 2008. H.R. 7311 passed both Houses on December 10, 2008, and was signed into law on December 23, 2008. The Wilberforce Act, as enacted, consists of four titles: Combating International Trafficking in Persons (Title I), Combating Trafficking in Persons in the United States (Title II), Authorizations of Appropriations (Title III), and Child Soldiers Prevention (Title IV). The criminal provisions, substantive and procedural, are housed primarily in Subtitle II-C. Prior to the Wilberforce Act, only the peonage statute among the anti-trafficking proscriptions included an explicit obstruction component. Nevertheless, then as now federal law prohibits three forms of obstruction of justice generally. It is a federal crime to use physical force, threats, intimidation, or corrupt persuasion to prevent another from providing federal law enforcement officials with information relating to the commission of a federal crime. It is a federal crime to alter, destroy or conceal physical evidence to prevent its use in a federal judicial or administrative proceeding. And it is a federal crime to injure another in his person or property in retaliation for providing a law enforcement officer with information relating to a federal crime. At least facially, however, these provisions are more narrowly tailored than the all encompassing language of the peonage obstruction proscription ("obstructs, or attempts to obstruct, or in any way interferes with or prevents ... enforcement"). With the passage of the Wilberforce Act, it is now a federal crime to obstruct, or attempt to obstruct, or in any way interfere with or prevent the enforcement of Section 1583 (enticement into slavery), 1584 (holding another in involuntary servitude), 1590 (trafficking with respect to peonage, slavery, involuntary servitude, or forced labor), 1591 (sex trafficking using force, fraud, coercion or children), or 1592 (document abuse relating to peonage, slavery, involuntary servitude, or forced labor). The penalties for doing so are the same as those for the underlying offense. Conspiracy to violate any federal felony provision is a separate offense punishable by imprisonment for not more than five years. Nevertheless in a number of instances, Congress has elected to punish equally conspiracy and the underlying offense which is its object. None of the trafficking sections contained such a feature prior to enactment of the Wilberforce Act. The Wilberforce Act in section 222(c) amends 18 U.S.C. 1594 to authorize the same punishment for the substantive offense or for conspiracy to commit it in case of: 18 U.S.C. 1583 (enticement into slavery), 18 U.S.C. 1584 (holding another in involuntary servitude), 18 U.S.C. 1590 (trafficking with respect to peonage, slavery, involuntary servitude, or forced labor), or 18 U.S.C. 1592 (document abuse relating to peonage, slavery, involuntary servitude, or forced labor). The Wilberforce Act's treatment of 18 U.S.C. 1591 is similar if distinctive. Section 1591 punishes violations involving force, fraud, coercion, or a victim under 14 years of age with imprisonment for any term of years not less than 15 or for life. When the victim is between 14 and 17 years, the offender faces the same maximum sentence, but with a mandatory minimum of 10 years. The Wilberforce Act amends 18 U.S.C. 1594 so that conspirators face the same maximum penalty as they would for a completed Section 1591 offense (imprisonment for any term of years or for life), but not the mandatory minimum that would accompany the completed offense. Section 1591 houses two offenses, a trafficking offense and profiteering offense. The Wilberforce Act recasts Section 1591 in a number of other ways. First, it makes it clear that in its trafficking offense the section condemns not only trafficking but the sexual exploitation of the victims of trafficking. It does so by adding "maintains" to the list of possible conduct elements for the offense, i.e., "Whoever knowingly—(1) in or affecting interstate or foreign commerce, or within the special maritime and territorial jurisdiction of the United States, recruits, entices, harbors, transports, provides, obtains , or maintains by any means a person ... " with the knowledge, or in reckless disregard of the fact, that the person will be used for commercial sexual purposes and either is a child or will be induced to participate through the use of force, the threat of force, fraud, coercion, or some combination of such inducements. Second, the Wilberforce Act expands the mens rea or knowledge element of both Section 1591 offenses. The offenses shared two knowledge elements prior to the Wilberforce Act. The government had to prove (a) that the defendant knew that an individual had been recruited, transported, or harbored, or knew that he was benefitting from such activity, and (b) that the defendant knew either that the individual was a child to be used for commercial sexual purposes or that force, fraud or coercion was to be used to exploit the individual for such purposes. The Wilberforce Act enlarges the second knowledge element, the commercial sexual purposes element, to include instances where the defendant acts with "reckless disregard" of the fact that a child, force, fraud or coercion will be used for commercial sexual purposes. A similar reckless disregard standard has been part of the prohibition against harboring illegal aliens for some time. There, the courts have explained that "reckless disregard" means "deliberate indifference to facts which, if considered and weighed in a reasonable manner, indicate the highest probability that the alleged aliens were in fact aliens and were in the United States illegally." In many instances, the principal effect of the amendment may be to reenforce the law's understanding that the "knowledge" element covers instances of "willful blindness": A willful blindness instruction is appropriate when the defendant asserts a lack of guilty knowledge, but the evidence supports an inference of deliberate ignorance. Ignorance is deliberate if the defendants were presented with facts putting them on notice criminal activity was particularly likely and yet intentionally failed to investigate.... If reasonable inference support a finding the failure to investigate is equivalent to "burying one's head in the sand," the jury may consider willful blindness as a basis for knowledge. A third amendment addresses the age-of-the-victim issue. It absolves the government from having to prove that a trafficker actually knew the age of a child victim, as long as it shows that he had a reasonable chance to observe the victim. The explanatory statement accompanying consideration of H.R. 7311 in the House notes that other federal sexual child abuse statutes, like 18 U.S.C. 2241(c), (d)(statutory rape), require the government to prove the victim's age but not the defendant's knowledge of victim's age. The Wilberforce Act also increases the penalty for violations of the Mann Act (travel for illicit sexual purposes) by those previously convicted of a sex trafficking offense of Section 1591. The Mann Act already doubled the otherwise applicable terms of imprisonment for offenders who violate its proscriptions following an earlier conviction under its provisions or under those of chapters 109A (sexual abuse) or 110 (sexual exploitation of children) of Title 18 of the United States Code. The Wilberforce Act adds prior Section 1591 convictions to the list. The Wilberforce Act provides expansive definitions for the terms used to describe the coercion employed to effectuate sexual trafficking under Section 1591 or forced labor under Section 1589. Concern that the scope of then existing coercive trafficking laws led to enactment of Section 1589 in the first place. The Supreme Court in Kozminski had held that the involuntary servitude statute encompassed coercive servitude but only to the extent that the coercion involved the use or threat of physical restraint or abuse of legal process—psychological threats or threats of other kinds of harm were beyond the scope of the section's proscriptions. When it enacted Section 1589, Congress explained that "Section 1589 will provide federal prosecutors with the tools to combat severe forms of worker exploitation that do not rise to the level of involuntary servitude as defined in Kozminski ." The 2000 Trafficking legislation clearly stated that the forced labor and sexual trafficking bans in sections 1589 and 1591 condemned violations accomplished by the use of physical restraint and abuse of law, but also by the threat of serious harm, or by a scheme intended to convey the impression of such coercive threats. The Wilberforce Act provides yet further clarification with specific definition of the terms (a) serious harm ("physical or nonphysical ... psychological, financial, or reputational" harm which a similarly situated, reasonable person would consider serious) and (b) abuse of law ("administrative, civil, or criminal" use of the law to cause another to engage in or refrain from conduct). The new definitions re-enforce recent judicial interpretations that have construed the terms found in sections 1589 and 1591 broadly. The explanatory statement supplied the House immediately prior to passage emphasizes Congress's expansive view of the term "serious harm": The term "serious harm" refers to a broad array of harms, including both physical and nonphysical, and is intended to be subjectively construed in determining whether a particular type or certain degree of harm or coercion is sufficient to overcome a particular victim's will ... It is contemplated that these refinements will streamline the jury's consideration in cases involving coercion and will more fully capture the imbalance of power between trafficker and victim. A scheme, plan, or pattern intended to inculcate a belief of serious harm may refer to nonviolent and psychological coercion, including but not limited to isolation, denial of sleep and punishments, or preying on mental illness, infirmity, drug use or addictions (whether pre-existing or developed by the trafficker). The Wilberforce Act's definition of abuse of law is modeled after that found in the Second Restatement of Torts referenced in the earlier limited available case law (use of "a legal process, criminal or civil, against another primarily to accomplish a purpose for which it is not designed"). It expands upon the Restatement's definition to encompass threats of abuse and the abuse of administrative process, but confines application to coercive abuse (i.e., abuse exerted or threatened "in order to exert pressure on another person to cause that person top take some action or refrain from taking some action"). Although Section 1591 condemns both those who engaged in sex trafficking and those who knowingly benefitted financially from such trafficking ventures, at one time the other trafficking sections had no such financial benefit component. The Wilberforce Act adds the financial benefit offense to the forced labor, peonage, and document abuse prohibitions. In the case of Section 1589 (forced labor) it does so directly: (b) Whoever knowingly benefits, financially or by receiving anything of value, from participation in a venture which has engaged in the providing or obtaining of labor or services by any of the means described in subsection (a), knowing or in reckless disregard of the fact that the venture has engaged in the providing or obtaining of labor or services by any of such means, shall be punished as provided in subsection (d). In the case of sections 1581(a)(peonage) and 1592 (document abuse), the new profiteering offense comes in the form of a new Section 1593A: 18 U.S.C. 1593A. Benefitting financially from peonage, slavery, and trafficking in persons Whoever knowingly benefits, financially or by receiving anything of value, from participation in a venture which has engaged in any act in violation of Section 1581(a), 1592, or 1595(a), knowing or in reckless disregard of the fact that the venture has engaged in such violation, shall be fined under this title or imprisoned in the same manner as a completed violation of such section. The reference to Section 1595 seems misplaced because that section contains no criminal proscription, but instead affords trafficking victims a civil cause of action for damages and attorneys' fees. In light of the caption for 1593A, it seems more likely that a reference to Section 1590 (trafficking with respect to peonage, slavery, involuntary servitude, or forced labor) was intended. The Wilberforce Act creates another new federal crime, 18 U.S.C. 1351, this one forbidding misrepresentations designed to induce foreign nationals to come to the United States to work. Violations are punishable by imprisonment for not more than five years. In contrast, H.R. 3887 would have addressed the issue by requiring foreign labor contractors to disclose certain circumstances of prospective employment and by declaring any material misrepresentation a violation of 18 U.S.C. 1519. Section 1519 forbids the knowing falsification of records with the intent to impede, obstruct, or influence the proper administration of any matter within the jurisdiction of any department or agency of the United States. Offenders face a sentence of imprisonment for not more than 20 years. Both Section 1519 and the new Section 1351, supplement the general false statement statute, 18 U.S.C. 1001, which prohibits material false statements in a matter within the jurisdiction of a federal department or agency. Section 1001 punishes violations with a term of imprisonment of not more than five years ordinarily, but not more than eight years if the offense is related to an offense under Section 1591 (sex trafficking involving children, force, fraud or coercion), chapter 109A(sexual abuse), chapter 110 (sexual exploitation of children) or chapter 117 (transportation of illicit sexual purposes). The new Section 1351 envisions a far more general prohibition than would have the comparable provision in H.R. 3887 : For the purposes of [Section 1351], "employment" is presumed to include, but not be limited to, such issues as term and conditions of employment, housing, labor broker fees, employer or broker provided food and transportation, ability to work outside of the offered place of employment, and other material aspects of the recruited person's work and life in America. This statute is intend to capture situations in which exploitative employers and recruiters have lured heavily indebted workers to the United States; but did not obtain their labor or services through coercion sufficient to reach the level of Chapter 77 Slavery/Trafficking offenses. Press accounts and Congressional briefings have highlighted cases with facts as egregious as situations in which defrauded workers were stranded in fenced compounds, reduced to catching pigeons for food and collecting rainwater to drink, all the while facing bankruptcy because of brokerage charges and debt incurred in their home country in reliance on the recruiters' false promises. This section will be of particular application in cases involving employment based immigration ("guest worker") programs, but is not limited to employment under such a provision. The Wilberforce Act, like H.R. 3887 before it, instructs the United States Sentencing Commission to examine certain trafficking-related sentencing guidelines, although the tenor its instruction is somewhat more narrowly focused. In section 222(g), the Wilberforce Act directs the Commission to exercise its amending authority to ensure consistency between the guidelines and policy statements applicable to prostitution entrepreneurs and those applicable to prostitution entrepreneurs convicted of harboring aliens. Criminal jurisdiction is usually territorial. The law of the place determines what is criminal and how crimes may be punished. There are some circumstances, however, under which the United States may prosecute and punish crimes committed overseas outside of its territory. Subject to due process limitations, the question of whether such extraterritorial jurisdiction exists over a particular offense is a matter of statutory construction rather than constitutional prerogative. The courts will look to the language of the statute, the purpose for its enactment, and consistency with the principles of international law to determine whether Congress intended a particular criminal statute to apply to conduct committed overseas. For example, when a statute proscribes the theft of federal property, even in the absence of a statement of extraterritorial jurisdiction, it is presumed that Congress intends the prohibition to apply regardless of where the property may be stolen. The courts have generally considered overseas application of federal criminal law consistent with international law when either the offender or the victim is American. Extraterritorial jurisdiction may also be considered consistent with international law when the overseas conduct has an impact within the United States, or when the criminal prohibition is enacted to implement a treaty or similar international obligation or with respect to a crime that is contrary to the law of nations, i.e., that is abhorrent under the laws of all countries. The slave trade falls within this last category, although the courts have held that Congress did not intend the civil remedies available to the victims of a civil rights violation to apply overseas. In addition to the extraterritorial jurisdiction that might otherwise exist, the Wilberforce Act establishes extraterritorial jurisdiction over various peonage and trafficking offenses when the offender is an American or when the offender is found in the United States. The phrase "found in the United States" as used in this context is ordinarily understood to refer to individuals who have entered the United States voluntarily as well as those who have been brought here for trial. The offenses involved are: 18 U.S.C. 1581 (peonage) 18 U.S.C. 1583 (enticement into slavery) 18 U.S.C. 1584 (sale into involuntary servitude) 18 U.S.C. 1589 (force labor) 18 U.S.C. 1590 (human trafficking) 18 U.S.C. 1591 (sex trafficking) The precise scope of Section 1596 may be open to question. It permits prosecution in the United States of an overseas violation of Section 1591 (sex trafficking) when the offender is an American or when the offender is later found or brought to the United States. However, Section 1591 itself outlaws misconduct only when committed within the special maritime or territorial jurisdiction of the United States or in or affecting the interstate or foreign commerce of the United States. Thus, Section 1596 notwithstanding, a purported violation of Section 1591 involving an individual found in the United States or an American offender may only be successfully prosecuted if the offense occurred within the special maritime and territorial jurisdiction of the United States or if it was committed in or affecting the interstate or foreign commerce of the United States. None of the other sections listed in Section 1596 have a comparable jurisdictional element. Overseas offenses under any of those sections may be tried and punished in the United States. As long as the accused has been brought to the United States for trial, it matters not that the conduct may lawful under the laws of the place where it occurs or that there is no other nexus to the United States. Due process may at some point limit the scope of Section 1596, but the case law provides no clear indication of where that point might be. Individuals charged with noncapital federal crimes are entitled to bail premised on the understanding that they will remain available for subsequent judicial proceedings and that they will not pose a danger to the community. In the case of individuals charged with certain serious offenses, the prosecution may request a hearing to determine whether any conditions of release will be sufficient to assure the subsequent appearance of the accused or to ensure the safety of the community. The judge or magistrate may order the pretrial detention of the accused upon a determination, following the hearing, that no condition or set of conditions can provide a reasonable assurance of public safety or subsequent appearance. For a few particularly egregious offenses, the law establishes a presumption that no such assurance will be possible. The Wilberforce Act adds violations of Section 1591 (sex trafficking) to the list of offenses for which the government may request a preventive detention hearing. It adds violations of chapter 77 (peonage, force labor, and trafficking) with a maximum penalty of imprisonment for 20 years or greater to the list of egregious offenses for which preventive detention is presumptive. The specific crimes in the added to the presumptive detention category are offenses under: 18 U.S.C. 1581 (peonage) 18 U.S.C. 1583 (enticement into slavery) 18 U.S.C. 1584 (sale into involuntary servitude) 18 U.S.C. 1589 (force labor) 18 U.S.C. 1590 (human trafficking) 18 U.S.C. 1591 (sex trafficking). The presumption, however, comes into play only if the accused poses a serious risk of flight or threat to obstruction of justice, or if the offense is one that may trigger a preventive detention hearing. The Wilberforce Act specifically designates Section 1591 offenses as such qualifying violations. Charges under other chapter 77 offenses must qualify under the general preventive detention provisions, that is, they must be either an offense punishable by death or life imprisonment or be a crime of violence. Crimes of violence here include crimes in which the use or threatened use of physical force is an element and crimes which by their nature involve the risk of physical force. The Attorney General may issue administrative subpoenas for the production of records in connection with an investigation into various sexual exploitation or abuse offenses involving children. Issuance requires neither probable cause nor judicial approval, but recipients may petition the court to modify or set aside the subpoena on grounds of relevance, privilege, or reasonableness, or any other ground upon which a judicial subpoena might be modified or set aside. The Wilberforce Act adds Section 1591 investigations (sex trafficking involving children or the use of force, fraud, or coercion) to the list of investigations in relation to which the Attorney General may issue an administrative subpoena. Forfeiture is the confiscation of property as a consequence of the property's relation to a criminal offense. The government is the recipient of confiscated property, at least initially. Forfeiture may be accomplished using any of several procedures. Restitution is the process by which a sentencing court orders a convicted defendant to repay his victims for the injuries he has caused them. It too may vary somewhat depending upon the crime involved. Section 1593 of Title 18 of the United States Code requires a sentencing court to impose mandatory restitution upon anyone convicted of a violation of chapter 77 (peonage, force labor, trafficking). Section 1594(d) calls for criminal forfeiture—upon conviction—of any of the defendant's property derived from, or used to facilitate, the commission of an offense under chapter 77. Section 1594(e) calls for civil forfeiture—without the necessity of the owner's conviction—of any property derived from, or used to facilitate, the commission of an offense under chapter 77. Section 1594(d) identifies the procedure to be used to implement a civil forfeiture. Section 1594(e) does not identify the procedure to be used to implement a criminal forfeiture. The Wilberforce Act attempts to fill the gap by identifying a procedure to be used to implement a criminal forfeiture but places it in the restitution section, 18 U.S.C. 1593, rather than in the forfeiture section, 18 U.S.C. 1594: Chapter 77 of Title 18 , United States Code, is amended — (1) in Section 1 593(b) , by adding at the end the following: " (4) The forfeiture of property under this subsection shall be governed by the provisions of section 413 (other than subsection(d) of such section) of the Controlled Substances Act (21 U.S.C. 853). " The misstep may be relatively inconsequential since the facts that would support a criminal forfeiture will almost always support a civil forfeiture. The government simply may not have the benefit of a choice. The Justice Department drafted a Model State Anti-Trafficking Criminal Statute in 2004. The Model includes suggested language of state criminal laws relating to trafficking in persons, involuntary servitude, sexual servitude of a minor and trafficking in persons for forced labor or services. A number of states have adopted comparable statutes. The Wilberforce Act directs the Attorney General to facilitate corresponding model state legislation for the investigation and prosecution of prostitution and pandering based on the provisions Congress enacted for the District of Columbia. It would also instruct the Attorney General to post the model on the department's website and distribute it to the states. Section 221(2) of the Wilberforce Act, which has its genesis in section 221(d) of H.R. 3887 , makes three changes in the civil cause of action available to the trafficking victims. First, it enlarges the civil cause of action to cover victims of violations of the involuntary servitude and trafficking provisions. Second, it gives victims a cause of action against those who have profited from their exploitation. Third, it provides an explicit 10-year statute of limitations within which such suits would have to be filed. Under prior law, victims enjoyed a cause of action for violations of 18 U.S.C. 1589 (forced labor), 1590 (peonage-related trafficking), 1591(sex trafficking of children or by force, fraud or coercion). The Wilberforce Act amends Section 1595 to include other offenses in chapter 77, i.e., peonage (18 U.S.C. 1581) enticement into slavery (18 U.S.C. 1583) sale into involuntary servitude (18 U.S.C. 1584), unlawful compelled service (proposed 18 U.S.C. 1592) Moreover, it creates a cause of action for victims of any violation of chapter 77 against anyone who benefits from any such a violation: An individual who is a victim of a violation of Section 1589, 1590, or 1591 of this chapter may bring a civil action against the perpetrator (or whoever knowingly benefits, financially or by receiving anything of value from participation in a venture which that person knew or should have known has engaged in an act in violation of this chapter) in an appropriate district court of the United States and may recover damages and reasonable attorneys fees. Even though profiteering is only criminally proscribed with respect to sections 1581 (peonage), 1589 (forced labor), 1591 (sex trafficking involving children, force, fraud or coercion), and 1592 (document abuse relating to peonage, forced labor or trafficking), this creates civil liability both for those who face criminal liability for their profiteering and those who do not. Thus for example, a profiteer, who benefits from a third person holding an individual in involuntary servitude in violation of Section 1584, faces no criminal liability under that section. The individual, however, may recover civil damages and attorneys' fees against the profiteer based on the harm caused the individual for the violation of Section 1584. As for the statute of limitations, prior law supplied no explicit statute of limitations for a cause of action under Section 1595. Where Congress has failed to provide a statute of limitations for a federal cause of action, the courts will resort to the most analogous state or federal civil statute of limitations. The statute of limitations of the civil cause of action established for various federal sex offenses under 18 U.S.C. 2255 is six years. The statute of limitations for the criminal prosecution of most of the offenses under chapter 77 is 10 years. To resolve any ambiguity, the Wilberforce Act explicitly opts for same 10-year statute of limitations for both criminal and civil liability for violations of chapter 77. [Sec. 222(e)(2)] 18 U.S.C. 1351. Fraud in foreign labor contracting Whoever knowingly and with intent to defraud recruits, solicits or hires a person outside the United States for purposes of employment in the United States by means of materially false or fraudulent pretenses, representations or promises regarding that employment shall be fined under this title or imprisoned for not more than 5 years, or both. 18 U.S.C. 1583. Enticement into slavery (a) Whoever— (1) kidnaps or carries away any other person, with the intent that such other person be sold into involuntary servitude, or held as a slave; (2) entices, persuades, or induces any other person to go on board any vessel or to any other place with the intent that he or she may be made or held as a slave, or sent out of the country to be so made or held; or [ Sec. 222(b)(1) ](3) obstructs, or attempts to obstruct, or in any way interferes with or prevents the enforcement of this section, shall be fined under this title, imprisoned not more than 20 years, or both. (b) Whoever violates this section shall be fined under this title, imprisoned for any term of years or for life, or both if— (1) the violation results in the death of the victim; or (2) the violation includes kidnaping, an attempt to kidnap, aggravated sexual abuse, an attempt to commit aggravated sexual abuse, or an attempt to kill. 18 U.S.C. 1584. Sale into involuntary servitude [Sec. 222(a)(2)] (a) Whoever knowingly and willfully holds to involuntary servitude or sells into any condition of involuntary servitude, any other person for any term, or brings within the United States any person so held, shall be fined under this title or imprisoned not more than 20 years, or both. If death results from the violation of this section, or if the violation includes kidnapping or an attempt to kidnap, aggravated sexual abuse or the attempt to commit aggravated sexual abuse, or an attempt to kill, the defendant shall be fined under this title or imprisoned for any term of years or life, or both. (b) Whoever obstructs, attempts to obstruct, or in any way interferes with or prevents the enforcement of this section, shall be subject to the penalties described in subsection (a) . 18 U.S.C. 1589. Forced labor [ Sec. 222(a)(3) ] Whoever knowingly provides or obtains the labor or services of a person by any one of, or by any combination of, the following means — (1) by means of force, threats of force, physical restraint, or threats of physical restraint to that person or another person; (2) by means of serious harm or threats of serious harm to that person or another person; (1) by threats of serious harm to, or physical restraint against, that person or another person;) (2)(3) by means of the abuse or threatened abuse of law or the legal process, or (4) by means of any scheme, plan, or pattern intended to cause the person to believe that, if the person did not perform such labor or services, that person or another person would suffer serious harm or physical restraint, shall be punished as provided under subsection (d). (b) Whoever knowingly benefits, financially or by receiving anything of value, from participation in a venture which has engaged in the providing or obtaining of labor or services by any of the means described in subsection (a), knowing or in reckless disregard of the fact that the venture has engaged in the providing or obtaining of labor or services by any of such means, shall be punished as provided in subsection (d). (c) In this section: (1) The term "abuse or threatened abuse of law or legal process" means the use or threatened use of a law or legal process, whether administrative, civil, or criminal, in any manner or for any purpose for which the law was not designed, in order to exert pressure on another person to cause that person to take some action or refrain from taking some action. (2) The term "serious harm" means any harm, whether physical or nonphysical, including psychological, financial, or reputational harm, that is sufficiently serious, under all the surrounding circumstances, to compel a reasonable person of the same background and in the same circumstances to perform or to continue performing labor or services in order to avoid incurring that harm. (d) Whoever violates this section shall be fined under this title, imprisoned not more than 20 years, or both. If death results from a violation of this section, or if the violation includes kidnaping, an attempt to kidnap, aggravated sexual abuse, or an attempt to kill, the defendant shall be fined under this title, imprisoned for any term of years or life, or both. 18 U.S.C. 1590. Trafficking with respect to peonage, slavery, involuntary servitude, or forced labor [ Sec. 222(a)(4) ] (a) Whoever knowingly recruits, harbors, transports, provides, or obtains by any means, any person for labor or services in violation of this chapter shall be fined under this title or imprisoned not more than 20 years, or both. If death results from the violation of this section, or if the violation includes kidnapping or an attempt to kidnap, aggravated sexual abuse, or the attempt to commit aggravated sexual abuse, or an attempt to kill, the defendant shall be fined under this title or imprisoned for any term of years or life, or both. (b) Whoever obstructs, attempts to obstruct, or in any way interferes with or prevents the enforcement of this section, shall be subject to the penalties under subsection (a) . 18 U.S.C.1591. Sex trafficking of children or by force, fraud, or coercion [ Sec. 222(a)(5)(A)-(D) ] (a) Whoever knowingly— (1) in or affecting interstate or foreign commerce, or within the special maritime and territorial jurisdiction of the United States, recruits, entices, harbors, transports, provides, obtains , or maintains by any means a person; or (2) benefits, financially or by receiving anything of value, from participation in a venture which has engaged in an act described in violation of paragraph (1), knowing , or in reckless disregard of the fact, that means of force, threat of force, fraud, coercion described in subsection (c) (e) (2) , or any combination of such means, will be used to cause the person to engage in a commercial sex act, or that the person has not attained the age of 18 years and will be caused to engage in a commercial sex act, shall be punished as provided in subsection (b). (b) The punishment for an offense under subsection (a) is— (1) if the offense was effected by force, fraud, or coercion or if the person recruited, enticed, harbored, transported, provided, or obtained had not attained the age of 14 years at the time of such offense, by a fine under this title or imprisonment for any term of years or for life, or both; or (2) if the offense was not so effected, and the person recruited, enticed, harbored, transported, provided, or obtained had attained the age of 14 years but had not attained the age of 18 years at the time of such offense, by a fine under this title or imprisonment for not more than 40 years, or both. (c) In a prosecution under subsection (a)(1) in which the defendant had a reasonable opportunity to observe the person so recruited, enticed, harbored, transported, provided, obtained or maintained, the Government need not prove that the defendant knew that the person had not attained the age of 18 years. ( d) Whoever obstructs, attempts to obstruct, or in any way interferes with or prevents the enforcement of this section, shall be fined under this title, imprisoned for a term not to exceed 20 years, or both . [ Sec. 222(a)(5)(E) "in subsection (e) as redesignated"] (c) In this section: (1) The term "abuse or threatened abuse of law or legal process" means the use or threatened use of a law or legal process, whether administrative, civil, or criminal, in any manner or for any purpose for which the law was not designed, in order to exert pressure on another person to cause that person to take some action or refrain from taking some action. (2) The term "coercion" means— (A) threats of serious harm to or physical restraint against any person; (B) any scheme, plan, or pattern intended to cause a person to believe that failure to perform an act would result in serious harm to or physical restraint against any person; or (C) the abuse or threatened abuse of law or the legal process. (3) (1) The term "commercial sex act" means any sex act, on account of which anything of value is given to or received by any person. (4) The term "serious harm" means any harm, whether physical or nonphysical, including psychological, financial, or reputational harm, that is sufficiently serious, under all the surrounding circumstances, to compel a reasonable person of the same background and in the same circumstances to perform or to continue performing commercial sexual activity in order to avoid incurring that harm. (5) (3) The term "venture" means any group of two or more individuals associated in fact, whether or not a legal entity. 18 U.S.C. 1592 Unlawful conduct with respect to documents in furtherance of trafficking, peonage, slavery, involuntary servitude, or forced labor (a) Whoever knowingly destroys, conceals, removes, confiscates, or possesses any actual or purported passport or other immigration document, or any other actual or purported government identification document, of another person—(1) in the course of a violation of Section 1581, 1583, 1584, 1589, 1590, 1591, or 1594(a); (2) with intent to violate Section 1581, 1583, 1584, 1589, 1590, or 1591; or (3) to prevent or restrict or to attempt to prevent or restrict, without lawful authority, the person's liberty to move or travel, in order to maintain the labor or services of that person, when the person is or has been a victim of a severe form of trafficking in persons, as defined in Section 103 of the Trafficking Victims Protection Act of 2000, shall be fined under this title or imprisoned for not more than 5 years, or both. (b) Subsection (a) does not apply to the conduct of a person who is or has been a victim of a severe form of trafficking in persons, as defined in Section 103 of the Trafficking Victims Protection Act of 2000, if that conduct is caused by, or incident to, that trafficking. [ Sec. 222(b)(6) ] (c) Whoever obstructs, attempts to obstruct, or in any way interferes with or prevents the enforcement of this section, shall be subject to the penalties described in subsection (a). 18 U.S.C. 1593. Mandatory Restitution. (a)Notwithstanding section 3663 or 3663A, and in addition to any other civil or criminal penalties authorized by law, the court shall order restitution for any offense under this chapter. (b)(1) The order of restitution under this section shall direct the defendant to pay the victim (through the appropriate court mechanism) the full amount of the victim's losses, as determined by the court under paragraph (3) of this subsection. (2) An order of restitution under this section shall be issued and enforced in accordance with section 3664 in the same manner as an order under section 3663A. (3) As used in this subsection, the term "full amount of the victim's losses" has the same meaning as provided in section 2259(b)(3) and shall in addition include the greater of the gross income or value to the defendant of the victim's services or labor or the value of the victim's labor as guaranteed under the minimum wage and overtime guarantees of the Fair Labor Standards Act (29 U.S.C. 201 et seq.). [ Sec. 221(1) ] (4) The forfeiture of property under this subsection shall be governed by the provisions of section 413 (other than subsection (d) of such section) of the Controlled Substances Act (21 U.S.C. 853) . (c)As used in this section, the term "victim" means the individual harmed as a result of a crime under this chapter, including, in the case of a victim who is under 18 years of age, incompetent, incapacitated, or deceased, the legal guardian of the victim or a representative of the victim's estate, or another family member, or any other person appointed as suitable by the court, but in no event shall the defendant be named such representative or guardian. [ Sec. 222(d) ] 18 U.S.C. 1593A. Benefitting financially from peonage, slavery, and trafficking in persons Whoever knowingly benefits, financially or by receiving anything of value, from participation in a venture which has engaged in any act in violation of Section 1 581(a), 1592, or 1595(a), knowing or in reckless disregard of the fact that the venture has engaged in such violation, shall be fined under this title or imprisoned in the same manner as a completed violation of such section. 18 U.S.C. 1594 . General provisions (a) Whoever attempts to violate Section 1581, 1583, 1584, 1589, 1590, or 1591 shall be punishable in the same manner as a completed violation of that section. [ Sec. 222(c) ] (b) Whoever conspires with another to violate Section 1 581, 1583, 1589, 1590, or 1592 shall be punished in the same manner as a completed violation of such section. (c) Whoever conspires with another to violate Section 1 591 shall be fined under this title, imprisoned for any term of years or for life, or both. (d) (b) The court, in imposing sentence on any person convicted of a violation of this chapter, shall order, in addition to any other sentence imposed and irrespective of any provision of State law, that such person shall forfeit to the United States— (1) such person's interest in any property, real or personal, that was used or intended to be used to commit or to facilitate the commission of such violation; and (2) any property, real or personal, constituting or derived from, any proceeds that such person obtained, directly or indirectly, as a result of such violation. (e) (c)(1) The following shall be subject to forfeiture to the United States and no property right shall exist in them: (A) Any property, real or personal, used or intended to be used to commit or to facilitate the commission of any violation of this chapter. (B) Any property, real or personal, which constitutes or is derived from proceeds traceable to any violation of this chapter. (2) The provisions of chapter 46 of this title relating to civil forfeitures shall extend to any seizure or civil forfeiture under this subsection. (f) (d) Witness protection.— Any violation of this chapter shall be considered an organized criminal activity or other serious offense for the purposes of application of chapter 224 (relating to witness protection). 18 U.S.C. 1595. Civil remedy [ Sec. 221(2)(A) ](a) An individual who is a victim of a violation of Section 1589, 1590, or 1591 of this chapter may bring a civil action against the perpetrator (or whoever knowingly benefits, financially or by receiving anything of value from participation in a venture which that person knew or should have known has engaged in an act in violation of this chapter) in an appropriate district court of the United States and may recover damages and reasonable attorneys fees. (b)(1) Any civil action filed under this section shall be stayed during the pendency of any criminal action arising out of the same occurrence in which the claimant is the victim. (2) In this subsection, a "criminal action" includes investigation and prosecution and is pending until final adjudication in the trial court. [ Sec. 221(2)(B) ] (c) No action may be maintained under this section unless it is commenced not later than 10 years after the cause of action arose . [ Sec. 223(a) ] 18 U.S.C. 1596. Additional jurisdiction in certain trafficking offenses (a) In General- In addition to any domestic or extra-territorial jurisdiction otherwise provided by law, the courts of the United States have extra-territorial jurisdiction over any offense (or any attempt or conspiracy to commit an offense) under Section 1 581, 1583, 1584, 1589, 1590, or 1591 if — (1) an alleged offender is a national of the United States or an alien lawfully admitted for permanent residence (as those terms are defined in Section 1 01 of the Immigration and Nationality Act (8 U.S.C. 1101)); or (2) an alleged offender is present in the United States, irrespective of the nationality of the alleged offender. (b) Limitation on Prosecutions of Offenses Prosecuted in Other Countries- No prosecution may be commenced against a person under this section if a foreign government, in accordance with jurisdiction recognized by the United States, has prosecuted or is prosecuting such person for the conduct constituting such offense, except upon the approval of the Attorney General or the Deputy Attorney General (or a person acting in either such capacity), which function of approval may not be delegated. 18 U.S.C. 2426. Repeat offenders (a) Maximum term of imprisonment.— The maximum term of imprisonment for a violation of this chapter after a prior sex offense conviction shall be twice the term of imprisonment otherwise provided by this chapter, unless section 3559(e) applies. (b) Definitions.— In this section— [ Sec. 224(c) ] (1) the term "prior sex offense conviction" means a conviction for an offense— (A) under this chapter, chapter 109A, chapter 110, or Section 1 591 ; or (B) under State law for an offense consisting of conduct that would have been an offense under a chapter referred to in paragraph (1) if the conduct had occurred within the special maritime and territorial jurisdiction of the United States; and (2) the term "State" means a State of the United States, the District of Columbia, and any commonwealth, territory, or possession of the United States. 18 U.S.C. 3142. Release or detention of a defendant pending trial [ Sec. 222(a)(1)-(5) ] (e) Detention.— (1) If, after a hearing pursuant to the provisions of subsection (f) of this section, the judicial officer finds that no condition or combination of conditions will reasonably assure the appearance of the person as required and the safety of any other person and the community, such judicial officer shall order the detention of the person before trial. (2) In a case described in subsection (f)(1) of this section, a rebuttable presumption arises that no condition or combination of conditions will reasonably assure the safety of any other person and the community if such judicial officer finds that— (A) (1) the person has been convicted of a Federal offense that is described in subsection (f)(1) of this section, or of a State or local offense that would have been an offense described in subsection (f)(1) of this section if a circumstance giving rise to Federal jurisdiction had existed; (B) (2) the offense described in subparagraph (A) paragraph (1) of this subsection was committed while the person was on release pending trial for a Federal, State, or local offense; and (C) (3) a period of not more than five years has elapsed since the date of conviction, or the release of the person from imprisonment, for the offense described subparagraph (A) paragraph (1) of this subsection, whichever is later. [Sec. 222(a)(6)] (3) Subject to rebuttal by the person, it shall be presumed that no condition or combination of conditions will reasonably assure the appearance of the person as required and the safety of the community if the judicial officer finds that there is probable cause to believe that the person committed— (A) an offense for which a maximum term of imprisonment of ten years or more is prescribed in the Controlled Substances Act (21 U.S.C. 801 et seq.), the Controlled Substances Import and Export Act (21 U.S.C. 951 et seq.), or chapter 705 of title 46, (B) an offense under section 924(c), 956(a), or 2332b of this title, (C) an offense listed in section 2332b(g)(5)(B) of Title 18, United States Code, for which a maximum term of imprisonment of 10 years or more is prescribed, (D) an offense under chapter 77 of this title for which a maximum term of imprisonment of 20 years or more is prescribed; or (E) an offense involving a minor victim under Section 1201, 1591, 2241, 2242, 2244(a)(1), 2245, 2251, 2251A, 2252(a)(1), 2252(a)(2), 2252(a)(3), 2252A(a)(1), 2252A(a)(2), 2252A(a)(3), 2252A(a)(4), 2260, 2421, 2422, 2423, or 2425 of this title. [ Sec. 224(a) ] (f) Detention hearing.— The judicial officer shall hold a hearing to determine whether any condition or combination of conditions set forth in subsection (c) of this section will reasonably assure the appearance of such person as required and the safety of any other person and the community— (1) upon motion of the attorney for the Government, in a case that involves— (A) a crime of violence, a violation of Section 1 591 or an offense listed in section 2332b(g)(5)(B) for which a maximum term of imprisonment of 10 years or more is prescribed; (B) an offense for which the maximum sentence is life imprisonment or death; (C) an offense for which a maximum term of imprisonment of ten years or more is prescribed in the Controlled Substances Act (21 U.S.C. 801 et seq.), the Controlled Substances Import and Export Act (21 U.S.C. 951 et seq.), or chapter 705 of title 46; (D) any felony if such person has been convicted of two or more offenses described in subparagraphs (A) through (C) of this paragraph, or two or more State or local offenses that would have been offenses described in subparagraphs (A) through (C) of this paragraph if a circumstance giving rise to Federal jurisdiction had existed, or a combination of such offenses; or (E) any felony that is not otherwise a crime of violence that involves a minor victim or that involves the possession or use of a firearm or destructive device (as those terms are defined in section 921), or any other dangerous weapon, or involves a failure to register under section 2250 of Title 18, United States Code ... (g) Factors to be considered.— The judicial officer shall, in determining whether there are conditions of release that will reasonably assure the appearance of the person as required and the safety of any other person and the community, take into account the available information concerning— (1) the nature and circumstances of the offense charged, including whether the offense is a crime of violence, a violation of Section 1 591 , a Federal crime of terrorism, or involves a minor victim or a controlled substance, firearm, explosive, or destructive device; (2) the weight of the evidence against the person; (3) the history and characteristics of the person, including— (A) the person's character, physical and mental condition, family ties, employment, financial resources, length of residence in the community, community ties, past conduct, history relating to drug or alcohol abuse, criminal history, and record concerning appearance at court proceedings; and (B) whether, at the time of the current offense or arrest, the person was on probation, on parole, or on other release pending trial, sentencing, appeal, or completion of sentence for an offense under Federal, State, or local law; and (4) the nature and seriousness of the danger to any person or the community that would be posed by the person's release.... 18 U.S.C. 3486. Administrative subpoenas (a) Authorization.— (1)(A) In any investigation relating of— (i)(I) a Federal health care offense; or (II) a Federal offense involving the sexual exploitation or abuse of children, the Attorney General; or (ii) an offense under section 871 or 879, or a threat against a person protected by the United States Secret Service under paragraph (5) or (6) of section 3056, if the Director of the Secret Service determines that the threat constituting the offense or the threat against the person protected is imminent, the Secretary of the Treasury, may issue in writing and cause to be served a subpoena requiring the production and testimony described in subparagraph (B). (B) Except as provided in subparagraph (C), a subpoena issued under subparagraph (A) may require— (i) the production of any records or other things relevant to the investigation; and (ii) testimony by the custodian of the things required to be produced concerning the production and authenticity of those things. (C) A subpoena issued under subparagraph (A) with respect to a provider of electronic communication service or remote computing service, in an investigation of a Federal offense involving the sexual exploitation or abuse of children shall not extend beyond— (i) requiring that provider to disclose the information specified in section 2703(c)(2), which may be relevant to an authorized law enforcement inquiry; or (ii) requiring a custodian of the records of that provider to give testimony concerning the production and authentication of such records or information. [ Sec. 224(b) ](D) As used in this paragraph, the term "Federal offense involving the sexual exploitation or abuse of children" means an offense under Section 1201, 1591, 2241(c), 2242, 2243, 2251, 2251A, 2252, 2252A, 2260, 2421, 2422, or 2423, in which the victim is an individual who has not attained the age of 18 years. (2) A subpoena under this subsection shall describe the objects required to be produced and prescribe a return date within a reasonable period of time within which the objects can be assembled and made available. * * * (5) At any time before the return date specified in the summons, the person or entity summoned may, in the United States district court for the district in which that person or entity does business or resides, petition for an order modifying or setting aside the summons, or a prohibition of disclosure ordered by a court under paragraph (6). (6)(A) A United State district court for the district in which the summons is or will be served, upon application of the United States, may issue an ex parte order that no person or entity disclose to any other person or entity (other than to an attorney in order to obtain legal advice) the existence of such summons for a period of up to 90 days. (B) Such order may be issued on a showing that the things being sought may be relevant to the investigation and there is reason to believe that such disclosure may result in— (i) endangerment to the life or physical safety of any person; (ii) flight to avoid prosecution; (iii) destruction of or tampering with evidence; or (iv) intimidation of potential witnesses. (C) An order under this paragraph may be renewed for additional periods of up to 90 days upon a showing that the circumstances described in subparagraph (B) continue to exist. (7) A summons issued under this section shall not require the production of anything that would be protected from production under the standards applicable to a subpoena duces tecum issued by a court of the United States. (8) If no case or proceeding arises from the production of records or other things pursuant to this section within a reasonable time after those records or things are produced, the agency to which those records or things were delivered shall, upon written demand made by the person producing those records or things, return them to that person, except where the production required was only of copies rather than originals. * * * (c) Enforcement.— In the case of contumacy by or refusal to obey a subpoena issued to any person, the Attorney General may invoke the aid of any court of the United States within the jurisdiction of which the investigation is carried on or of which the subpoenaed person is an inhabitant, or in which he carries on business or may be found, to compel compliance with the subpoena. The court may issue an order requiring the subpoenaed person to appear before the Attorney General to produce records, if so ordered, or to give testimony concerning the production and authentication of such records. Any failure to obey the order of the court may be punished by the court as a contempt thereof. All process in any such case may be served in any judicial district in which such person may be found. (d) Immunity from civil liability.— Notwithstanding any Federal, State, or local law, any person, including officers, agents, and employees, receiving a subpoena under this section, who complies in good faith with the subpoena and thus produces the materials sought, shall not be liable in any court of any State or the United States to any customer or other person for such production or for nondisclosure of that production to the customer. (e) Limitation on use.— (1) Health information about an individual that is disclosed under this section may not be used in, or disclosed to any person for use in, any administrative, civil, or criminal action or investigation directed against the individual who is the subject of the information unless the action or investigation arises out of and is directly related to receipt of health care or payment for health care or action involving a fraudulent claim related to health; or if authorized by an appropriate order of a court of competent jurisdiction, granted after application showing good cause therefor. (2) In assessing good cause, the court shall weigh the public interest and the need for disclosure against the injury to the patient, to the physician-patient relationship, and to the treatment services. (3) Upon the granting of such order, the court, in determining the extent to which any disclosure of all or any part of any record is necessary, shall impose appropriate safeguards against unauthorized disclosure. | The William Wilberforce Trafficking Victims Protection Reauthorization Act of 2008 (H.R. 7311), passed both the House and the Senate on December 10, 2008. The President signed it into law on December 23, 2008, P.L. 110-457, 122 Stat. 5044 (2008). Although much of the Wilberforce Act originated in H.R. 3887, most of its criminal provisions did not. Most appeared first in Senate bill S. 3061, the William Wilberforce Trafficking Victims Protection Reauthorization Act of 2008, which Senator Biden introduced with a brief accompanying statement on May 22, 2008. Congress ultimately elected to proceed with a clean bill rather than use either H.R. 3887 or S. 3061 as a vehicle for final passage. Representative Berman introduced H.R. 7311, the William Wilberforce Trafficking Victims Protection Reauthorization Act of 2008, which mixed features from the earlier House and Senate proposals, on December 9, 2008. H.R. 7311 passed both Houses on December 10, 2008, and was signed into law on December 23, 2008. The Wilberforce Act bolsters federal efforts to combat both international and domestic traffic in human beings. Among other initiatives, it expands pre-existing law enforcement authority and the criminal proscriptions in the area. For instance, it authorizes the Attorney General to use administrative subpoenas in sex trafficking investigations and to seek preventive detention of those charged with such offenses. It clarifies the reach of earlier prohibitions and outlaws anew obstructing anti-trafficking enforcement efforts, conspiring to traffic, as well as reaping any benefit from trafficking. An appendix shows the changes which the Wilberforce Act makes in existing federal criminal law. This report is available in an abridged version as CRS Report R40191, An Abbreviated Sketch of the William Wilberforce Trafficking Victims Protection Reauthorization Act of 2008 (P.L. 110-457): Criminal Law Provisions, by [author name scrubbed], without the footnotes, appendices, or most citations to authority found herein. |
A well-formed grant proposal is one that is carefully prepared, thoughtfully planned, and concisely packaged. The potential applicant generally seeks first to become familiar with all of the pertinent program criteria of the funding institution. Before developing a proposal, the potential applicant may refer to the information contact listed in the agency or foundation program description to learn whether funding is available, when applicable deadlines occur, and the process used by the grantor agency or private foundation for accepting applications. Grant seekers should know that the basic requirements, application forms, information, and procedures vary among grant-making agencies and foundations. Federal agencies and large foundations may have formal application packets, strict guidelines, and fixed deadlines with which applicants must comply, while smaller foundations may operate more informally and even provide assistance to inexperienced grantseekers. However, the steps outlined in this report generally apply to any grant-seeking effort. Individuals without prior grant proposal writing experience may find it useful to attend a grantsmanship class or workshop. Applicants interested in locating workshops or consulting more resources on grantsmanship and proposal development should consult the internet sites listed at the end of this report and explore other resources in their local libraries. Local governments may obtain grant writing assistance from a state's office of Council of Governments (CSG) or Regional Council. The primary mission of CSG is to promote and strengthen state government in the federal system by providing staff services to organizations of state officials. Grassroots or small faith-based nonprofit organizations can seek the help and advice of larger, more seasoned nonprofit organizations or foundations in their state. The first step in proposal planning is the development of a clear, concise description of the proposed project. To develop a convincing proposal for project funding, the project must fit into the philosophy and mission of the grant-seeking organization or agency; and the need that the proposal is addressing must be well documented and well articulated. Typically, funding agencies or foundations will want to know that a proposed activity or project reinforces the overall mission of an organization or grant seeker, and that the project is necessary. To make a compelling case, the following should be included in the proposal: nature of the project, its goals, needs, and anticipated outcomes; how the project will be conducted; timetable for completion; how best to evaluate the results (performance measures); staffing needs, including use of existing staff and new hires or volunteers; and preliminary budget, covering expenses and financial requirements, to determine what funding levels to seek. When developing an idea for a proposal, it is also important to determine if the idea has already been considered in the applicant's locality or state. A thorough check should be made with state legislators, local government, and related public and private agencies which may currently have grant awards or contracts to do similar work. If a similar program already exists, the applicant may need to reconsider submitting the proposed project, particularly if duplication of effort is perceived. However, if significant differences or improvements in the proposed project's goals can be clearly established, it may be worthwhile to pursue federal or private foundation assistance. For many proposals, community support is essential. Once a proposal summary is developed, an applicant may look for individuals or groups representing academic, political, professional, and lay organizations which may be willing to support the proposal in writing. The type and caliber of community support is critical in the initial and subsequent review phases. Numerous letters of support can influence the administering agency or foundation. An applicant may elicit support from local government agencies and public officials. Letters of endorsement detailing exact areas of project sanction and financial or in-kind commitment are often requested as part of a proposal to a federal agency. Several months may be required to develop letters of endorsement, since something of value (e.g., buildings, staff, services) is sometimes negotiated between the parties involved. Note that letters from Members of Congress may be requested once a proposal has been fully developed and is ready for submission. While money is the primary concern of most grantseekers, thought should be given to the kinds of nonmonetary contributions that may be available. In many instances, academic institutions, corporations, and other nonprofit groups in the community may be willing to contribute technical and professional assistance, equipment, or space to a worthy project. Not only can such contributions reduce the amount of money being sought, but evidence of such local support is often viewed favorably by most grant-making agencies or foundations. Many agencies require, in writing, affiliation agreements (a mutual agreement to share services between agencies) and building space commitments prior to either grant approval or award. Two useful methods of generating community support may be to form a citizen advisory committee or to hold meetings with community leaders who would be concerned with the subject matter of the proposal. The forum may include the following: discussion of the merits of the proposal; development of a strategy to create proposal support from a large number of community groups, institutions, and organizations; and generation of data in support of the proposal. Once the project has been specifically defined, the grant seeker needs to research appropriate funding sources. Both the applicant and the grantor agency or foundation should have the same interests, intentions, and needs if a proposal is to be considered an acceptable candidate for funding. It is generally not productive to send out proposals indiscriminately in the hope of attracting funding. Grant-making agencies and foundations whose interest and intentions are consistent with those of the applicant are the most likely to provide support. An applicant may cast a wide, but targeted, net. Many projects may only be accomplished with funds coming from a combination of sources, among them federal, state, or local programs and grants from private or corporate foundations. The best funding resources are now largely on the internet. Key sources for funding information include the federal government's Assistance Listings at https://beta.sam.gov , and the Foundation Center, http://www.foundationcenter.org , the clearinghouse of private and corporate foundation funding. For a summary of federal programs and sources, see CRS Report RL34012, Resources for Grantseekers , by [author name scrubbed] and [author name scrubbed], and other CRS reports on topics such as community or social services block grants to states, rural development assistance, federal allocations for homeland security, and other funding areas. A review of the government or private foundation's program descriptions' objectives and uses, as well as any use restrictions, can clarify which programs might provide funding for a project. When reviewing individual beta.SAM.gov Assistance Listing program descriptions, applicants may also target the related programs as potential resources. Also, the kinds of projects the agency or foundation funded in the past may be helpful in fashioning a grant proposal. Program listings at beta.SAM.gov Assistance Listings or foundation information will often include examples of past funded projects. Many federal grants do not go directly to the final beneficiary, but are awarded through "block" or "formula" grants to state or local agencies which, in turn, distribute the funds (called "pass-through"). States may post funding opportunities and subaward grants originating in federal formula or block grant allocations. Grantseekers should look on state government sites for these funding opportunities—each state handles subawarding differently. For more information, see CRS Report R40486, Block Grants: Perspectives and Controversies , by [author name scrubbed] and [author name scrubbed], and CRS Report R40638, Federal Grants to State and Local Governments: A Historical Perspective on Contemporary Issues , by [author name scrubbed]. There are many types of foundations: national, family, community, corporate, etc. For district or community projects, as a general rule, it is a good idea to look for funding sources close to home, which are frequently most concerned with solving local problems. Corporations, for example, tend to support projects in areas where they have offices or plants. Most foundations only provide grants to nonprofit organizations (those registered by the Internal Revenue Service as having 501(c) tax-exempt status), though the Foundation Center publishes information about foundation grants to individuals. Once a potential grantor agency or foundation is identified, an applicant may contact it and ask for a grant application kit or information. Federal agencies may refer applicants to the website Grants.gov ( http://www.grants.gov ). Later, the grant seeker may ask some of the grantor agency or foundation personnel for suggestions, criticisms, and advice about the proposed project. In many cases, the more agency or foundation personnel know about the proposal, the better the chance of support and of an eventual favorable decision. Federal agencies are required to report funding information as funds are approved, increased, or decreased among projects within a given state depending on the type of required reporting. Also, grant seekers may consider reviewing the federal budget for the current and future fiscal years to determine proposed dollar amounts for particular budget functions. The grant seeker should carefully study the eligibility requirements for each government or foundation program under consideration (see, for example, the Criteria for Applying and Compliance Requirements sections of the beta.SAM.gov Assistance Listing program description). Federal department and agency websites generally include additional information about their programs. Beta.SAM.gov Assistance Listing program descriptions and websites include information contacts. Applicants should direct questions and seek clarification about requirements and deadlines from the contacts. The applicant may learn that he or she is required to provide services otherwise unintended such as a service to particular client groups, or involvement of specific institutions. It may necessitate the modification of the original concept in order for the project to be eligible for funding. Questions about eligibility should be discussed with the appropriate program officer. For federal grants, funding opportunities notices appear on websites such as Grants.gov at http://www.grants.gov or FedConnect at https://www.fedconnect.net . Applicants can search and sign up for email notification of funding opportunities, and download applications packages. To submit applications, registration is required. The grantseeker must also obtain Dun and Bradstreet (DUNS) and register with System for Award Management (SAM): Grants.gov provides instructions and links. Deadlines for submitting applications are often not negotiable, though some federal programs do have open application dates (refer to the beta.SAM.gov program description). For private foundation funding opportunities, grant seekers should contact foundations or check the Foundation Center's website for daily postings of Requests for Proposals (RFPs) at http://foundationcenter.org/findfunders/fundingsources/rfp.html . Specified deadlines are usually associated with strict timetables for agency or foundation review. Some programs have more than one application deadline during the fiscal or calendar year. Applicants should plan proposal development around the established deadlines. The grant seeker, after narrowing the field of potential funders, may want to approach the most likely prospects to confirm that they might indeed be interested in the project. Many federal agencies and foundations are willing to provide an assessment of a preliminary one- or two-page concept paper before a formal proposal is prepared. The concept paper should give a brief description of the needs to be addressed, who is to carry out the project, what is to be accomplished, by what means, how long it will take, how the accomplishments will be measured, plans for the future, how much it will cost, and the ways this proposal relates to the mission of the funding source. Developing a concept paper is excellent preparation for writing the final proposal. The grant seeker should try to see the project or activity from the viewpoint of the grant-making agency or foundation. Like the proposal, the concept paper should be brief, clear, and informative. It is important to understand that from the funder's vantage point, the grant is not seen as the end of the process, but only as the midpoint. The funder will want to know what will happen to the project once the grant ends. For example, will it be self-supporting or will it be used as a demonstration to apply for further funding? Will it need ongoing support, for how long, and what are the anticipated outcomes? If the funding source expresses interest in the concept paper, the grant seeker can ask for suggestions, criticism, and guidance, before writing the final proposal. Feedback and dialogue are essential elements to a successful funding proposal. Throughout the proposal writing stage, an applicant may want to keep notes on ideas and related materials for review. The gathering of documents such as articles of incorporation, tax exemption certificates, and bylaws should be completed, if possible, before the writing begins. At the end of this report, useful websites cover proposal writing, give sample grant proposals (including a template for writing a proposal), and link to federal program information and grants management circulars. An effective grant proposal has to make a compelling case. Not only must the idea be a good one, but so must the presentation. Things to be considered include the following: All of the requirements of the funding source must be met: prescribed format, necessary inclusions, deadlines, etc. The proposal should have a clear, descriptive title. The proposal should be a cohesive whole, building logically, with one section leading to another; this is an especially important consideration when several people have been involved in its preparation. Language should be clear and concise, devoid of jargon; explanations should be offered for acronyms and terms which may be unfamiliar to someone outside the field. Each of the parts of the proposal should provide as brief but informative a narrative as possible, with supporting data relegated to an appendix. At various stages in the proposal writing process, the proposal should be reviewed by a number of interested and disinterested parties. Each time it has been critiqued, it may be necessary to rethink the project and its presentation. While such revision is necessary to clarify the proposal, one of the dangers is that the original excitement of those making the proposal sometimes gets written out. Somehow, this must be conveyed in the final proposal. Applicants are advised: make it interesting! The basic sections of a standard grant proposal include the following: 1. cover letter 2. proposal summary or abstract 3. introduction describing the grant seeker or organization 4. problem statement (or needs assessment) 5. project objectives 6. project methods or design 7. project evaluation 8. future funding 9. project budget The one-page cover letter should be written on the applicant's letterhead and should be signed by the organization's highest official. It should be addressed to the individual at the funding source with whom the organization has dealt, and should refer to earlier discussions. While giving a brief outline of the needs addressed in the proposal, the cover letter should demonstrate a familiarity with the mission of the grantmaking agency or foundation and emphasize the ways in which this project contributes to these goals. The grant proposal summary outlines the proposed project and should appear at the beginning of the proposal. It could be in the form of a cover letter or a separate page, but should definitely be brief—no longer than two or three paragraphs. The summary should be prepared after the grant proposal has been developed in order to encompass all the key points necessary to communicate the objectives of the project. It is this document that becomes the cornerstone of the proposal, and the initial impression it gives will be critical to the success of the venture. In many cases, the summary will be the first part of the proposal package seen by agency or foundation officials and very possibly could be the only part of the package that is carefully reviewed before the decision is made to consider the project any further. When letters of support are written, the summary may be used as justification for the project. The summary should include a description of the applicant, a definition of the problem to be solved, a statement of the objectives to be achieved, an outline of the activities and procedures to be used to accomplish those objectives, a description of the evaluation design, plans for the project at the end of the grants, and a statement of what it will cost the funding agency. It may also identify other funding sources or entities participating in the project. For federal funding, the applicant should develop a project which can be supported in view of the local need. Alternatives, in the absence of federal support, should be pointed out. The influence of the project both during and after the project period should be explained. The consequences of the project as a result of funding should be highlighted, for example, statistical projections of how many people might benefit from the project's accomplishments. In the introduction, applicants describe their organization and demonstrate that they are qualified to carry out the proposed project—they establish their credibility and make the point that they are a good investment, in no more than a page. Statements made here should be carefully tailored, pointing out that the overall goals and purposes of the applicant are consistent with those of the funding source. This section should provide the following: A brief history of the organization, its past and present operations, its goals and mission, its significant accomplishments, any success stories. Reference should be made to grants, endorsements, and press coverage the organization has already received (with supporting documentation included in the appendix). Qualifications of its professional staff, and a list of its board of directors. Indicate whether funds for other parts of the project are being sought elsewhere; such evidence will strengthen the proposal, demonstrating to the reviewing officer that all avenues of support have been thoroughly explored. An individual applicant should include a succinct resume relating to the objectives of the proposal (what makes the applicant eligible to undertake the work or project?). This section lays out the reason for the proposal. It should make a clear, concise, and well-supported statement of the problem to be addressed, from the beneficiaries' viewpoint, in no more than two pages. The best way to collect information about the problem is to conduct and document both a formal and informal needs assessment for a program in the target or service area. The information provided should be both factual and directly related to the problem addressed by the proposal. Areas to document are as follows: Purpose for developing the proposal. Beneficiaries—who are they and how will they benefit. Social and economic costs to be affected. Nature of the problem (provide as much hard evidence as possible). How the applicant or organization came to realize the problem exists, and what is currently being done about the problem. Stress what gaps exist in addressing the problem that will be addressed by the proposal. Remaining alternatives available when funding has been exhausted. Explain what will happen to the project and the impending implications. Most important, the specific manner through which problems might be solved. Review the resources needed, considering how they will be used and to what end. One of the pitfalls to be avoided is defining the problem as a lack of program or facility (i.e., giving one of the possible solutions to a problem as the problem itself). For example, the lack of a medical center in an economically depressed area is not the problem—the problem is that poor people in the area have health needs that are not currently being addressed. The problem described should be of reasonable dimensions, with the targeted population and geographic area clearly defined. It should include a retrospective view of the situation, describing past efforts to ameliorate it, and making projections for the future. The problem statement, developed with input from the beneficiaries, must be supported by statistics and statements from authorities in the fields. The case must be made that the applicant, because of its history, demonstrable skills, and past accomplishments, is the right organization to solve the problem. There is a considerable body of literature on the exact assessment techniques to be used. Any local, regional, or state government planning office, or local university offering course work in planning and evaluation techniques should be able to provide excellent background references. Types of data that may be collected include historical, geographic, quantitative, factual, statistical, and philosophical information, as well as studies completed by colleges, and literature searches from public or university libraries. Local colleges or universities which have a department or section related to the proposal topic may help determine if there is interest in developing a student or faculty project to conduct a needs assessment. It may be helpful to include examples of the findings for highlighting in the proposal. Once the needs have been described, proposed solutions have to be outlined, wherever possible in quantitative terms. The population to be served, time frame of the project, and specific anticipated outcomes must be defined. The figures used should be verifiable. If the proposal is funded, the stated objectives will probably be used to evaluate program progress, so they should be realistic. There is literature available to help identify and write program objectives. It is important not to confuse objectives with methods or strategies toward those ends. For example, the objective should not be stated as "building a prenatal clinic in Adams County," but as "reducing the infant mortality rate in Adams County to X percent by a specific date." The concurrent strategy or method of accomplishing the stated objective may include the establishment of mobile clinics that bring services to the community. The program design refers to how the project is expected to work and solve the stated problem. Just as the statement of objectives builds upon the problem statement, the description of methods or strategies builds upon the statement of objectives. For each objective, a specific plan of action should be laid out. It should delineate a sequence of justifiable activities, indicating the proposed staffing and timetable for each task. This section should be carefully reviewed to make sure that what is being proposed is realistic in terms of the applicant's resources and time frame. Outline the following: An evaluation plan should be a consideration at every stage of the proposal's development. Data collected for the problem statement form a comparative basis for determining whether measurable objectives are indeed being met, and whether proposed methods are accomplishing these ends; or whether different parts of the plan need to be fine-tuned to be made more effective and efficient. Among the considerations will be whether evaluation will be done by the organization itself or by outside experts. The organizations will have to decide whether outside experts have the standing in the field and the degree of objectivity that would justify the added expense, or whether the job could be done with sufficient expertise by its own staff, without taking too much time away from the project itself. Methods of measurement, whether standardized tests, interviews, questionnaires, observation, and so forth, will depend upon the nature and scope of the project. Procedures and schedules for gathering, analyzing, and reporting data will need to be spelled out. The evaluation component is two-fold: (1) product evaluation and (2) process evaluation. "Product evaluation" addresses results that can be attributed to the project, as well as the extent to which the project has satisfied its stated objectives. "Process evaluation" addresses how the project was conducted, in terms of consistency with the stated plan of action and the effectiveness of the various activities within the plan. Most federal agencies now require some form of program evaluation among grantees. The requirements of the proposed project should be explored carefully. Evaluations may be conducted by an internal staff member, an evaluation firm, or both. Many federal grants include a specific time frame for performance review and evaluation. For instance, several economic development programs require grant recipients to report on a quarterly and annual basis. In instances where there are no specified evaluation periods, the applicant should state the amount of time needed to evaluate, how the feedback will be disseminated among the proposed staff, and a schedule for review and comment. Evaluation designs may start at the beginning, middle, or end of a project, but the applicant should specify a start-up time. It is desirable and advisable to submit an evaluation design at the start of a project for two reasons: Convincing evaluations require the collection of appropriate baseline data before and during program operations; and If the evaluation design cannot be prepared at the outset, then a critical review of the program design may be advisable. Even if the evaluation design has to be revised as the project progresses, it is much easier and cheaper to modify a good design. If the problem is not well defined and carefully analyzed for cause and effect relationships, then a good evaluation design may be difficult to achieve. Sometimes a pilot study is needed to begin the identification of facts and relationships. Often a thorough literature search may be sufficient. Evaluation requires both coordination and agreement among program decisionmakers. Above all, the federal grantor agency's or foundation's requirements should be highlighted in the evaluation design. Grantor agencies also may require specific evaluation techniques such as designated data formats (an existing information collection system) or they may offer financial inducements for voluntary participation in a national evaluation study. The applicant should ask specifically about these points. In addition, for federal programs, consult the "Criteria for Applying" section of the beta.SAM.gov Assistance Listing program description to determine the exact evaluation methods to be required for a specific program if funded. The last narrative part of the proposal explains what will happen to the program once the grant ends. It should describe a plan for continuation beyond the grant period, and outline all other contemplated fund-raising efforts and future plans for applying for additional grants. Projections for operating and maintaining facilities and equipment should also be given. The applicant may discuss maintenance and future program funding if program funds are for construction activity; and may account for other needed expenditures if the program includes purchase of equipment. Although the degree of specificity of any budget will vary depending upon the nature of the project and the requirements of the funding source, a complete, well-thought-out budget serves to reinforce the applicant's credibility and to increase the likelihood of the proposal being funded. The estimated expenses in the budget should build upon the justifications given in the narrative section of the proposal. A well-prepared budget should be reasonable and demonstrate that the funds being asked for will be used wisely. The budget should be as concrete and specific as possible in its estimates. Every effort should be made to be realistic, to estimate costs accurately, and not to underestimate staff time. The budget format should be as clear as possible. It should begin with a Budget Summary, which, like the Proposal Summary, is written after the entire budget has been prepared. Each section of the budget should be in outline form, listing line items under major headings and subdivisions. Each of the major components should be subtotaled with a grand total placed at the end. If the funding source provides forms, most of these elements can simply be filled into the appropriate spaces. In general, budgets are divided into two categories: personnel costs and nonpersonnel costs. In preparing the budget, the applicant may first review the proposal and make lists of items needed for the project. The personnel section usually includes a breakdown of the following items: salaries (including increases in multiyear projects), fringe benefits such as health insurance and retirement plans, and consultant and contract services. The items in the nonpersonnel section will vary widely, but may include space/office rental or leasing costs, utilities, purchase or rental of equipment, training to use new equipment, and photocopying, office supplies. Some hard-to-pin-down budget areas are utilities, rental of buildings and equipment, salary increases, food, telephones, insurance, and transportation. Budget adjustments are sometimes made after the grant award, but this can be a lengthy process. The applicant should be certain that implementation, continuation, and phase-down costs can be met. Costs associated with leases, evaluation systems, hard/soft match requirements, audits, development, implementation and maintenance of information and accounting systems, and other long-term financial commitments should be considered. A well-prepared budget justifies all expenses and is consistent with the proposal narrative. Some areas in need of an evaluation for consistency are as follows: Salaries in the proposal in relation to those of the applicant organization should be similar. If new staff persons are being hired, additional space and equipment should be considered, as necessary. If the budget calls for an equipment purchase, it should be the type allowed by the grantor agency. If additional space is rented, the increase in insurance should be supported. In the case of federal grants, if an indirect cost rate applies to the proposal, such as outlined by the Office of Management and Budget (OMB) in Circulars such as numbers A-122, A-21, and A-87 (see https://www.whitehouse.gov/omb/information-for-agencies/circulars ), the division between direct and indirect costs should not be in conflict, and the aggregate budget totals should refer directly to the approved formula. If matching funds are required, the contributions to the matching fund should be taken out of the budget unless otherwise specified in the application instructions. In learning to develop a convincing budget and determining appropriate format, reviewing other grant proposals is often helpful. The applicant may ask government agencies and foundations for copies of winning grants proposals. Grants seekers may find the following examples of grants budgets helpful: The Basics of Preparing a Budget for a Grant Proposal http://nonprofit.about.com/od/foundationfundinggrants/a/grantbudget.htm Grant Space, Knowledge Base: Examples of Nonprofit Budgets http://grantspace.org/tools/knowledge-base/Nonprofit-Management/Establishment/budget-examples Proposal Budgeting Basics http://foundationcenter.org/getstarted/tutorials/prop_budgt/index.html Sample Budget Form (National Endowment for the Humanities) http://www.neh.gov/files/grants/neh_sample_budget_form_april_2012.pdf In preparing budgets for government grants, the applicant may keep in mind that funding levels of federal assistance programs change yearly. It is useful to review the appropriations and average grants or loans awarded over the past several years to try to project future funding levels: see "Financial Information" section of the beta.SAM.gov Assistance Listing program description for fiscal year appropriations and estimates; and "Range and Average of Financial Assistance" for prior years' awards. However, it is safer never to anticipate that the income from the grant will be the sole support for larger projects. This consideration should be given to the overall budget requirements, and in particular, to budget line items most subject to inflationary pressures. Restraint is important in determining inflationary cost projections (avoid padding budget line items), but the applicant may attempt to anticipate possible future increases. For federal grants, it is also important to become familiar with grants management requirements. The beta.SAM.gov Assistance Listings database identifies in the program description OMB circulars applicable to each federal program. Applicants should review appropriate documents while developing a proposal budget because they are essential in determining items such as cost principles, administrative and audit requirements and compliance, and conforming with government guidelines for federal domestic assistance. OMB circulars are available in full text on the web at https://www.whitehouse.gov/omb/circulars/ . To coordinate federal grants to states, Executive Order 12372, "Intergovernmental Review of Federal Programs," was issued to foster intergovernmental partnership and strengthen federalism by relying on state and local processes for the coordination and review of proposed federal financial assistance and direct federal development. The executive order allows each state to designate an office to perform this function, addresses of which may be found at the OMB website at https://www.whitehouse.gov/wp-content/uploads/2017/11/SPOC-Feb.-2018.pdf . States that are not listed on this web page have chosen not to participate in the intergovernmental review process. If the applicant is located within one of these states, he or she may still send application materials directly to a federal awarding agency. Lengthy documents that are referred to in the narrative are best added to the proposal in an appendix. Examples include letters of endorsement, partial list of previous funders, key staff resumes, annual reports, statistical data, maps, pictorial material, and newspaper and magazine articles about the organizations. Nonprofit organizations should include an IRS 501(c)(3) Letter of Tax Exempt Status. GrantSpace, Knowledge Base, How do I write a grant Proposal? http://grantspace.org/tools/knowledge-base/Funding-Research/proposal-writing/grant-proposals Introduction to Proposal Writing Short Course (Foundation Center) https://grantspace.org/training/introduction-to-proposal-writing/ Tips on Writing a Grant Proposal (Environmental Protection Agency) https://www.epa.gov/grants/tips-writing-competitive-grant-proposal-preparing-budget Writing a Successful Grant Proposal (Minnesota Council on Foundations) https://www.mcf.org/writing-successful-grant-proposal Writing a Winning G rant Proposal (Education Money) http://www.educationmoney.com/federal_write_proposal.html | This report is intended for Members and staff assisting grant seekers in districts and states and covers writing proposals for both government and private foundation grants. In preparation for writing a proposal, the report first discusses preliminary information gathering and preparation, developing ideas for the proposal, gathering community support, identifying funding resources, and seeking preliminary review of the proposal and support of relevant administrative officials. The second section of the report covers the actual writing of the proposal, from outlining of project goals, stating the purpose and objectives of the proposal, explaining the program methods to solve the stated problem, and how the results of the project will be evaluated, to long-term project planning, and, finally, developing the proposal budget. The last section of the report provides a listing of free grants-writing websites, including guidelines from the Catalog of Federal Domestic Assistance and the Foundation Center's "Introduction to Proposal Writing." Related CRS reports are CRS Report RL34035, Grants Work in a Congressional Office, by [author name scrubbed] and [author name scrubbed], and CRS Report RL34012, Resources for Grantseekers, by [author name scrubbed] and [author name scrubbed]. This report will be updated as needed. |
Climate change is generally viewed as a global issue, but proposed responses typically require action at the national level. With the 1997 Kyoto Protocol now in force and setting emissions objectives for 2008-2012, countries that ratified the protocol are developing appropriate implementation strategies to begin reducing their emissions of greenhouse gases. In particular, the European Union (EU) has decided to use an emissions trading scheme (called a "cap-and-trade" program), along with other market-oriented mechanisms permitted under the Protocol, to help it achieve compliance at least cost. The decision to use emission trading to implement the Kyoto Protocol is at least partly based on the successful emissions trading program used by the United States to implement its sulfur dioxide (acid rain) control program contained in Title IV of the 1990 Clean Act Amendments. The EU's Emissions Trading System (ETS) covers more than 10,000 energy intensive facilities across the 27 EU Member countries, including oil refineries, powerplants over 20 megawatts (MW) in capacity, coke ovens, and iron and steel plants, along with cement, glass, lime, brick, ceramics, and pulp and paper installations. Covered entities emit about 45% of the EU's carbon dioxide emissions. The trading program covers neither CO 2 emissions from the transportation sector, which account for about 25% of the EU's total greenhouse gas emissions, nor emissions of non-CO 2 greenhouse gases, which account for about 20% of the EU's total greenhouse gas emissions. A "Phase 1" trading period began January 1, 2005. A second, Phase 2, trading period began January 1, 2008, covering the period of the Kyoto Protocol, with a Phase 3 planned to begin in 2013. Under the Kyoto Protocol, the then-existing 15 nations of the EU agreed to reduce their aggregate annual average emissions for 2008-2012 by 8% from the Protocol's baseline level (mostly 1990 levels) under a collective arrangement called a "bubble." By 2006, collective greenhouse gas emissions in the EU were 2.7% below Kyoto baseline levels (2.2% below 1990 levels), mostly the result of a structural shift from coal to natural gas in the United Kingdom and the incorporation of East Germany into West Germany. In light of the Kyoto Protocol targets, the EU adopted a directive establishing the EU-ETS that entered into force October 13, 2003. The importance of emissions trading was elevated by the accession of 12 additional central and eastern Europe countries to EU membership from May 2004 through January 2007. Collectively, the 27 Members of the expanded EU's greenhouse gas emissions dropped 7.7% from 1990 to 2006. The EC believes that the Phase 1 "learning by doing" exercise prepared the community for the difficult task of achieving the reduction requirements of the Kyoto Protocol. Several positives resulted from the Phase 1 experience that assisted the ETS in making the Phase 2 process run smoothly, at least so far. First, Phase 1 established much of the critical infrastructure necessary for a functional emission market, including emissions monitoring, registries, and inventories. Much of the publicized difficulties the ETS experienced in the first phase can be traced to inadequate emission data. Phase 1 significantly improved those data in preparation for Phase 2 implementation. Second, the ETS helped jump-start the project-based mechanisms—Clean Development Mechanism (CDM) and Joint Implementation (JI)—created under the Kyoto Protocol. As stated by Ellerman and Buchner: The access to external credits provided by the Linking Directive has had an invigorating effect on the CDM and more generally on CO 2 reduction projects in developing countries, especially in China and India, the two major countries that will eventually have to become part of a global climate regime if there is to be one. Third, according to the EC, a key result of Phase 1 was its effect on corporate behavior. An EC survey of stakeholders indicated that many participants are incorporating the value of allowances in making decisions, particularly in the electric utility sector where 70% of firms stated they were pricing in the value of allowances into their daily operations, and 87% into future marginal pricing decisions. All industries stated that it was a factor in long-term decision-making. However, several issues that arose during the first phase remain contentious as the ETS implements Phase 2, including allocation (including use of auctions and reliance on model projections), shutdown credits and new entrant reserves, and others. In addition, the expansion of the EU and the implementation of the linking directives create new issues to which Phase 2 has had to respond. These new and continuing challenges for Phase 2 implementation are discussed below. National Allocation Plans (NAPs) are central to the EU's effort to achieve its Kyoto obligations. Each Member of the EU must submit a NAP that lays out its allocation scheme under the ETS, including individual allocations to each affected unit. For the second trading period, these NAPs were assessed by the EC to determine compliance with 12 criteria delineated in an annex to the emissions trading directive. Criteria included requirements that the emissions caps and other measures proposed by the Member State were sufficient to put it on the path toward its Kyoto target, protections against discrimination between companies and sectors, delineation of intended use of CDM and JI credits for compliance, along with provisions for new entrants, clean technology, and early reduction credits. For the second trading period, the NAP must guarantee Kyoto compliance. NAPs for the second trading period were due June 30, 2006. By October 26, 2007, the EC had reviewed and approved (sometimes conditionally) all 27 Member States' NAPs. As indicated by Table 1 , the EC reduced the proposed allocations of individual Member States by an average of 10.5% to increase the probability that the EU will achieve its target under the Kyoto Protocol. The need to reduce the requested allocations reflects both the structure of the ETS and the lessons the EC learned during the first phase. It is unclear to what degree the first phase of the ETS achieved real emissions reductions. Emissions are dynamic over time; a product of a country's population, economic activity, and greenhouse gas intensity. To capture these dynamics, the Member States of the EU develop emissions baselines from models that project future trends in a country's emissions based on these and other factors, such as anticipated energy and greenhouse gas policies. During the first phase, the emissions goal was to put the EU on the path to Kyoto compliance—not actually comply with the Protocol (which wasn't necessary until the 2008-2012 time period). Thus, countries developed "business as usual" baselines based on projected growth in emissions. Such a projected baseline suffers from two sources of uncertainty: data uncertainties, and forecasting uncertainties. On data, Phase 1 suffered from uncertainties with respect to data collection and coverage, in monitoring methods for historic data, and data verification. On projecting future emissions, Phase 1 faced uncertainties with respect to economic or sector-based growth rates. Fueled in many cases by over-optimistic economic growth assumptions, these uncertainties increased the probability of inflated business as usual baselines. The combination of these factors and modest reduction requirements resulted in the emissions allocations for the 2005-2007 trading period being higher than actua1 2005 emissions. This result has raised questions about how much reductions achieved during Phase 1 were real as opposed to being merely paper artifacts. On the positive side, verified emissions in 2005 were 3.4% below the estimated 2005 baseline used during the allocation process. In addition, the allowance prices for 2005 stayed persistently high, suggesting some abatement was occurring and raising questions of "windfall" profits. As stated by Ellerman and Buchner: First, and most importantly, the persistently high price for EUAs [EU emissions allowances] in a market characterized by sufficient liquidity and sophisticated players must be considered as creating a presumption of abatement. It would be startling if power companies did not incorporate EUA prices into dispatch decisions that would have shifted generation to less emitting plants. There is plenty of anecdotal evidence that this was the case, and the prominent charges of windfall profits assume that the opportunity cost of freely allocated allowances was being passed on (without noting the implications for abatement). Similarly, it would be surprising if there were no changes in production processes that could be made by the operators of industrial plants. However, EU emissions allowances (EUAs) during Phase 1 did not maintain value. Phase 1 EUAs were basically worthless during the final six months of 2007. This decline in EUA prices at least partially reflected the general non-transferability of Phase 1 EUAs to Phase 2. Only Poland and France included limited banking in their Phase 1 NAPs. The EC further restricted use of Phase 1 EUAs in Phase 2 with a ruling in November, 2006. As a result, excess Phase 1 EUAs were worthless at the end of 2007. One consequence of the non-transferability of Phase 1 EUAs is that prices for Phase 2 EUAs have been relatively firm, as indicated by Figure 1 above. This firmness may reflect the ability of the EC to certify Phase 2 NAPs using more verifiable baseline data than were available for Phase 1. Scarcity is critical for the proper functioning of an allowance market. A major reason the EC rejected ex post adjustments was fear that such adjustments would have a disruptive effect on the marketplace. Phase 1 did not firmly establish this foundation of markets; based on the Phase 2 EUA future's market, further market development appears to be occurring, although several challenges to that development will be discussed later. While the environmental performance of Phase 1 may be disputed, the need for additional reductions to achieve Kyoto is not. As indicated by the orange line in Figure 2 , the European Environment Agency (EEA) projects that the EU-15 existing measures will halt the projected increase in greenhouse gases; however, as indicated by the red line, they are insufficient to reduce EU-15 emissions to their Kyoto requirements that began in 2008. To achieve this target the EU envisions three actions: (1) further reductions by EU-15 countries, (2) the use of Kyoto mechanisms (Joint Implementation (JI) and Clean Development Mechanism (CDM); and, (3) the use of carbon sinks. As indicated by the blue line, the EEA projects EU-15 emissions at 11.3% below Kyoto baseline levels by 2010—3.3 percentage points below its commitment of 8%. As discussed earlier, the EU-27 as a whole does not have an emissions target comparable to the EU-15 bubble. By 2010, EU-27 emissions are projected at 7.7% below Kyoto baseline levels assuming current policies. This reduction is projected at 10% if additional measures are included. Currently, 22 of the 25 countries with reduction requirements are projected to meet them. Only three countries are not projected to meet their requirements even with additional planned measures: Denmark, Italy, and Spain. As indicated by Table 1 earlier, part of the EC response to the need for additional measures to meet the Kyoto requirements was to reduce Member States' proposed ETS allocations. In the case of new Members, these reductions were substantial in some cases. Only four countries—Denmark, France, Slovenia, and the United Kingdom—had no reductions made in their proposed ETS allocations. Other responses include an EC-approved proposal to impose mandatory CO 2 emissions standards on light-duty vehicles. As noted earlier, for Phase 2, the EC has issued a linking directive permitting the use of Kyoto mechanisms for compliance. Including the linking directive has had beneficial effects on the development of JI and CDM markets and more generally on CO 2 reduction projects in the developing world. This emerging JI/CDM supply has the potential to largely compensate for the projected EU-15 shortfall in meeting the Kyoto Protocol requirements. According to the World Bank, the estimated aggregate shortfall ("distance to target") for the EU-15 for Phase 2 ranges from 900-1,500 million metric tonnes of CO 2 e (CO 2 equivalent) with an average estimate of 1,250 million. This represents an 8%-10% further reduction from projected levels and is in line with the EU estimated shortfall discussed above. The World Bank cites estimates that 1,000-1,200 million metric tonnes of CO 2 e credits from CDM and JI projects are likely to be imported into the EU-ETS: "Put in perspective, it means that installations, using credits from CDM and JI, could be in a balanced position or a marginally short one. In the latter case, fuel switching would help bridge the gap." However, a potential barrier to this scenario is the "supplementarity" requirements of the Kyoto Protocol which is embodied in criterion 12 of the EC NAP approval process. Supplementarity requires that developed countries, such as most EU countries, ensure that their use of JI/CDM credits is supplemental to their own domestic control efforts. In defining supplementarity for Phase 2, the EC used 10% of a country's allowance allocation as a rule of thumb in approving NAPs—with a greater limit possible based on a country's domestic efforts to reduce emissions. As indicated in Table 2 , this process resulted in some significant reductions in some countries' proposed limits (e.g., Ireland, Poland, Spain), but some increase in others (e.g., Italy, Latvia, Lithuania). Although these reductions appear substantial in individual cases, most analysts agree that they do not represent a major barrier to the cost-effective use of JI/CDM. As stated by the World Bank: The Commission assessed NAPs for imports of carbon assets (including planned and substantiated governmental purchases) ostensibly with a view to limit imports to no more than 50% of the "expected distance to target" for each Member State. According to the vast majority of analysts, this does not place any practical constraints on the demand for CDM/JI from EU installations: The market received the November 2006 EU decision to impose tighter caps with an immediate increase in the price of EUA-II, while uncertainty at that time about supplementarity caps immediately dampened prices for CERs [i.e., CDM credits] (secondary CER market reacted more quickly than the more stable primary market). The advantage of EU access to the JI/CDM market is lower costs under current market conditions. Guaranteed CDM and JI credits are currently selling at a 10%-30% discount to EUAs, a discount that reflects risks involved in CDM/JI transactions. The degree to which this discount continues depends to some degree on the efforts of participating governments and the CDM and JI Executive Boards to streamline procedures and regulations, firm up methodological assessments, and integrate the different markets. The Chinese government has set a credit price floor of 8-9 euro—price setting that reflects its dominant role in the CDM market. The ability of CDM host countries to raise this floor to reflect more fully the 15-25 euro EUA price depends on supply. In contrast to the World Bank, Point Carbon reports that its survey of respondents claimed that CDM/JI supply will be insufficient to meet EU demand. As a result, price will be set by the marginal cost of EU domestic emissions reductions (which in turn sets the ceiling on EUA prices). The availability of JI/CDM credits will reduce that marginal cost (reducing the price of EUAs), but the survey suggests that JI/CDM prices are likely to rise. In contrast, if the JI/CDM availability exceeds the need of the EU, the price would be set by the marginal cost of JI/CDM credit supply—a considerably lower price as reflected by the Chinese price floor. Some observers praise the broadening and increased flexibility that CDM and JI represent in helping Annex 1 countries meet their Kyoto requirements. The World Bank argues that the flexibility enshrined in the Kyoto flexibility mechanisms and other market mechanisms (e.g., banking) is a better "safety valve" for cost concerns than a price cap as suggested in some U.S. legislation. As stated by the World Bank: Flexibility is key to ensuring that there is a built-in safety valve for compliance without resort to market distortion through price caps.... It would be appropriate to recall here that flexibility is not the goal of climate policy; rather it is a tool to help achieve the most stringent targets. In this regard, the use of flexibility mechanisms in Phase II coupled with much stronger reductions in Phase III and the unilateral European target announced for 2020 should be at stringent enough levels that can help stimulate a low carbon clean investment future. Setting an arbitrary price cap distorts the level of innovation required to meet the compliance target and dilutes the ability to meet the environment target [footnote omitted]. In contrast, some environmental groups are concerned that widespread use of CDM and JI will prevent the investment in domestic efforts that the Kyoto Protocol envisioned and that will be necessary as emission caps become more stringent and more countries participate. In addition to concerns about the volume of outside credits that may be used in the ETS, there are issues over the quality of the credits, particularly with respect to "additionality"—the requirement in the Kyoto Protocol that project credits represent reductions that would not have occurred in the absence of the CDM program. In expressing concern about CDM not being additional to current policies, WWF-UK states: "It is important to remember that CDM projects do not themselves reduce net global greenhouse gas emissions—they merely allow the project investor to pollute more at home. Ensuring that projects are additional is therefore crucial to maintaining the environmental integrity of the whole system as a breach of this means that global emissions actually increase." Such concerns may prevent full exploitation of CDM opportunities for some time. For Phase 2, eleven EU countries have announced their intention to use Kyoto mechanisms to meet their commitments: Austria, Belgium, Denmark, Finland, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, and Slovenia. In general, allowances have been allocated free to participating entities under the ETS. During Phase 1, The EU-ETS Directive allowed countries to auction up to 5% of allowance allocations, rising to 10% under Phase 2. Under Phase 1, only four of twenty-five countries used auctions at all, and only Denmark auctioned the full 5%. The political difficulty in instituting significant auctioning into ETS allowance allocations is the almost universal agreement by covered entities in favor of free allocation of allowances and opposition to auctions. Free allocation of allowances represents a one-time transfer of wealth to the entities receiving them from the government issuing them. The resulting transfer of wealth has been described by several analysts as "windfall profits." As summarized by Ellerman and Buchner: "Allocation in the EU ETS provides one more example that, notwithstanding the advice of economists, the free allocation of allowances is not to be easily set aside." Despite concerns about windfall profits and economic distortions resulting from the free allocation of allowances, there is little change in basic allocation philosophy for Phase 2. No country proposed auctioning the maximum percentage of allowances allowed (10%). Most do not include auctions at all. The unwillingness of governments to employ auctions as an allocating mechanism revolve around equity considerations, including: (1) inability of some covered entities to pass through cost because of regulation or exposure to international competition; (2) potential drag on a sector's economic performance from the up-front cost of auctioned allowances; and, (3) the potential that government will not recycle revenues to alleviate compliance costs, international competitiveness impacts, or other equity concerns, resulting in the auction costs being the same as a tax. Against these concerns, economic analysis provides several arguments in favor of auctions in general, and in the case of the EU ETS in particular. General arguments in favor of auctions include: Purest embodiment of the "polluter pays" principle; Reduces distributional distortions that free allocation (and accompanying "windfall profits") can create; Creates a "level playing field" for existing and new covered entities; Gives the potential for reducing the impact of compliance on the economy as a whole if auction revenues are used to reduce more distorting taxes on investment (i.e., "double dividend"); and Can improve emission market liquidity and transparency. In the case of the EU-ETS, the use of free allocations rather than auctions has created some perverse incentives for covered entities and unnecessary complexity to the ETS. As discussed later in more detail, providing allowances free to existing entities can encourage the continued use of inefficient plant, and reduce the incentive for investing in efficiency improvements. The degree to which this occurs depends on the specific allocation approach taken. In contrast, an auction can help create a price floor, particularly if coupled with a reserve price, that encourages development of new technologies and efficiency improvements in existing plant. A free allocation scheme generally has to make some provision for new entrants in addition to allocating allowances to existing entities. It also raises issues with respect to existing sources that later decide to shutdown. This added complexity to the ETS is discussed next. Unlike previous cap-and-trade programs, the Member States of the EU have included provisions for the allocation of allowances to new entrants to the system. The reasoning behind this decision is based on equity: (1) it isn't fair to allocate allowances free to existing entities while requiring new entrants to purchase them, and (2) the EU doesn't want to put Member States at a disadvantage in competing for new investments. These equity concerns trumped concerns about economic efficiency. As is the case for existing entities, the free allocation of allowances to new entrants is a subsidy. For the ETS, the size and distribution of this subsidy is left to the individual Member States. For Phase 1, the reserve varied widely from the average of 3% of total allowances: Poland set aside only 0.4% of its allocation for new entrants while Malta set aside 26%. For Phase 2, the spread continues with Poland reserving 3.2% of its allowances for new entrants in contrast to 45% proposed by Latvia. The decision to employ a new entrant reserve adds complexity to Member States' allocation plans and influences the investment decisions of covered entities. Rules have to be promulgated with respect to the reserve's size, manner in which the allowances are dispensed, and how to proceed if the demand either exceeds the supply, or vice versa. As indicated, countries have not harmonized new entrant reserve rules with respect to size. Likewise, there is no standardization on dispensing allowances and replenishing the reserve: first-come, first-serve with no replenishment is one approach used, but a variety of procedures have been developed both to dispense allowances and to replenish the reserve if supply is inadequate. Member States also have different formulas for determining how many allowances a new entrant should receive. Member States claim to use a form of "benchmarking" to determine allowance allocations—an approach based on a standard of "best practices" or "best technology" that is applied to the new entrant's anticipated production or capacity. However, the definitions and application of the benchmarks used by the Member States are not uniform. This diversity in approaches to addressing new entrants results in technology or fuel-specific subsidies, which vary by country. Table 3 presents the results of a study of the value of annual allocations for a natural gas combined-cycle power plant under different countries' Phase 2 new entrant allocation rules. Assuming an allowance value of 10 euro, the plant's allocation would vary between 0 in Sweden (no free allocation) to 11 million euro annually in Germany. At the current Phase 2 allowance price of 20 euro, this annual subsidy is equivalent to the fixed annual costs of the power plant. Subsidies of this magnitude are likely to affect investment decisions. As noted by Schleich, Betz, and Rogge, these subsidies: "run counter to the logic of emission trading systems, where market prices and flexibility are supposed to guide investment decisions rather than subsidies for particular types of installations." The reverse side of the new entrant allocation issue is the what to do with the allocations to existing plants that shut down. Under U.S. cap-and-trade programs, those allowances are retained by the company, based on the assumption that a new power plant will be built to replace the closed one. For most countries in the ETS, closure policy is directly linked to the new entrant reserve: allowances allocated to existing sources that shut down are fed into the entrant reserve to be allocated to new sources. Thus, free allowances to existing facilities are tied to continued operation of that facility. One reason for this approach may be the multiple country aspect of the ETS and the political fear that owners of facilities could shut down plants in one country, keep the allowance allocation, and move to another Member State. Unfortunately, this closure policy encourages inefficient facilities to continue operating to maintain the subsidy that the free allowance allocation represents. As examined by Ahman, et al.: The withdrawal of allocation based on reduced economic activity or closure makes the loss of the allocation into an additional opportunity cost affecting the production decision. In considering the marginal cost of operation, the firm will recognize that it receives the allocation if and only if it continues to operate. Consequently, the firm will not maximize its profits only with respect to the cost of production (including resource cost and the opportunity cost of allowances); in addition, it will take into account the value of the allowances that it will lose should it cease to produce output. Imposing a condition that the allocation depends on continued operation of the installation transform the allocation into a production subsidy [footnote omitted]. One response to the perverse incentives of the closure rule has been pioneered by Germany and adopted by a few countries. Under the "transfer rule," owners of existing facilities being shut down can transfer the allocation from that facility to a new replacement facility. For Phase 1, seven countries—Germany, Greece, Hungary, Luxembourg, the Netherlands, Poland, and the UK—included transfer rules in their NAP. For Phase 2, Cyprus, Flanders (part of Belgium), and Malta have joined in including such rules in their NAPs. A third aspect of free allocation is benchmarking. As noted earlier, for new entrants benchmarking involves allocating allowances based on a standard of "best practices" or "best technology" that is applied to the new entrant's anticipated production or capacity. Environmental and other groups have advocated the expansion of benchmarking to allocations for existing facilities in addition to new entrants. However, benchmarking is very difficult given the diversity of processes involved and subject to manipulation in favor of one technology or fuel-source over another. For example, The Netherlands made a serous attempt to use benchmarks in its allocation scheme, but abandoned the effort after 125 benchmarks were developed. Benchmarks can also be used to encourage investment in one fuel-source over another. This issue has arisen in the case of Germany's proposed Phase 2 NAP. As part of Germany's overall energy policy, the NAP provides for the "fuel-neutral" allocation of allowances to new powerplants based on benchmarks reflecting current best practice for each fuel. For a coal-fired facility, the benchmark is 750 grams CO 2 /Kwh reflecting a conversion efficiency of 45%. For natural gas-fired facility, the benchmark is 365 grams CO 2 /Kwh, reflecting a conversion efficiency of 55%. These are benchmarks that current technology can achieve without the addition of any carbon capture and sequestration technology or purchase of offsets from other sources. In addition, the government proposed to provide new entrants with a guaranteed allocation of allowances based on actual emissions for 10 years after a 4 year allocation based on an 85% capacity factor. As a result, the NAP would provide almost no incentive to utilities to reduce CO 2 emissions by fuel shifting, and to essentially encourage the use of lignite—Germany's most abundant and least expensive fossil fuel. This policy reflects concerns about Germany becoming too dependent on imported Russian natural gas, the price of which tracks oil. Indeed, economic analysis suggests that the price of an EUA would have to reach 45 euro before lower-carbon emitting natural gas-fired facilities become more economic than coal. As summarized by German utility RWE's chief financial officer: The name of our oil is lignite. We want to develop this energy source using new technology and based on environmentally friendly processes. However, governments will have to create the right political framework for this to occur. In reviewing the German proposed NAP, the EC disapproved the guarantee of allowances to new entrants that extended beyond the Kyoto compliance period (2008-2012), but approved the fuel-specific allocation formulas. As suggested above, the conflict between national energy policies and the free workings of a carbon market are reflected in most countries' allocation schemes. The combination of free allocations to existing facilities and new entrants, along with closure and benchmarking policies, allow countries to maintain substantial control over energy policy and related economic investment regardless of the price signals the carbon market might send if the market economics of carbon emission reductions were the sole determinant of future investments. This control has been used to preserve existing investment and jobs, encourage exploitation of domestic resources (e.g., coal, lignite) and lower energy prices. Economists argue that such a strategy is based on an economic misconception about how prices are set, and is inherently contradictory. As stated by Deutsche Bank Research: The political objective frequently expressed in both the EU and Germany of achieving lower energy prices at the same time as implementing climate protection measures should be rejected. The objectives of climate protection and lower energy prices (for fossil fuels) are contradictory. Higher energy prices are desirable from an ecological point of view. Although more competition in the electricity and gas sectors could—ceteris paribus—lead to a reduction in prices, this will probably be more than outweighed in the medium term by rising commodity prices and higher fiscal burdens. In this respect, more honesty is needed from all parties. The EC has put some limitations on countries' efforts to influence investment, including disallowing any ex post adjustments and allowance guarantees. As noted above, the EC explicitly disallows any provision of a country's NAP that guarantees allowances to covered entities beyond the phase for which the allowances are allocated. The EC argues that allocation guarantees give such installations an unfair advantage over other installations that do not get such guarantees. Proponents of allocation guarantees argue it is difficult to plan new investment based on five-year allowance allocations. Yet, it is precisely the long term effects of new investments and the potential that they will lock-in high carbon emitting technologies that worry some, including the EC and member governments. As stated in the Stern Review : The next 10 to 20 years will be a period of transition, from a world where carbon-pricing schemes are in their infancy, to one where carbon pricing is universal and is automatically factored into decision making. In this transitional period, while the credibility of policy is still being established and the international framework is taking shape, it is critical that governments consider how to avoid the risks of locking into a high-carbon infrastructure, including considering whether any additional measures may be justified to reduce the risks. Avoiding locking-in high carbon energy technology by encouraging deployment of advanced low carbon energy technology under the ETS would involve two elements: (1) reducing behavioral distortion resulting from the current free allocation system, and (2) energy pricing that reflects carbon costs. As indicated by the previous discussions, the NAP 2 submitted to and approved by the EC generally have not reduced the distortions from the free allowance system. The primary means of reducing such distortions would be to increase the use of auctions and/or by more extensive use of benchmarking based on capacity alone (not differentiated by fuel source). As indicated above, no country has submitted a NAP that requires the full 10% auctioning allowed by the EC for Phase 2, although the number of countries auctioning at least some percentage of their allocations has grown from four in Phase 1 to nine in Phase 2. In addition, the EC allows countries to institute or expand auctions at any time without its pre-approval. Uniform benchmarks are also rare with only four countries intending to use them to any significant degree. With respect to a price signal for energy development, the Phase 1 experience was instructive with respect to the value of accurate emissions inventories and registries, but not in terms of developing a price floor that would stimulate development of new technology. One mechanism to develop such a floor, banking, was not used extensively during Phase 1; indeed, as noted earlier, the lack of Phase 1 to Phase 2 banking contributed to the collapse in Phase 1 prices in 2007. It is likely to be far more important in Phase 2. In the context of the ETS, options to provide a price floor beyond banking include expanding use of auctions (including incorporating a reserve price into auctions), financial instruments (such as options and futures contracts), and expansion of industries covered by the ETS. The EC is moving very slowly with respect to auctions, despite support for them by environmental groups and economists. Financial instruments are being made available to entities by the major emission exchange, although not extensively used as of yet. It is the third option, expanding coverage, that the EU has stated as an important goal for Phase 3. With respect to longer-term planning and investment, the EC apparently agrees that a five-year allowance allocation may be too short and believes that in order to provide greater predictability for long-term investment decisions, a longer allocation period should be considered for Phase 3. The European Union is committed to achieving a 20% reduction in greenhouse gas emissions by 2020 from 1990 levels. A strategic component of the effort to achieve this target is a revised ETS. Table 4 indicates the proposed EU-wide ETS cap for the next Phase of EU greenhouse gas program (Phase 3). As indicated, the EC envisions a linear reduction in the ETS cap to match the reductions target under the overall 20% reduction program. These numbers will change as individual countries decide to include more facilities under the ETS and as the EC expands ETS coverage to include other sectors and non-CO 2 greenhouse gases. The following discusses some of the major changes the EU envisions for the ETS in responding to this aggressive target. The EC is proposing to re-shape the ETS to improve its efficiency and eliminate some of the problems discussed above. The improved emissions inventories resulting from Phase 1 allowed the EC to harmonize the types of installations covered by the ETS across the various Member States. In addition, as noted above, the EC imposed a uniform rule on the Member States preventing the use of ex-post adjustments. However, Phase 2 made little advancement in harmonizing individual countries' allocations schemes. As with Phase 1, countries continue to differ widely on the use of auctions; design and use of benchmarks; design, size, and allocation for new entrant reserves; and rules for closure. For Phase 3, the EC is proposing to eliminate NAPs, replacing them with EU-wide rules with respect to allowance availability and allocations. There would be one EU-wide cap instead of the 27 national caps under Phase 1 and 2. Allowances would be allocated under EU-wide, fully harmonized rules, including those governing: (1) auctions, (2) transitional free allocations for greenhouse gas intensive, trade-exposed industries, and (3) new entrants. No free allocations would be made to installations that have shut down. Despite the EC interest in expanding the ETS, its coverage in terms of industries included for Phase 2 is essentially the same as for Phase 1. The exception is for aviation. In December, 2006, the EC proposed bringing greenhouse gas emissions from civil aviation into the ETS in two phases. As agreed to by the European Parliament in July, 2008, all intra-EU and international flights will be included under the ETS beginning in 2012. Emissions would be capped at 97% of average 2004-2006 emissions with 85% of the allowances being allocated free to operators. The cap would be reduced to 95% in 2013. The cap and auctioning of allowances would be reviewed as a part of Phase 3 implementation. In proposing changes for the third trading period, the EC has identified three CO 2 emitting sectors for inclusion under the ETS: petrochemicals, ammonia, and aluminum. The ETS would also expand beyond CO 2 to include nitrous oxide (N 2 O) emissions from nitric, adipic, and glyoxalic acid production, and perofluorocarbon (PFC) emissions from the aluminum sector. This would expand ETS covered emissions by 4.6% over Phase 2 allowance allocations, or about 100 million metric tons. The harmonization and codification of eligibility criteria for combustion installations is expected to increase the coverage by a further 40-50 million metric tons. To improve the cost-effectiveness of the ETS, the EC proposes the Phase 3 provide a small installation exemption from the scheme. Currently, the smallest 1,400 (10% of total installations covered) installations emit only 0.14% of total emissions covered. The EC proposes that combustion size limitations of 20Mw be modified to include an emissions threshold of 10,000 metric tons of CO 2 annually (provided the facilities is less than 25 MW). The EC estimates that 4,200 installations would opt out—accounting for 0.70% of total ETS emissions. As noted above, the EU has made little progress on expanding the use of auctions during Phase 2. Under Phase 3, auctioning would be the "basic principle for allocation subject to the need to avoid carbon leakage." Specifically, the EC proposes to auction at least two-thirds of available allowances, beginning in 2013. The introduction of auction would be differentiated by sector. In general, for the power sector, full auctioning would beginning in 2013. For other sectors, a more gradual phase-in would be envisioned with 80% of a sector's allocation provided free in 2013, declining linearly to zero by 2020. Concern that stringent EU carbon policies may encourage production and related greenhouse gas emissions to shift to countries without carbon policies (i.e., carbon leakage), exceptions to this phase-out of free allowances will be made in sectors where carbon leakage may occur. The EC proposal also provides for the allocation of revenues from allowance auctions. Member states will conduct the auctions and receive the revenues in proportion to their 2005 emissions and per capital income. The EC states that a percentage of the proceeds should be used to fund emission reductions, adaptation activities, renewable energy, carbon capture and storage (CCS), the Global Energy Efficiency and Renewable Energy Fund, developing countries assistance, and mitigate increases in electricity prices on lower and middle incomes. The United States is not a party to the Kyoto Protocol and no legislative proposal before the Congress would impose as stringent or rapid an emission reduction regime on the United States as Kyoto would have. However, through almost four years of carbon emissions trading the EU has gained valuable experience. This experience, along with the process of developing Phase 3, may provide some insight into current cap-and-trade design issues in the United States. The ETS experience with market trading and target setting confirms once again the central importance of a credible emissions inventory to a functioning cap-and-trade program. The lack of credible EU-wide data on emissions was a direct cause of the ETS Phase 1 allowance market collapse in 2006. Arguably, the most important result of Phase 1 was the development of a credible inventory on which to base future targets and allocations. In the United States, section 821 of the 1990 Clean Air Act Amendments requires electric generating facilities affected by the acid rain provisions of Title IV to monitor carbon dioxide in accordance with EPA regulations. This provision was enacted for the stated purpose of establishing a national carbon dioxide monitoring system. As promulgated by EPA, regulations permit owners and operators of affected facilities to monitor their carbon dioxide emissions through either continuous emission monitoring (CEM) or fuel analysis. The CEM regulations for carbon dioxide are similar to those for the acid rain program's sulfur dioxide CEM regulations. Those choosing fuel analysis must calculate mass emissions on a daily, quarterly, and annual basis, based on amounts and types of fuel used. As suggested by the EU-ETS experience, expanding equivalent data requirements to all facilities covered under a cap-and-trade program would be the foundation for developing the allocation systems, reduction targets, and enforcement provisions. Despite economic analysis to the contrary, the EU decided to restrict ETS coverage to six sectors that represent about 45% of the EU's CO 2 emissions. This restriction was estimated to raise the cost of complying with Kyoto from 6 billion euro annually to 6.9 billion euro (1999 euro) compared with a comprehensive trading program. A variety of practical, political, and scientific reasons were given by the EC for the decision. The experience of the ETS up to now suggests that adding new sectors to an existing trading program is a difficult process. As noted above, a stated goal of the EC is to expand the coverage of the ETS. However, the experience of Phase 1 did not result in the addition of any new sector until the last year of Phase 2 when aviation will be included. The EU is attempting to expand its coverage with Phase 3, but the ETS will still cover fewer sectors emitting greenhouse gases than provided under most U.S. proposals. U.S. cap-and-trade proposals generally fall into one of two categories. Most bills are more comprehensive than the ETS, covering 80% to 100% of the country's greenhouse gas emissions. At a minimum, they include the electric utility, transportation, and industrial sectors; disagreement among the bills center on the agricultural sector and smaller commercial and residential sources. In some cases discretion is provided EPA to exempt sources if serious data, economic, or other considerations dictate such a resolution. A second category of bills focuses on the electric utility industry, representing about 33% of U.S. greenhouse gases and therefore less comprehensive than the ETS. Sometimes including additional controls on non-greenhouse gas pollutants, such as mercury, these bills focus on the sources with the most experience with emission trading and the best emissions data. Other sources could be added as circumstances dictate. As noted, the EU's experience with the ETS suggests that adding sectors to an emission trading scheme can be a slow and contentious process. If one believes that the electric utility sector is a cost-effective place to start addressing greenhouse gas emissions and that there is sufficient time to do the necessary groundwork to eventually add other sectors, then a phased-in approach may be reasonable. If one believes that the economy as a whole needs to begin adjusting to a carbon-constrained environment to meet long term goals, then a more comprehensive approach may be justified. The ETS experience suggests the process doesn't necessarily get any easier if you wait. Setting up a tradeable allowance system is a lot like setting up a new currency. Allocating allowances is essentially allocating money with the marketplace determining the exchange rate. As noted above, the free allocation scheme used in the ETS has resulted in "windfall profits" being received by allowance recipients. As stated quite forcefully by Deutsche Bank Research: The most striking market outcome of emissions trading to date has been the power industry's windfall profits, which have sparked controversy. We are all familiar with the background: emissions allowances were handed out free of charge to those plant operators participating in the emissions trading scheme. Nevertheless, in particular the producers of electricity succeeded in marking up the market price of electricity to include the opportunity-cost value of the allowances. This is correct from an accounting point of view, since the allowances do have a value and could otherwise be sold. Moreover, emissions trading cannot work without price signals. The free allocation of allowances in the ETS incorporates two other mechanisms that create perverse incentives and significant distortions in the emissions markets: new entrant reserves and closure policy. Combined with an uncoordinated and spotty benchmarking approach for both new and existing sources, the result is a greenhouse gas reduction scheme that is influenced as much or more by national policy than by the emissions marketplace. The proposed expansion of auctions for Phase 3 of the ETS could simplify allocations and permit market forces to influence compliance strategies more fully. Most countries did not employ auctions at all during Phase 1 and auctions continue to be limited under Phase 2. No country combined an auction with a reserve price to encourage development of new technology. The EC limited the amount of auctioned allowances to 10% in Phase 2: a limit no country chose to meet. Efforts to expand auctions met opposition from industry groups, but attracted support from environmental groups and economists. The EC proposed increase of auctioning to two-thirds of total allowances for Phase 3 would represent a major development for the scheme. Currently, all U.S. cap-and-trade proposals have some provisions for auctions, although the amount involved is sometimes left to EPA discretion. Most specify a schedule that provides increasing use of auctions from 2012 through the mid-2030s with a final target of 66%-100% of total allowances auctioned. Funds would be used for a variety of purposes, including programs to encourage new technologies. A couple of proposals include a reserve price on some auctions to create a price floor for new technology. Like the situation in the ETS, most U.S. industry groups either oppose auctions outright or want them to be supplemental to a base free allocation. Given the experience with the ETS where the EC and individual governments have been unwilling or unable to move away from free allocation, the Congress, like the EC, may ultimately be asked to consider specifying any auction requirement if it wishes to incorporate market economics more fully into compliance decisions. Despite EU rhetoric during the Kyoto Protocol negotiations, it moved into Phase 2 without a significant restriction on the use of CDM and JI credits. This embracing of project credits will significantly increase the flexibility facilities have in meeting their reduction targets. In addition, Phase 2 includes the use of banking to increase flexibility across time by allowing banked allowances to be used in Phase 3. Each of these market mechanisms is projected to reduce both the EU's Kyoto compliance costs and allowance price volatility. As a further defense against price volatility, the European emission exchanges are creating financial instruments, such as futures contracts and options, to permit entities to hedge against price changes. Unfortunately, Phase 1 experience with the ETS does not provide much useful information on the value of market mechanisms or financial instruments in reducing costs or price volatility. The combination of poor emissions inventories, non-use of project credits, and time-limited allowances with effectively no banking resulted in extreme price volatility in Spring 2006, and virtually worthless allowances by mid-2007. The real test for the mechanisms employed by the ETS to create a stable allowance market is Phase 2. Initial indications are that a mature market for allowances appears to be developing, Like the ETS, U.S. cap-and-trade proposals would employ a combination of devices to create a stable allowance market and encourage flexible, cost-effective compliance strategies by participating entities. All include banking. All include use of offsets, although some would place substantial restrictions on their use. One proposal incorporates a "safety valve" that would effectively place a ceiling on allowance prices. Other proposals would create a Carbon Market Efficiency Board to observe the allowance market and implement cost-relief measures if necessary. Some see this as a more flexible response with the potential for avoiding or mitigating the environmental impacts of a safety valve (i.e., increased emissions). Additionally, concern has been expressed in the United States about the regulation of allowance markets and instruments. Based on experience with the ETS, the potential for speculation and manipulation could extend beyond the emission markets. Analysis of ETS allowance prices during Phase 1 suggests the most important variables in determining allowance price changes were oil and natural gas price changes. This apparent linkage between allowance price changes and price changes in two commodities markets raises the possibility of market manipulation, particularly with the inclusion of financial instruments such as options and futures contracts. Congress may ultimately be asked to consider whether the Securities and Exchange Commission, Federal Energy Regulatory Commission, the Commodities Futures Trading Commission, or other body should have enhanced regulatory and oversight authority over such instruments. | The European Union's (EU) Emissions Trading Scheme (ETS) is a cornerstone of the EU's efforts to meet its obligation under the Kyoto Protocol. It covers more than 10,000 energy intensive facilities across the 27 EU Member countries; covered entities emit about 45% of the EU's carbon dioxide emissions. A "Phase 1" trading period began January 1, 2005. A second, Phase 2, trading period began in 2008, covering the period of the Kyoto Protocol, with a Phase 3 proposed for 2013. Several positives resulting from the Phase 1 "learning by doing" exercise assisted the ETS in making the Phase 2 process run more smoothly, including: (1) greatly improving emissions data, (2) encouraging development of the Kyoto Protocol's project-based mechanisms—Clean Development Mechanism (CDM) and Joint Implementation (JI), and (3) influencing corporate behavior to begin pricing in the value of allowances in decision-making, particularly in the electric utility sector. However, several issues that arose during the first phase were not resolved as the ETS moved into Phase 2, including allocation schemes, shutdown credits and new entrant reserves, and others. In addition, the expansion of the EU and the implementation of the directives linking the ETS to the Kyoto Protocol project-based mechanisms created new issues to which Phase 2 had to respond. A more comprehensive response to these issues is envisioned for Phase 3. The United States is not a party to Kyoto. However, almost four years of carbon emissions trading has given the EU valuable experience in designing and operating a greenhouse gas trading system. This experience may provide some insight into cap-and-trade design issues currently being debated in the United States. The U.S. requires only electric utilities to monitor CO2. The EU-ETS experience suggests that expanding similar requirements to all facilities covered under a cap-and-trade scheme would be pivotal for developing allocation systems, reduction targets, and enforcement provisions. In the U.S. debate on comprehensive versus sector-specific reduction programs, the EU-ETS experience suggests that adding sectors to a trading scheme once established may be a slow, contentious process. As with most EU industries, most U.S. industry groups either oppose auctions outright or want them to be supplemental to a base free allocation. The EU-ETS experience suggests Congress may want to consider specifying any auction requirement if it wishes to incorporate market economics more fully into compliance decisions. EU-ETS analysis suggests the most important variables in determining Phase 1 allowance price changes were oil and natural gas price changes; this apparent linkage raises possible market manipulation issues, particularly with the inclusion of financial instruments such as options and futures contracts. Congress may consider whether the government needs enhanced regulatory and oversight authority over such instruments. |
TANF law lists 12 categories of work activities that recipients of assistance may engage in and be counted toward its work participation standards. The 12 listed categories are (1) unsubsidized employment; (2) subsidized private sector employment; (3) subsidized public sector employment; (4) work experience; (5) on-the-job training; (6) job search and job readiness assistance; (7) community services programs; (8) vocational educational training; (9) job skills training directly related to employment; (10) education directly related to employment (for those without a high school degree or equivalent); (11) satisfactory attendance at a secondary school; and (12) provision of child care to a participant of a community service program. Under prior HHS regulations, states were allowed to define the specific activities included in each of these federal categories. However, DRA required HHS to issue regulations by June 30, 2006, to define TANF work activities to ensure consistent measurement of work. The regulations, published as interim final regulations on June 29, 2006, provide definitions for each of 12 federal categories of work activities listed in the law, with the explanatory preamble providing specific examples of activities that can or cannot be counted within these categories. This report pulls together the official definition of each of the 12 categories (as stated in the regulatory text) with the information in the preamble that provides a more detailed description of what activities may, and what activities may not, be counted within each of the categories. " Unsubsidized employment means full- or part-time employment in the public or private sector that is not subsidized by TANF or any other public program." Employment not directly subsidized by TANF or other public funds counts. However, it includes employment where employers claim a tax credit for hiring disadvantaged workers. It also includes self-employment. If a recipient is in a job where the employer receives a "direct subsidy" from public funds (other than tax credits, discussed above), the recipient is considered in subsidized employment. " Subsidized Private Sector Employment means employment in the private sector for which the employer receives a subsidy from TANF or other public funds to offset some or all of the wages and costs of employing a recipient." Participation on a job where the employer receives a subsidy and the participant is paid wages and receives the same benefits as unsubsidized employees who perform similar work. Examples include a job where (1) TANF funds that would otherwise be paid as benefits instead reimburse some or all of the employer's costs for wages, benefits, taxes, and insurance; and (2) a third-party (e.g., nonprofit organization) acts as a temporary staffing agency and is paid a fee from TANF to cover the participant's salary and support services. It also includes "supported employment" programs under the Rehabilitation Act of 1973 for individuals with disabilities. Employer's receipt of subsidies through the tax code does not make a job "subsidized employment." Such jobs should be counted as "unsubsidized employment." " Subsidized Public Sector Employment means employment in the public sector for which the employer receives a subsidy from TANF or other public funds to offset some or all of the wages and costs of employing a recipient." See the discussion of " Subsidized Private Sector Employment ," above. See the discussion of " Subsidized Private Sector Employment ," above. " Work experience (including work associated with the refurbishing of publicly assisted housing) if sufficient private sector employment is not available means a work activity, performed in return for welfare, that provides an individual with an opportunity to acquire the general skills, training, knowledge, and work habits necessary to obtain employment. The purpose of work experience is to improve the employability of those who cannot find unsubsidized employment. The activity must be supervised by an employer, work site sponsor, or other responsible party on an ongoing basis and no less frequently than daily." Activity is sometimes called "workfare" because the activity is performed in return for the TANF grant and employees do not receive wages or compensation. Activities such as job search, job readiness activities, and vocational education. " On the job training means training in the public or private sector that is given to a paid employee while he or she is engaged in productive work and that provides knowledge and skills essential to the full and adequate performance of the job. On the job training must be supervised by an employer, work site sponsor, or other responsible party on an ongoing basis no less frequently than daily." For this activity, states subsidize the costs of training (as opposed to wages and benefits) provided to the participant, and there is an expectation that the participant will become a regular, unsubsidized employee. For individuals with disabilities who are in "supported employment," the activity may be considered on-the-job training if it includes significant on-site training. "Supported employment" that does not include significant on-site training should be counted as "subsidized employment" rather than on-the-job training. " Job search and job readiness means the act of seeking or obtaining employment, preparation to seek or obtain employment, including life skills training, and substance abuse treatment, mental health treatment, or rehabilitation activities for those who are otherwise employable. Such treatment or therapy must be determined to be necessary and certified by a qualified medical or mental health professional. Job search and job readiness assistance activities must be supervised by the TANF agency or other responsible party on an ongoing basis no less frequently than daily." Note: Participation in this activity may be counted for six weeks (12 weeks in certain circumstances) in a fiscal year. Job search includes making contacts with employers (in person, via telephone, etc.) to learn of suitable job openings, applying for vacancies, and interviewing for jobs. Job readiness basically comprises two types of activities: (1) preparation necessary to begin a job search, such as preparing a resume or job application, training in interviewing skills, and training in workplace expectation and life skills; and (2) activities to remove barriers to employment, such as substance abuse treatment, mental health treatment, or rehabilitation activities. Activities that do not involve seeking or preparing for work—such as activities associated with children's dental checkups, immunization, and school attendance—do not count; parenting skills training or participation in Head Start (though being a Head Start volunteer may be considered community service; see below); recovery periods from illness; and activities to promote a healthier lifestyle, such as smoking cessation. English as a Second Language (ESL) is not countable as job readiness, but counts as either job skills training or education directly related to employment (see below). " Community service programs means structured programs and embedded activities in which TANF recipients perform work for the direct benefit of the community under the auspices of public or nonprofit organizations. Community service programs must be limited to projects that serve a useful community purpose in fields such as health, social service, environmental protection, education, urban and rural redevelopment, welfare, recreation, public facilities, public safety, and child care. Community service programs are designed to improve the employability of recipients not otherwise able to obtain employment, and must be supervised on an ongoing basis no less frequently than daily. A State agency shall take into account, to the extent possible, the prior training, experience, and skills of a recipient in making appropriate community service assignments." Examples include work in a school, such as serving as a teacher's aide; helping as a parent volunteer in a Head Start program; work performed in a church, such as preparing meals for the needy; and participation in Americorps, Volunteers in Service to America (VISTA), or private volunteer organizations. Community service does not include participation in educational activities, substance abuse treatment programs, mental health and family violence counseling, life skills classes, job readiness instruction, or caring for a disabled family member; nor does community service include unstructured or unsupervised activities such as shoveling a neighbor's sidewalk or helping with errands, or serving as a foster parent. " Vocational educational training (not to exceed 12 months with respect to any individual) means organized educational programs that are directly related to the preparation of individuals for employment in current or emerging occupations requiring training other than a baccalaureate or advanced degree. Vocational educational training must be supervised on an ongoing basis no less frequently than daily." Programs that prepare an individual for a specific trade, occupation, or vocation count. These may be provided by educational or training organizations, including vocational-technical schools, community colleges, post-secondary institutions, nonprofit organizations, and secondary schools that offer vocational education. Hours in monitored study sessions structured by the state count as vocational educational training. Programs leading to a baccalaureate (four-year) degree or advanced degree. Also not countable are general basic skills programs and language training (except as mentioned above), substance abuse counseling and treatment, mental health services, and other rehabilitative activities. Programs leading to a high school degree should be counted instead under satisfactory attendance at a secondary school (see below). Unstructured and supervised homework and study time do not count as hours in vocational educational training. " Job skills training directly related to employment means training or education for job skills required by an employer to provide an individual with the ability to obtain employment or to advance or adapt to the changing demands of the workplace. Job skills training directly related to employment must be supervised on an ongoing basis no less frequently than daily." Customized training to meet the skills of a specific employer or general training that prepares an individual for employment. This includes literacy and language instruction if the training is explicitly focused on skills needed for employment, or if the instruction is combined with job training. Barrier removal activities like substance abuse counseling or treatment, mental health services, and rehabilitative services count. " Education directly related to employment, in the case of a recipient who has not received a high school diploma or a certificate of high school equivalency means education related to a specific occupation, job, or job offer. Education directly related to employment must be supervised on an ongoing basis no less frequently than daily." Examples include adult basic education, ESL, and, where needed for employment by employers or occupations, programs leading to a General Educational Development (GED) or High School Equivalency diploma. Hours in monitored study sessions in the course of these programs would count as education directly related to employment. Education unrelated to specific occupations and unsupervised hours of homework do not count. " Satisfactory attendance at secondary school or in a course of study leading to a certificate of general equivalence, in the case of a recipient who has not completed secondary school or received such a certificate means regular attendance, in accordance with the requirements of the secondary school or course of study, at a secondary school or in a course of study leading to a certificate of general equivalence, in the case of a recipient who has not completed secondary school or received such a certificate. This activity must be supervised on an ongoing basis no less frequently than daily." Regular attendance at a secondary school (an activity primarily targeted to minor parents) or GED programs counts. This activity is not restricted to education needed for employment. Hours in monitored study count. Unsupervised hours of homework. " Providing child care services to an individual who is participating in a community service program means providing child care to enable another TANF recipient to participate in a community services program. This activity must be supervised on an ongoing basis no less frequently than daily." No further examples are offered. Providing child care to a TANF recipient who participates in activities other than community service does not count. | The Deficit Reduction Act of 2005 (DRA, P.L. 109-171) included changes to work participation standards under the Temporary Assistance for Needy Families (TANF) block grant that seek to increase the share of the cash welfare caseload engaged in work or job preparation activities. The law also required the Department of Health and Human Services (HHS) to issue regulations defining TANF work activities to ensure a consistent measurement of work activity across states. Highlights of the regulations (published June 29, 2006) include requiring all activities to be supervised (many on a daily basis); disallowing four-year or advanced college degrees to count as vocational educational training; and explicitly allowing treatment for the removal of certain barriers to employment, such as substance abuse and mental or physical disability to count toward the participation standards, though for a limited period each year as a "job readiness" activity. It also allows "supported employment" for individuals with disabilities to count. Additionally, the definition of job skills training directly related to employment appears to allow a wide range of training and educational activities. This report will be updated as warranted. |
The U.S. Constitution allocates specific roles to both the President and the Senate with respect to the appointment of certain government officials. The Constitution provides two methods by which the President may make appointments. First, the Appointments Clause establishes that the President shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for and which shall be established by law. Under the Appointments Clause, a nominee cannot assume the powers of the office for which he or she has been nominated until confirmed by the Senate. The second method for appointing certain government officials is provided under the Recess Appointments Clause. This Clause establishes that the President shall have Power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session. It has generally been opined that the Recess Appointments Clause was designed to enable the President to ensure the operation of the government during periods when the Senate was not in session and therefore unable to perform its advice and consent function. Several declarations were made during the founding era regarding the purpose of the Clause; however, these declarations do not definitively indicate how the recess appointment power should be interpreted. For example, Alexander Hamilton referred to the recess appointment power as "nothing more than a supplement ... for the purpose of establishing an auxiliary method of appointment, in cases to which the general method was inadequate." Similarly, Thomas McKean, a prominent figure of the American Revolution, stated during the ratification debates in Pennsylvania that the Senate need not "be under any necessity of sitting constantly, as has been alleged, for there is an express provision made to enable the President fill up all vacancies that may happen during their recess; the commissions, to expires at the end of the next session." The ambiguities of the Recess Appointments Clause and how it should be interpreted have been further complicated by the fact that the congressional schedule and travel limitations it appears to have been designed to address have undergone tremendous change since the founding period. Until the Civil War, Congress consistently met for relatively short sessions followed by long recesses, or breaks, of six to nine months. Congress largely adhered to this practice during and after the Civil War, but began to schedule habitually an "intra-session recess" of approximately two weeks from the end of December until the beginning of January. The recess practice of Congress further changed in the mid-20 th century, and has been characterized by more frequent intra-session recesses of shorter durations. Additionally, the length of an "inter-session recesses," that is, the adjournment between sessions of Congress, has also become shorter. Interpretations of the Clause have been further complicated by the evolution of its use by successive Presidents. Though used to foster administrative continuity, Presidents also have exercised their recess appointment power for political purposes throughout the history of the republic, giving rise to significant political and legal controversy. For instance, President Madison's recess appointments of Albert Gallatin, John Quincy Adams, and James A. Bayard as envoys to negotiate a peace treaty with Great Britain in 1813 prompted heated debate in the Senate. Presidents Jackson, Taylor, and Lincoln also made hundreds of recess appointments during their terms. Recess appointments to the judiciary were also common during the early years of the republic, with the first five Presidents making 31 such appointments, including 5 to the Supreme Court. In total, 12 Justices have received recess appointments to the Supreme Court, and many of these Justices participated in Court business prior to Senate action on their nominations. With the mid-19 th century phenomena of long congressional adjournments, frequent resort to recess appointments, and the rise of the spoils system in the federal government, Congress responded by imposing statutory restrictions on the President's appointment and removal power, including restrictions on paying certain classes of recess appointees. Accordingly, the circumstances that give rise to the President's ability to rely on the Recess Appointments Clause have been a matter of debate. There have been numerous contrary opinions from Attorneys General, legislators, and scholars, each promoting opposing interpretations particularly with regard to the meaning of the phrases—"the Recess of the Senate" and "Vacancies that may happen." Some have argued that these phrases should be interpreted narrowly, such that only very limited circumstances trigger use of the recess appointment power, while others have argued that these phrases should be interpreted broadly, such that various circumstances trigger use of the Clause. For the past several decades, these questions of interpretation had been deemed to be settled by the executive branch as the President applied, and the Senate generally accepted, a broad interpretation of the Recess Appointments Clause. However, with evolving legislative responses meant to curb the President's use of his recess appointment power, the Supreme Court had occasion to address the scope of this Clause and the meaning of these phrases for the first time. In 2014, the Court in Nat'l Labor Relations Bd. v. Noel Canning ( NLRB v. Noel Canning ) addressed three questions: 1. Whether the President's recess appointment power may be exercised during a recess that occurs within a session of the Senate ( i.e. , intra-session recess), or is instead limited to recesses that occur between enumerated sessions of the Senate ( i.e. , inter-session recess); 2. Whether the President's recess appointment power may be exercised to fill vacancies that exist during a recess, or is instead limited to vacancies that first arose during that recess; and 3. Whether the President's recess appointment power may be exercised when the Senate is convening every three days in pro forma sessions. In addition to reviewing the Court's analysis regarding these key interpretive questions, this report subsequently discusses statutory pay restrictions as a congressionally devised method to curb potentially politically motivated utilization of the recess appointment power, and concludes with a discussion on the authority and tenure of recess appointees. The President shall have Power to fill up all Vacancies that may happen during the Recess of the Senate , by granting Commissions which shall expire at the End of their next Session (emphasis added). ~ Art. II, §2, cl. 3 As mentioned above, a functionalist interpretation of the phrases "the Recess of the Senate" and "Vacancies that may happen" has traditionally prevailed, permitting the President to exercise his recess appointment power during either an inter- or intra-session recess of the Senate and to fill any vacancy that exists regardless of when it arose. However, in 2013, the United States Court of Appeals for the D.C. Circuit (D.C. Circuit) in Noel Canning v. NLRB resurrected a formalist interpretation of these phrases that would have significantly curbed the President's authority under the Clause. In its decision, the D.C. Circuit declared that the President could only make recess appointments when the Senate entered into an inter-session recess at the end of Congress, and only to vacancies that arose during that inter-session recess. Because neither of those conditions were met in the facts underlying the Noel Canning appointments, the D.C. Circuit declared the three recess appointments made by President Barack Obama to the NLRB constitutionally invalid. Upon review, the Supreme Court unanimously affirmed that the recess appointments were invalid. However, the majority, in an opinion authored by Justice Breyer, rejected the D.C. Circuit's interpretation of these key phrases, while four Justices, concurring in judgment only, issued an opinion authored by Justice Scalia agreeing with the D.C. Circuit's formalist interpretation. Before delving into the Supreme Court's opinion in Noel Canning , this section first provides an overview of the historical interpretations of the phrases "the Recess of the Senate" and "Vacancies that may happen." With respect to chronology, the question of what constituted a recess, for purposes of the Clause, arose substantially later than the vacancy issue due to the fact that adjournments within Senate sessions were infrequent and of short duration in the early days of the republic. As congressional scheduling evolved and such intra-session recesses became longer and more frequent, the opportunity for such appointments increased. As such, the first formal Attorney General opinion on the subject was issued in 1901 by Attorney General Philander C. Knox. He concluded that the phrase applied only to adjournments between sessions of Congress, i.e. , inter-session recesses. The 1901 opinion placed significant weight on the use of the definite article "the," emphasizing that "[i]t will be observed that the phrase is ' the recess.'" The opinion further highlighted that if the phrase were read broadly, nothing would prevent an appointment from being made "during any adjournment, as from Thursday or Friday until the following Monday." This position was abandoned 20 years later. An opinion issued by Attorney General Harry M. Daugherty in 1921 declared that an appointment made during a 29-day intra-session recess was constitutional. The Daugherty opinion focused on the practical aspects of the recess appointment dynamic, stating that "[i]f the President's power of appointment is to be defeated because the Senate takes an adjournment to a specified date, the painful and inevitable result will be measurably to prevent the exercise of governmental functions." Even though he emphasized this functional approach, Attorney General Daugherty limited the scope of his opinion by declaring that "an adjournment for 5 or even 10 days [cannot] be said to constitute the recess intended by the Constitution." The opinion concluded by emphasizing that while "[e]very presumption is to be indulged in favor of the validity of whatever action [the President] may take ..., there is a point, necessarily hard of definition, where palpable abuse of discretion might subject his appointment to review." Subsequent opinions of the Attorneys General and the Department of Justice's Office of Legal Counsel (OLC) continued to support the constitutionality of intra-session recess appointments and that the Clause encompasses all recesses in excess of three days. Prior to Noel Canning , it appears that the U.S. Court of Appeals for the Eleventh Circuit (Eleventh Circuit) was the only court to examine the meaning of "the Recess of the Senate." In Evans v. Stephens , the court concluded that the Clause applied to intra-session recesses and upheld President George W. Bush's recess appointment of William H. Pryor Jr. to the federal court of appeals during a 10-day intra-session recess. The court focused on historical practice and stated that the purpose of the Clause is "to enable the President to fill vacancies to assure the proper functioning of our government." It rejected the argument that the definite article "the" limited the opportunity to make an appointment to one particular recess. The court also addressed arguments that an intra-session recess must be a minimum number of days but declined to set that limit. Nevertheless, the court found the appointment of the judge at issue to be within an acceptable time frame of 10 days, given that "appointments to other offices—offices ordinarily requiring Senate confirmation—have been made during an intra-session recess of about this length or shorter." Though consistent with the traditionally prevailing interpretations of the executive branch, the Eleventh Circuit was the first appellate court to hold that "the Recess" includes an intra-session recess. No other court that had examined the Recess Appointments Clause prior to the Eleventh Circuit questioned the broad interpretation of the phrase. In contrast, the D.C. Circuit in Noel Canning held that "the Recess" is limited to inter-session recesses. Based on a textual analysis, the D.C. Circuit found the definite article "the" significant because its use indicates a particular recess, not any adjournment or "generic break in proceedings." In examining historical practice, the D.C. Circuit determined that the absence of intra-session recess appointments within the first 80 years after the Constitution's ratification suggested "an assumed absence of [the] power" to make such appointments. Most notably, the D.C. Circuit rejected Attorney General Daugherty's functionalist interpretation from 1921, "in favor of the clarity of the inter-session interpretation." The court also rejected the interpretation that "the Recess" means "any adjournment of more than three days pursuant to the Adjournments Clause." Moreover, the D.C. Circuit concluded that the Senate only enters "the Recess," or inter-session recess, for purposes of the Clause when it adjourns sine die . From early on, the phrase requiring interpretation was "Vacancies that may happen" during the recess of the Senate—that is, must a vacancy to which the Recess Appointments Clause applies come into existence during the recess, or may it be a vacancy that is already in existence when the recess occurs? Early opinions favored a narrow interpretation of the term "happen," such that it referred only to vacancies that arose after a recess of the Senate commences. In 1792, the first Attorney General, Edmund J. Randolph, concluded that a newly created vacant office could not be filled with a recess appointment because the vacancy existed prior to the Senate's recess. He based his opinion on the text of the Clause and on the "spirit of the Constitution," declaring that the Recess Appointments Clause must be "interpreted strictly" because it serves as "an exception to the general participation of the Senate." In 1799, Alexander Hamilton, then serving as Major General of the Army, similarly stated that "[i]t is clear, that independent of the authority of a special law, the President cannot fill a vacancy [pursuant to the Recess Appointments Clause] which happens during a session of the Senate." Later Attorneys General, however, construed "happen" more broadly. In 1823, Attorney General William Wirt, without mentioning the Randolph opinion, concluded that the phrase encompassed all vacancies that happen to exist before and during "the Recess." Although Attorney General Wirt acknowledged that a narrower interpretation "is, perhaps, more strictly consonant with the mere letter" of the Clause, he opted for, in his view, "the only construction of the Constitution which is compatible with its spirit, reason, and purpose." Subsequent opinions of the Attorneys General in 1832 and 1841 endorsed Wirt's interpretation. For a brief period, however, Attorneys General reverted back to the narrow interpretation and several Senators raised questions as to the proper interpretation of the word "happen" in the Recess Appointments Clause. Differing interpretations, such as those of Attorneys General Randolph and Wirt, are reflective of the early controversies between the Senate and the President on the meaning of this phrase. Despite this brief departure from the broader interpretation of Attorney General Wirt, Attorneys General opinions returned to the Wirt interpretation beginning in 1855. These opinions further concluded that the phrase "Vacancies that may happen" included newly created offices that had never been filled. Attorney General William M. Evarts, in an 1868 opinion, declared the matter so settled by his predecessors that it was "hardly useful to express an opinion as upon an original question." Later Attorneys General opinions consistently interpreted "happen" to mean "happen to exist" and acknowledged recess appointments to offices that became vacant while the Senate was in session. The broader interpretation of "Vacanc[y] that may happen" was first adopted by a federal court in the 1880 decision In re Farrow . In Farrow , Circuit Justice Woods adopted the reasoning of the aforementioned Attorneys General opinions, stating that "[t]hese opinions exhaust all that can be said on the subject." He observed that "the practice of the executive department for nearly 60 years, the acquiescence of the [S]enate therein, and the recognition of the power claimed by both [H]ouses of [C]ongress" supported arguments for the broader interpretation of the phrase. The holding in Farrow was also echoed in the 1886 decision In re Yancey . In the modern era, three federal courts of appeals adhered to the broader interpretation. In United States v. Allocco , United States v. Woodley , and Evans v. Stephens , each court stressed practical problems that could result should a narrow interpretation be adopted. These decisions also concentrated on evaluating historical precedent and practice, including the "long and continuous line of [Attorneys General] opinions" and the "widespread acceptance of the practice followed since the earliest days of the Republic." The D.C. Circuit in Noel Canning , diverging from these established interpretations, held that a "vacancy," for purposes of the Clause, must be one that arises after the Senate enters "the Recess," which, in the court's view, occurs when the Senate adjourns sine die . Based on a textual analysis, it reasoned that the term "happen" cannot encompass all vacancies in existence; otherwise "the operative phrase 'that may happen' would be wholly unnecessary." Furthermore, the court interpreted early historical commentary by Attorney General Randolph and Alexander Hamilton, discussed above, as supporting the principle that the recess appointment power provided to the President is primarily a "secondary method" that, if read broadly, would eviscerate "the primary mode of appointments set forth in [the Appointments Clause]." Whereas the other courts had stressed historical practice, the D.C. Circuit rejected these arguments, finding that one branch's assent to a practice does not preclude it from judicial review. In NLRB v. Noel Canning , the Supreme Court ruled that the three recess appointments to the NLRB were constitutionally invalid because the Senate was in an intra-session recess of only three days, a time period it considered too short to trigger the President's recess appointment power. As discussed below, the reasoning upon which the appointments were found invalid was subscribed to by five Justices, who rejected the D.C. Circuit's narrow interpretation of the Clause. In contrast, the other four Justices believed the recess appointments to be invalid on grounds articulated by the D.C. Circuit and critiqued the majority's interpretation of the Clause in a concurring opinion. Writing for the majority, Justice Breyer first expressed two background considerations that would guide its approach in interpreting the Clause. First, the Court stated its aim to "interpret the Clause as granting the President the power to make appointments during a recess but not offering the President the authority to routinely avoid the need for Senate confirmation." Second, the majority emphasized that it would place "significant weight upon historical practice," citing several precedents where the "Court has treated practice as an important interpretive factor even when the nature or longevity of that practice is subject to dispute, and even where that practice began after the founding era." Justice Scalia, who authored the concurrence, began by disputing the majority's deference to the other branches' historical practice because "political branches cannot by agreement alter the constitutional structure." The Court, he stated, is not "relieve[d] of [its] duty to interpret the Constitution in light of its text, structure, and original understanding" merely because one branch has adopted "a self-aggrandizing practice … well after the founding, often challenged, and never before blessed by the [C]ourt." He cited the Court's decision in INS v. Chadha as a prime example of where it "did not hesitate to hold the legislative veto unconstitutional even though Congress had enacted, and the President had signed, nearly 300 similar provisions over the course of 50 years." At the end of his concurrence, he lamented "the damage done to [the Court's] separation-of-powers jurisprudence," believing that the majority's "embrace of adverse-possession theory of executive power … will be cited in diverse contexts … and will have the effect of aggrandizing the Presidency beyond its constitutional bounds and undermining the respect for the separation of powers." In Noel Canning , the Court held that "the Recess of the Senate" encompasses both inter- and intra-session recesses. In its analysis, the majority cited founding-era dictionaries and documents where the term "recess" referenced both inter- and intra-session breaks. It dismissed the emphasis on the definite article "the," finding that it "can also refer 'to a term used generically or universally'"; and, the court noted other founding-era clauses where the use of "the" did not refer to a particular thing or event. Despite finding sufficient textual support for a broad interpretation, the Court nonetheless declared the text ambiguous and turned to historical practice. It pointed out the many Attorneys General opinions, discussed above, that underscored the functionalist purpose of the Recess Appointments Clause ever since Congress began taking shorter inter-session breaks and more frequent intra-session breaks after World War II. Moreover, the Court found that the Senate has not, as a whole or via a committee, expressed opposition to the practice of intra-session recess appointments. In fact, the Court pointed to a 1905 Senate Committee on the Judiciary report (1905 Senate Report) that appears to favor a functional definition of "the recess," and that contains no discussion to distinguish inter- and intra-session recesses. According to the Court, the Senate has not, as a body, challenged this functional definition for at least three-quarters of a century nor the countless recess appointments made during intra-session recesses, which therefore entitles this "settled practice to 'great weight in a proper interpretation of the constitutional provision.'" Having established that the Clause applies to both inter- and intra-session recesses, the Court next came to the conclusion that a recess of "more than 3 days but less than 10 days is presumptively too short to fall within the Clause." Although the Clause does not explicitly address length of time, the Court stated this was because the Framers probably did not anticipate that intra-session breaks would become more frequent and lengthier than inter-session breaks. The Court settled on the more than 3-day minimum, determining that a "Senate recess that is so short that it does not require the consent of the House [pursuant to the Adjournments Clause] is not long enough to trigger the President's recess appointment power." While it acknowledged there are scattered examples of inter-session recess appointments of less than 10 days, the Court found no similar examples of recess appointments made during an intra-session break of less than 10 days. This, in addition to an OLC opinion advising against an appointment during a 6-day intra-session recess, suggested to the Court that the "recess appointment power is not needed in that context." However, the Court said that a recess of less than 10 days is "presumptively" too short in order to leave open the possibility for exigent circumstances that might require the President to exercise his power during a shorter break. Writing to the contrary, Justice Scalia agreed with the D.C. Circuit's narrower interpretation that "the Recess" only applies to inter-session breaks. To support his conclusion, he looked to the Clause's use of the term "recess" in contrast to the term "session." Each of these terms had "well-understood meanings [during the founding era] in the marking-out of legislative time." He critiqued the majority's interpretation by stating that it is linguistically unsound to read "recess" colloquially so that it encompasses any recess but then to read "session" formally so that a recess appointment concludes at the end of the next formal session of Congress rather than its next daily session. Additionally, another principal issue with using "recess" in a colloquial manner is that it "leaves the recess-appointment power without a textually grounded principle limiting the time of its exercise" and forces the majority to create a time limitation that is not grounded in text. Justice Scalia indicated that it is judicial overreach for the majority to invent court-crafted limitations with no textual basis. The concurring opinion also conducted an exhaustive review of the historical practice relied on by the majority and concluded that practice does not support a broad interpretation. Justice Scalia focused on the lack of intra-session recesses for nearly 80 years, as well as the lack of intra-session recess appointments even when there were such breaks that lasted longer than 10 days. This early history, together with the 1901 opinion by Attorney General Knox first interpreting "the Recess" narrowly, strongly indicates that "neither the Executive nor the Senate believed such a power existed." He further critiqued the majority's reliance on the 1905 Senate Report, stating that it was only meant to clarify that "the Recess" was "limited to (actual, not constructive) breaks between sessions ," not to "suggest that the Senate's absence is enough to create a recess." In the end, Justice Scalia objected to the majority's methodology, i.e. , its deference to the executive branch and insistence that the Senate acquiesced because it did not object "as a body" to prevent such appointments, because he believed that this "all but guarantees the continuing aggrandizement of the Executive Branch." For the second phrase, the majority concluded that it encompasses both vacancies that initially occur during a recess as well as those which arise when the Senate is in session. Starting with the text, the Court conceded that while "the most natural meaning of 'happens' as applied to 'vacancy' … is that the vacancy 'happens' when it initially occurs," the language of the Clause "read literally permits … our broader interpretation" though it may not "naturally favor it." Because it is ambiguous whether the Clause must be read more narrowly, the Court turned to the purpose of the Clause. It acknowledged that a broad interpretation could allow the President to routinely avoid Senate confirmations, however, the majority declared that "the narrower interpretation risks undermining constitutionally conferred powers more seriously and more often. It would prevent the President from making any recess appointment that arose before the recess, no matter who the official, no matter how dire the need, no matter how uncontroversial the appointment, and no matter how late in the session the office fell vacant." The Court also turned to historical practice from the past 200 years, and it determined that "the tradition of applying the Clause to pre-recess vacancies dates at least to President James Madison." Furthermore, the Senate appears not to have countered this practice for most of the last century, despite sporadic disagreement in the early 19 th century with the broad interpretation. Notably, the Senate Committee on the Judiciary issued a report in 1863 disagreeing with the broad interpretation of "vacancy," but the Court pointed out that no Senator referred to this report when debating the Pay Act of 1863, a law that prohibited payment to any person appointed during the recess of the Senate to fill a pre-recess vacancy. The Court noted the Senate later "abandoned its hostility" when it issued the 1905 Senate Report, which supported a functionalist interpretation of the Clause, and when Congress subsequently enacted amendment of the Pay Act in 1940, which carved out exceptions to allow payment to recess appointees filling certain kinds of pre-recess vacancies. The executive branch's historical practice for nearly 200 years combined with the Senate's support of the President's interpretation for nearly three-quarters of a century led the Court to pronounce that these traditions are entitled to "great regard in determining the true construction of the constitutional provision." Moreover, the Court acknowledged that it was "reluctant to upset this traditional practice where doing so would seriously shrink the authority that Presidents have believed existed and have exercised for so long." Again, the concurring opinion diverged from the majority in its interpretation of "Vacancies that may happen," agreeing with the D.C. Circuit's conclusion that the plain meaning and natural reading of the word "happen" as applied to a "vacancy" is one that initially occurs during the recess. As with "the Recess," Justice Scalia opined that the majority's reading is at odds with the purpose of the Clause, which is meant to be a subordinate, not primary, way of appointing officials. Though eventually superseded by the opinion of Attorney General Wirt from 1823, the concurrence found the opinion by the first Attorney General, Edmund Randolph, and actions of early Congresses supportive of the narrower interpretation. For example, a statute from 1791 empowered the President to grant commissions to customs inspectors during the recess of the Senate, if the appointment was not made during the present session of Congress. This statutory authorization demonstrates an understanding that the Recess Appointments Clause could not be used to fill pre-existing vacancies, because otherwise the "authorization would have been superfluous if the Recess Appointments Clause had been understood to apply to pre-existing vacancies." According to Justice Scalia, the 1823 Wirt opinion and the majority are fundamentally mistaken in stating that the "Constitution's 'substantial purpose' is to 'keep … offices filled.'" Even though the Constitution addresses the operation of the government, it is not a "road map for maximally efficient government." Justice Scalia also disputed the majority's reliance on historical practice to support its broad interpretation. The majority's sampling of recess appointments made to pre-recess vacancies in the modern era, he said, is not sufficient to assume that this is "at all typical of practices that prevailed throughout the 'history of the Nation.'" He contended that the majority "ignore[d] two salient facts: First, from the founding until the mid-19 th century, the President's authority to make such appointments was far from settled even within the Executive Branch. Second, from 1863 until 1940 [under the Pay Act of 1863], it was illegal to pay any recess appointee who filled a pre-recess vacancy, which surely discouraged Presidents from making, and nominees from accepting, such appointments." Due to the inconsistency of historical evidence available, Justice Scalia opined that he could not "conceive of any sane constitutional theory under which this evidence of 'historical practice'—which is actually evidence of a long-simmering inter-branch conflict—would require us to defer to the views of the Executive Branch." The last question presented to the Court in Noel Canning was whether the President's recess appointment power may be exercised when the Senate is convening every three days in pro forma sessions. This question was especially relevant in this challenge due to the unique facts underlying President Obama's recess appointments to the NLRB. The NLRB consists of a board of five officials appointed by the President with the advice and consent of the Senate, but requires at least three members to sustain a quorum. In 2011, the NLRB only had three board members with one of the three scheduled to vacate his seat by the end of the first session of the 112 th Congress. In an effort to prevent membership from dropping below the number required to sustain a quorum, President Obama nominated Terrence F. Flynn to be a member on January 5, 2011. The President also formally nominated Sharon Block and Richard F. Griffin, Jr., to be members of the NLRB on December 15, 2011. By December 17, 2011, the Senate had not acted on any of these nominations. On this date, the Senate adopted a unanimous consent agreement in which the body adjourned but scheduled a series of pro forma sessions every three to four days to occur from December 20, 2011, until January 23, 2012. The unanimous consent agreement established that "no business" would be conducted during the pro forma sessions and that the second session of the 112 th Congress would begin at 12:00pm on January 3, 2012, as required by the Constitution. As none of the three nominees were confirmed, the President, citing Senate inaction and asserting that the Senate was in recess despite the pro forma sessions, exercised his recess appointment power to appoint Mr. Flynn, Ms. Block, and Mr. Griffins Jr., to the NLRB on January 4, 2012—the date between the January 3 and January 6 pro forma sessions. Given that the majority's interpretation of the Recess Appointments Clause thus far would not have invalidated these appointments, its conclusion that the NLRB recess appointments are constitutionally invalid hinged on this last question. The last question required the Court to determine "the significance of these [ pro forma] sessions—that is, whether, for purposes of the Clause, [the Court] should treat them as periods when the Senate was in session or as periods when it was in recess." On the one hand, if the Court found that the Senate was in session on January 3 and 6 when it held its pro forma sessions, then this three-day period would have constituted a three-day recess, which the Court considered too short to trigger the recess appointment power. On the other hand, if the Court found that the Senate was not in session despite holding its pro forma sessions, then the three-day period would have been part of a much longer recess during which the President could have wielded his recess appointment power. The Court concluded that the pro forma sessions count as sessions of the Senate because, for purposes of the Clause, "the Senate is in session when it says it is, provided that, under its own rules, it retains the capacity to transact Senate business." With respect to the pro forma sessions at issue, the Court was satisfied that this standard was met because the Senate said it was in session, and despite a resolution that it would conduct no business, the Senate still retained the capacity to do so. The Senate, in fact, passed a bill by unanimous consent during the December 20 th pro forma session, and this bill became law. The Court also found that even if it examined the functional definition of recess from the 1905 Senate Report, the Senate would still be in a session and not in a recess during its pro forma sessions. Running through the 1905 Senate Report's factors, the Court determined (1) that the Senate could "participate as a body in making appointments" by confirming nominees by unanimous consent; (2) that the Senate could and did "receive communications from the President"; (3) that the Senate, under its official rules, was not empty because it "operates under the presumption that a quorum is present until a present Senator suggests the absence of a quorum"; and (4) the Senators, despite being away, owed a duty of attendance during these pro forma sessions. Finally, the Court rejected the government's argument that the Court should examine what the Senate actually did during the pro forma session, rather than what the Senate had the capacity to do. The Court stated a factual appraisal would be both legally and practically inappropriate for the Court to engage in such an examination. Thus, the Court concluded that the President's NLRB recess appointments were invalid on grounds that the Senate was only in a short intra-session recess of three days, a period of insufficient length to trigger the President's recess appointment power. Under the majority's ruling, it is possible for the Senate to effectively prevent a future President from making any recess appointments by simply holding pro forma sessions, depending on the parties that control the presidency and the Senate. The possibility of this occurring spurred the government to warn in its argument that this kind of ruling could "disrupt the proper balance between the coordinate branches by preventing the Executive Branch from accomplishing its constitutionally assigned functions." However, the Court stated that its opinion could not "significantly alter the constitutional balance," as it opined that most appointments are not controversial and that the Senate and President have other methods available when political controversy is serious. Moreover, the Court concluded that "the Recess Appointments Clause is not designed to overcome serious institutional friction.... [F]riction between the branches is an inevitable consequence of our constitutional structure [which] foresees resolution not only through judicial interpretation and compromise among the branches but also by the ballot box." Because the NLRB recess appointments are invalid under the minority's interpretation of the Recess Appointments Clause alone, Justice Scalia did not examine the significance of pro forma sessions. Though he disapproved overall of the majority's approach to interpreting the Clause, as discussed above, he opined that it is unclear how the majority's judge-made limitation will work in practice. The Justices in Noel Canning were unanimous in concluding that the three recess appointments to the NLRB were constitutionally invalid. However, the Court was sharply divided when it came to the reasoning for why the appointments were infirm. Despite adopting a broad reading of the Recess Appointments Clause such that President can make appointments during an inter- or intra-session recess of longer than 10 days to any vacancy, the majority of the Court ruled the appointments invalid because it determined that the Senate was only in an intra-session recess of three days, a period of time insufficient to trigger the President's recess appointment power. A minority of Justices, in contrast, ruled the appointments invalid based on a narrow interpretation of the Clause as articulated by the D.C. Circuit. Under their view, the President lacked authority to make recess appointments because intra-session recesses do not fall within the scope of the Clause, and the vacancies for the NLRB did not arise during the inter-session recess of the Senate because no inter-session recess occurred as the Senate did not adjourn sine die . Pursuant to the prevailing interpretation of the Recess Appointments Clause, the President is authorized to exercise his recess appointment power when there is any recess of the Senate that is 10 days or longer. However, the Court's ruling also allows the Senate to effectively prevent the President from making recess appointments if it holds pro forma sessions. Moving forward, it remains to be seen what impact the recognition of pro forma sessions as sessions of the Senate may have on the prevalence of recess appointments. Congress, in an attempt to check the President's use of the Recess Appointment Clause and preserve its role in the appointments process, has enacted legislation that would restrict the pay of recess appointees under certain circumstances. Pay restrictions on recess appointees have a long history, dating back to the mid-19 th century. The forerunner to the current statutory provision was an appropriations rider that Congress attached to the FY1864 Army Appropriations Act. Among other conditions, the rider prohibited the payment of money from the Treasury "as a salary, to any person appointed during the recess of the Senate, to fill a vacancy in any existing office, which vacancy existed while the Senate was in session and is by law required to be filled by and with the advice and consent of the Senate, until such appointee shall have been confirmed by the Senate." Under this language, an officer might have to serve without pay, until such time as the Senate consented to the nomination. These pay restrictions were enacted in response to President Lincoln's recess appointments of hundreds of military officers in violation of statutory authorization. Although some Senators still questioned the interpretation of "Vacancies that may happen," as discussed above, Senator William P. Fessenden, elaborating on the intent of the appropriations rider, stated: "It may not be in our power to prevent the appointment, but it is in our power to prevent the payment; and when payment is prevented, I think that will probably put an end to the habit of making such appointments." Further restrictions were placed on the President's appointment and removal powers with the passage of the Tenure of Office Act in 1867. Section 2 of the act purported to limit the President's power to suspend officers during a recess to instances where it was determined to the satisfaction of the President that an officer was guilty of misconduct in office, crime, or was incapable or legally disqualified to hold office. Removals made during recesses were to be reported to the Senate after it reconvened; and, if the Senate did not concur with the suspension, the suspended officer was to "resume the functions of his office." Section 3 of the act purported to limit the President's authority to make recess appointments, providing that such an appointment could be made only if the vacancy occurred by death or resignation. If a recess appointee's nomination was not thereafter confirmed in the next session of the Senate, the office was to "remain in abeyance." The act also delineated criminal penalties and cut-off of salary for violations of its provisions. President Andrew Johnson, who believed the act to unconstitutionally infringe upon the power of the executive, ignored the provisions of the act when he removed Secretary of War Edwin Stanton from office. Congress repealed part of the act in 1869 and then entirely in 1887. Though the act was not challenged in the courts, similar limits on the President's removal power were struck down as unconstitutional in the 1926 decision of Myers v. United States . Even though congressional restrictions on the President's removal powers have been held unconstitutional, the pay restriction for recess appointees that was originally enacted in 1863 remained intact until it was amended in 1940 to provide exceptions to the flat prohibition, making it less burdensome on officeholders. The pay restriction on recess appointees is currently codified at 5 U.S.C. §5503. The second exception—(a)(2)—which allows a recess appointee to be paid, so long as there is a pending nomination before the Senate that is not of a person who had been appointed during the preceding recess, has implied preclusive effect. Generally, subsection (a)(2) has been interpreted as prohibiting the payment of compensation to successive recess appointees. However, looking more closely at the text, it has also been observed that (a)(2) prohibits payment to a successive recess appointee " only where the person receiving the recess appointment was already serving under a prior recess appointment. ... Thus, if someone other than a prior recess appointee whose nomination was pending at the time of adjournment is appointed, §5503(a)(2) does not bar payment." Given this observation, it is conceivable that the same individual could be recess appointed a second time and paid under (a)(2), so long as there is a different individual whose nomination is pending for the position. Overall, while §5503(a)(2) impliedly bars payments to successive recess appointees, a closer reading of the text could suggest the prohibition to be narrow, and in fact allow payment to a successive recess appointee, depending on the individuals who are recess appointed and nominated to the position. If a recess appointee is paid under one of the three exceptions, then §5503(b) provides that a nomination to fill a vacancy must be submitted to the Senate 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 to the position even when an old nomination is pending. Although an individual whose nomination has been rejected may continue to serve until the commission expires, the exception under §5503(a)(3) only allows payment if the person serving is not the rejected nominee. There is another appropriations rider that also likely demonstrates Congress's desire to prevent rejected nominees from serving in office. This provision, enacted in 2007, bars payment to an individual serving in a position "for which he or she has been nominated after the Senate has voted not to approve the nomination of said person." The three exceptions under §5503 which would allow payment were designed, as stated in a House report, "to render the existing prohibition on the payment of salaries more flexible." The report further explained that [f]rom a practical standpoint it frequently creates difficulties especially in those cases in which a vacancy arose shortly before the close of a congressional session, leaving insufficient time to fill the vacancy by nomination and confirmation. Difficulties also arise in cases in which a session terminates before the Senate acts on pending nominations, as has at times happened. Exceptions (a)(1) and (a)(3), respectively, allow for payment if the vacancy arose, or the pending nomination was rejected, within 30 days "before the end of the session." The term "session" for purposes of §5503 refers to any time the Senate convenes. Sometimes it has been argued that a recess appointee, who is generally barred from receiving pay unless one of the three exceptions applies, would be then barred from serving because of a provision of the Anti-Deficiency Act, namely 31 U.S.C. §1342. This provision states: "An officer or employee of the United States government or of the District of Columbia government may not accept voluntary services for either government or employ personal services exceeding that authorized by law except for emergencies involving the safety of human life or the protection of property." The voluntary services prohibition is designed to prevent federal agencies from seeking additional appropriations. However, interpretations of 31 U.S.C. §1342 have concluded that although the section prohibits federal entities from accepting voluntary services, it does not prohibit acceptance of gratuitous services for which no future claim for compensation will be made. Pursuant to this distinction, the Government Accountability Office (GAO) has ruled that compensation that is not fixed by statute may be waived, so long as the waiver renders any service gratuitous. Conversely, GAO has ruled that compensation that is fixed by statute may not be waived and deemed gratuitous without specific statutory authority. While 31 U.S.C. §1342 may be controlling with regard to prohibiting officers and employees from accepting voluntary services, there does not appear to be any basis for its application to recess appointees, who are statutorily barred from receiving pay under 5 U.S.C. §5503, regardless of whether the position at issue carries a discretionary or fixed rate of pay. In other words, it does not seem that §1342, which prevents the government from accepting voluntary services from officers and employees, would also prevent recess appointees, who are already statutorily barred from receiving pay, from serving in government. Because the President's appointment power, including the power to make recess appointments, arises from the Constitution, it is difficult to formulate a rationale that would support the conclusion that a congressional enactment may prevent the service of a recess appointee who is already prevented from receiving pay, as the pay proscription itself clearly contemplates that recess appointees falling within its purview would continue to serve, further obviating the application of §1342. These pay limitations are designed to protect the Senate's advice and consent function. By targeting the compensation of appointees, as opposed to the President's recess appointment power itself, the limitations act as indirect controls on recess appointments, and their constitutionality has not been adjudicated. However, the federal district court in Staebler v. Carter commented that "if any and all restrictions on the President's recess appointment power, however limited, are prohibited by the Constitution, 5 U.S.C. §5503 ... might also be invalid." Additional constitutional concerns might arise from the application of these statutory restrictions to judicial recess appointees, though Attorneys General have consistently advised Presidents of the applicability of the pay restriction statutes without raising constitutional concerns. The concerns raised in Staebler , which questioned the constitutionality of the restrictions with regard to recess appointments, coupled with the broad interpretation of the Recess Appointments Clause in Noel Canning , could be seen as arguably giving rise to an expansive interpretation of the President's recess appointment power. As discussed above, the Court in Noel Canning held that the President may make a recess appointment during any inter- or intra-session recess of "sufficient length," that is generally 10 days or longer. Upholding the broader interpretation of recess appointments, together with the potential constitutional invalidity of the statutory restrictions, could lead to a dynamic whereby the President would have a legal and constitutional basis upon which to bypass the Senate confirmation process in practice. Under these circumstances, the President could be empowered to make successive recess appointments with the practical effect of enabling an appointee to serve throughout the course of an Administration without submitting to the Senate confirmation process. Nonetheless, the recognition that the Senate's pro forma sessions are sessions for purposes of the Clause may likely provide an effective counterweight against the possibility that the President would be able to engage in such conduct. As a fundamental matter, a recess appointee possesses the same legal authority as a confirmed appointee. The commission of a recess appointee expires "at the End of [the Senate's] next Session," whereas the service of a confirmed appointee continues until the end of the statutory term or at the pleasure of the President, subject to the requirements laid out by Congress in creating the position. When the Senate reconvenes after a recess during the same session, this is considered a continuation of the session and is not regarded as the "next Session" within the meaning of the Clause. The Supreme Court's decision in Noel Canning did not alter this understanding of the Clause. In practice, this means that a recess appointment could last for almost two years. (See textbox.) On the one hand, if an individual receives an intersession recess appointment—that is, an appointment between sessions of the same or successive Congresses—such individual could serve until the end of the following session. On the other hand, if the President makes an intrasession recess appointment—that is, an appointment during a recess of the Senate in the middle of a session, like the traditional August recess—that appointment would expire at the end of the second session. In the latter case, the duration of the appointment will include the rest of the session in progress plus the full length of the session that follows. The President may remove a recess appointee before the expiration of his term, either by outright removal (assuming he otherwise has discretionary removal authority with respect to the office) or by having another nominee confirmed by the Senate. Oftentimes an individual given a recess appointment is also the President's nominee to the office. A question may arise as to how long a recess appointee may serve after being confirmed by the Senate to an office that has a fixed statutory term. Such tenure would appear to depend on the particular statutory language regarding the terms of office and filling of vacancies, rather than any constitutional limitations. For example, Attorney General Homer Cummings in 1933 opined that the new commission for the full statutory term relates back to the date on which the person first assumed office by means of the recess appointment. In this instance, the nomination submitted by the President and confirmed by the Senate stated that the individual was being nominated to serve as Surgeon General "for the period of four years beginning June 1, 1931," which was the date the recess appointment commenced. While recognizing that earlier Attorneys General opinions (discussed below) had concluded the opposite, Attorney General Cummings remarked that the "substantial question" is "what did Congress intend?" The Attorney General concluded that his interpretation for this position was supported by the fact that the "War Department, the President, and the Senate have ... acted upon a view that the prescribed 'period of four years' is four years of service, notwithstanding that a particular appointee may serve his four years partly under one appointment and partly under another," as well as evidence of this interpretation with respect to other appointments. On the other hand, other Attorneys General legal opinions have concluded that the term of office for a confirmed appointee should not include any previous period of service under a recess appointment. These conclusions relied on the Supreme Court's 1824 decision in United States v. Kirkpatrick , where the Court held that a new appointment made by the President, by and with the advice and consent of the Senate, once accepted by the individual "was a virtual superseding and surrender of the former commission," which was a recess appointment made pursuant to the statute at issue (as opposed to the President's constitutional recess appointment power). According to the Court, "the commissions are not only different in date, and given under different authorities ..., but they are of different natures. The first is limited in its duration to a specified period [i.e., to the end of the Senate's next session]; the second is unlimited in duration, and during the pleasure of the President." Attorney General John Berrien in 1830 later applied this rationale to other officers who had been appointed during a recess and subsequently confirmed by the Senate. He stated: [I]t seems very clear that an appointment of a navy agent, made in the case of a vacancy occurring during the recess, is in the exercise of the constitutional power of the President ...; and that the constitutional limitation of such appointment is to the end of the succeeding session of Congress, unless it be sooner determined by the acceptance of a new commission under an appointment made by and with the advice and consent of the Senate. In such a case, therefore, I apprehend that the four years prescribed by law as the official term of the appointee, must commence to run from the date of the new commission..." (emphasis in the original) Moreover, even if a recess appointee who is also the President's nominee is rejected by the Senate, this does not constitute a removal. The rejected nominee may still hold office pursuant to his recess appointment under the Constitution until the termination of the session. Upon the expiration of the constitutional term of a recess appointee, a new recess appointment, either of the same or another individual, may be made. Successive recess appointments of the same person, however, may implicate certain statutory pay restrictions, discussed above. While there are no constitutional limits on how many times the President may exercise the recess appointment authority with a particular individual, notably, the court in Staebler v. Carter stated that a President "could probably not consistently with the principle of checks and balances grant a recess appointment to one rejected for the particular position by a vote of the Senate." A vacancy must exist before the President can exercise his recess appointment authority. While this observation may seem self-evident, what constitutes a "vacancy" for the purposes of the Recess Appointments Clause may be complicated by the presence of a "holdover" provision that regularly accompanies fixed term positions. The Department of Justice has generally held the view that as a matter of constitutional law, a vacancy for purposes of the Recess Appointments Clause arises when an appointment for a fixed term expires and the officer continues serving under a holdover provision. Judicial interpretation of whether a vacancy exists in light of a holdover provision has been uneven depending on the statute's language. In Staebler v. Carter , the district court held that there was a vacancy for purposes of the Recess Appointments Clause when an incumbent commissioner at the Federal Election Commission (FEC) continued to exercise his authority pursuant to a holdover provision. The Federal Election Campaign Act's holdover provision stated: "A member of the Commission may serve ... after the expiration of his own term until his successor has taken office." As such, a member could continue to serve indefinitely until replaced by a successor. The court in Staebler upheld a recess appointment to the FEC that was still occupied by a holdover FEC commissioner, based on a determination that the expiration of the holdover commissioner's formal term created an immediate and ongoing vacancy. The plaintiff argued that the Recess Appointments Clause was designed to operate only when no person is available to occupy a particular office. Rejecting this argument, the court stated that it was not persuaded this was the intention of the Framers because under such an interpretation, "the President would be prohibited from making a recess appointment when a term of office has expired, as long as someone with a permissive claim to the office is still serving." As part of its reasoning for finding that a vacancy existed once the statutory term of office expired, the court stated: "In the absence of clearly-expressed legislative intent, the [c]ourt will not speculate that the Congress sought to achieve a result which would be both unusual and probably beyond its constitutional power." Conversely, the district court, 14 years later, in Mackie v. Clinton held that there was no vacancy for purposes of the Recess Appointments Clause when interpreting the holdover provision for a member of the Board of Governors of the United States Postal Service. The court declared that whether a vacancy exists for purposes of the Clause depends on the wording and structure of the particular holdover provision. Here, the relevant holdover provision states that a "Governor may continue to serve after the expiration of his term until his successor has qualified, but not to exceed one year." In the court's view, this holdover provision, unlike that in Staebler , creates a "prospective vacancy," rather than an immediate vacancy, such that the Governor holding over would continue to occupy the office for one year past the end of his term unless he died, resigned, was lawfully removed, or some other successor qualified. The Mackie court further emphasized that unlike the indefinite holdover period in the Federal Election Campaign Act, the one-year holdover period prevented this board from being susceptible to the concerns expressed by the court in Staebler . Shortly after the decision in Mackie , the court reached a similar conclusion in Wilkinson v. Legal Servs. Corp . It held that there was no vacancy upon the expiration of a term of office of one of the Directors at the Legal Services Corporation (LSC). Rather, a vacancy is created upon the "resignation, death or removal of one of the sitting Directors." However, Wilkinson distinguished itself from Staebler and Mackie in finding the holdover provision in the LSC Act mandatory: "Each member of the Board shall continue to serve until the successor to such member has been appointed and qualified" (emphasis added). Although the court found that the LSC Act provided no definition of "vacancy" as in Staebler (see note 182 ), nor any time limit that a holdover may remain in office as in Mackie , it held that "the plain meaning of this [holdover] language is that each member of the Board remains a Director after that person's term has expired until the new Director has been 'appointed' by the President and 'qualified.'" The Wilkinson court concluded that the holdover provision did not infringe upon the President's recess appointment power; "it merely defined when 'vacancies' exist on the LSC Board sufficient to trigger application of the Recess Appointments Clause." The decisions in Staebler , Mackie , and Wilkinson demonstrate that the issue of whether a holdover provision constitutes a vacancy for recess appointment purposes may depend upon the specific language contained therein. While generally perceived as a straightforward, pragmatic provision designed to foster administrative continuity, the history of the Recess Appointments Clause shows that it has been the source of recurrent controversy, beginning with the Administration of George Washington, and continuing to the current Administration of Barack Obama. The application of the Recess Appointments Clause had been left to the interpretations of the executive and legislative branches, with differing and inconsistent opinions regarding the scope of the Clause for almost 100 years before an apparent general acceptance of a broad interpretation. In 2014, the Supreme Court examined the scope of the recess appointment power for the first time in NLRB v. Noel Canning . The Court held that the President may make recess appointments to any existing vacancy during an inter- or intra-session recess of the Senate of "sufficient length." The Court held that a recess of the Senate must be 10 days or longer because a recess between 3 and 9 days is "presumptively too short." The use of the word "presumptively" left open the possibility for exigent circumstances, not including political disagreement between the branches, during which the President may have need to make a recess appointment when the Senate has been in recess for less than 10 days. The decision does not appear to have affected other judicial interpretations of provisions that are related to recess appointees. However, the future impact of the Noel Canning decision on the actions of both the President and the Senate remains to be seen and may very well be dependent upon the political parties that control the executive and legislative branches. | The U.S. Constitution explicitly provides the President with two methods of appointing officers of the United States. First, the Appointments Clause provides the President with the authority to make appointments with the advice and consent of the Senate. Specifically, Article II, Section 2, clause 2 states that the President "shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by law." Second, the Recess Appointments Clause authorizes the President to make temporary appointments unilaterally during periods when the Senate is not in session. Article II, Section 2, clause 3 provides: "The President shall have Power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session." While the Recess Appointments Clause enables the continuity of government operations, Presidents, on occasion, have exercised authority under the Clause for political purposes, appointing officials who might otherwise have difficulty securing Senate confirmation. This constitutional provision is not without its ambiguities, and the President's use of his recess appointment power in light of these ambiguities has given rise to significant political and legal controversy since the beginning of the republic. President's Obama's three recess appointments to the National Labor Relations Board (NLRB) on January 4, 2012, once again raised questions regarding the scope of the Recess Appointments Clause as well as the significance of the Senate's pro forma sessions in relation to the President's ability to exercise his recess appointment authority. The constitutionality of these recess appointments was challenged, and for the first time, the Supreme Court examined the scope of the Recess Appointments Clause and how it should be interpreted. This report provides an overview of the Recess Appointments Clause, by first exploring its historical application and legal interpretation by the executive, legislative, and judicial branches. It then reviews the Supreme Court's decision in Nat'l Labor Relations Board v. Noel Canning in which all nine Justices affirmed the constitutional invalidity of these recess appointments. The Justices, however, were divided with respect to the proper interpretation of the Clause and the basis upon which the NLRB recess appointments would be ruled invalid. Also examined in this report is congressional legislation designed to prevent the President's overuse or misuse of the Clause, as well as the authority and tenure of recess appointees. |
M ortgage debt cancellation occurs when lenders engage in loss-mitigation solutions that either (1) restructure the loan and reduce the principal balance or (2) sell the property, either in advance, or as a result of foreclosure proceedings. Under current law, the canceled debt (sometimes referred to as discharge of indebtedness) may be income subject to taxation. The Mortgage Forgiveness Debt Relief Act of 2007 ( P.L. 110-142 ) signed into law on December 20, 2007, temporarily excluded qualified COD income. Thus, the act allowed taxpayers who did not qualify for the existing exceptions to exclude COD income. The provision was effective for debt discharged before January 1, 2010. The Emergency Economic Stabilization Act of 2008 ( P.L. 110-343 ) extended the exclusion of COD income to debt discharged before January 1, 2013. The American Taxpayer Relief Act of 2012 ( P.L. 112-240 ) subsequently extended the exclusion through the end of 2013. The Tax Increase Prevention Act of 2014 ( P.L. 113-295 ) extended the exclusion through the end of 2014. The exclusion was extended again through the end of 2016 by Division Q of P.L. 114-113 —the Protecting Americans from Tax Hikes Act (or "PATH" Act). Most recently, the Bipartisan Budget Act of 2018 ( P.L. 115-123 ) retroactively extended the exclusion through the end of 2017. The extension also allowed for debt discharged after 2017 to be excluded from income if the taxpayer had entered into a binding written agreement before January 1, 2018. The rationales for this change are to minimize hardship for households in distress and to ensure that non-tax-related homeowner retention efforts are not thwarted by tax policy. Critics argue that the exclusion could encourage homeowners to be less responsible about fulfilling debt obligations. Critics may also argue that owner-occupied housing is sufficiently subsidized even without a COD income exclusion. This report begins with an overview and analysis of the historical tax treatment of canceled debt income. Next, the changes enacted by P.L. 110-142 , P.L. 110-343 , P.L. 112-240 , P.L. 113-295 , P.L. 114-113 , and P.L. 115-123 are reviewed . A discussion of policy options concludes. For federal income tax purposes, there are two types of income that may arise when an individual's mortgage is fully or partially canceled: cancellation of indebtedness income and gain from the disposition of property. When all or part of a taxpayer's debt is forgiven, the amount of the canceled debt is ordinarily included in the taxpayer's gross income. This income is typically referred to as cancellation of debt (COD) income. The borrower will realize ordinary income to the extent the canceled debt exceeds the value of any cash or property given to the lender in exchange for cancelling the debt. Lenders report canceled debt to the Internal Revenue Service (IRS) using Form 1099-C, and borrowers must generally include the amount in gross income in the year of discharge. Historically, there have been several exceptions to the general rule that canceled debt is included in the gross income of the borrower. Section 108 of the Internal Revenue Code (IRC) contains two exceptions that are particularly relevant in the case of canceled home mortgage debt: a borrower may exclude canceled debt from gross income if (1) the debt is discharged in Title 11 bankruptcy or (2) the borrower is insolvent (that is, has liabilities that exceed the fair market value of his or her assets, determined immediately prior to discharge). In the case of the bankruptcy exception, the debt must be discharged by the court overseeing the bankruptcy proceedings or pursuant to a plan approved by that court. No involvement by a court is necessary for a taxpayer to claim an insolvency exception—the taxpayer calculates his or her assets and liabilities to determine whether he or she is insolvent. For an insolvent taxpayer, the amount of COD income that may be excluded is limited to the amount by which the taxpayer is insolvent. For both the bankruptcy and insolvency exceptions, a taxpayer who excludes canceled debt must essentially give back some of the benefit of the exclusion. Specifically, the taxpayer must reduce certain beneficial tax attributes, including basis in property, that would otherwise decrease the taxpayer's income or tax liability in future years. The attributes are reduced until the reductions generally account for the excluded amount. As a result of the attribute reduction, the taxpayer may be subject to tax on the excluded COD income in years following the year of discharge—in other words, the tax on the COD income is deferred. In addition to the IRC Section 108 exclusions, there are several other circumstances under which COD income may be excluded. For example, a taxpayer with nonrecourse, as opposed to recourse, debt will not realize COD income. Other examples of when COD income may be excluded from the borrower's income are if the cancellation was intended to be a gift or was the result of a disputed debt. When an individual sells property, the excess of the sales price over the original cost plus improvements (adjusted basis) is normally gain subject to tax. If the property was held for more than 12 months, the gain is taxed at a maximum rate of 15% rather than regular income tax rates. If the property was held for less than 12 months, the gain is taxed at regular income tax rates. In situations involving canceled home mortgage debt, if the lender takes the home in exchange for the debt cancellation, the homeowner realizes gain from the disposition of property in the amount that the property's fair market value (or the amount of outstanding debt, in the case of nonrecourse debt) exceeds the taxpayer's adjusted basis in the property. A taxpayer may have both gain from the disposition of property and COD income. IRC Section 121 provides an exclusion for gain from the sale or disposition of a personal residence. The provision excludes gain of up to $250,000 for single taxpayers and $500,000 for married couples filing joint returns if the taxpayer meets a use test (has used the house as the principal residence for at least two of the last five years) and an ownership test (has owned the house for at least two of the last five years). A taxpayer who does not meet the qualifications may be eligible for a partial exclusion if the home was sold because of a change in employment or health or due to unforeseen circumstances. Additionally, other taxpayers may qualify for special treatment (e.g., members of the Armed Forces). The exclusion can generally be used every two years. On December 20, 2007, The Mortgage Forgiveness Debt Relief Act of 2007 ( P.L. 110-142 ) was signed into law. The act, among other things, excluded discharged qualified residential debt from gross income. Qualified indebtedness is defined as debt, limited to $2 million ($1 million if married filing separately), incurred in acquiring, constructing, or substantially improving the taxpayer's principal residence that is secured by such residence. It also includes refinancing of this debt, to the extent that the refinancing does not exceed the amount of refinanced indebtedness. The taxpayer was required to reduce the basis in their principal residence by the amount of the excluded income. The provision did not apply if the discharge was on account of services performed for the lender or any other factor not directly related to a decline in the residence's value or to the taxpayer's financial condition. The provision applied to debt discharges that are made on or after January 1, 2007, and before January 1, 2010. The Emergency Economic Stabilization Act of 2008 ( P.L. 110-343 ) extended the exclusion described above through the end of 2012. Subsequently, the American Taxpayer Relief Act of 2012 ( P.L. 112-240 ) extended the exclusion through the end of 2013. The Tax Increase Prevention Act of 2014 ( P.L. 113-295 ) extended the exclusion through the end of 2014. The exclusion was extended again through the end of 2016 by Division Q of P.L. 114-113 —the Protecting Americans from Tax Hikes Act (or "PATH" Act). Most recently, the Bipartisan Budget Act of 2018 ( P.L. 115-123 ) retroactively extended the exclusion through the end of 2017. The extension also allowed for debt discharged after 2017 to be excluded from income if the taxpayer had entered into a binding written agreement before January 1, 2018. In order to evaluate the policy of including discharged debt as income, it is helpful to understand why it exists. According to economic theory, one way of defining income is as the change (over the period in question) in a person's net worth—that is, the change in the value of the person's assets minus the change in their liabilities. By this definition, a forgiven loan is income: a canceled debt reduces a taxpayer's liabilities, and thus increases net worth. In the past, tax law has generally adhered to this concept by providing that if the obligation to repay the lender is forgiven, the amount of loan proceeds that is forgiven is reportable income subject to tax. This portion of the report provides analysis of the issues associated with the tax treatment of canceled mortgage debt income. In some instances, lenders may restructure or rearrange debt, cancel some debt, and allow the homeowner to retain ownership of the home. Then, all other things being equal, the borrower's net worth has increased, as liabilities have declined and assets have remained unchanged. Alternatively, homeowners may experience debt cancellation while losing their home, through foreclosure or as a result of voluntarily deeding the property back to the lender. The homeowner no longer has the asset and, to the extent the asset value exceeded liabilities, may be worse off as a result of declining net worth. Additionally, he or she may realize gains or losses, which may make the taxpayer better or worse off as well. If the taxpayer is not able to exclude the COD income, then the tax consequences of the COD income, assuming equal amounts of canceled debt, are the same regardless of whether the home is retained or lost. An illustration is shown in Table 1 . Assuming residential debt of $200,000, a loan restructuring could occur, after which the homeowner owes $180,000 and the lender has agreed to cancel the remaining amount. The discharged debt, $20,000, is income subject to tax if no exclusion applies (e.g., the taxpayer is not insolvent)—if a rate of 28% is assumed, the tax liability is $5,600. Alternatively, the home could have been sold as a result of foreclosure with a sales price of $180,000 along with a lender agreement to cancel the remaining debt. The $20,000 discharge is income and, assuming no exclusion applies and the same tax rate, generates the same tax liability. This is in addition to any taxes the taxpayer may owe on the gain from the sale of the house. On the other hand, if the taxpayer is able to exclude the COD income, as is temporarily allowed in certain circumstances, then the $20,000 discharge is not included in gross income and the taxpayer does not owe the $5,600 tax liability. As previously mentioned, current law stipulates that the excluded COD income be accounted for through reducing the basis in the residence. The impact of such basis adjustment could differ, depending on whether the home is retained or lost, if the taxpayer owes taxes when the house is disposed. A taxpayer who retains the house and sells a later year, while accounting for the excluded COD income through basis adjustment, defers taxes owed on the disposition until the year of sale. In contrast, the tax consequences would depend on the timing of the basis adjustment for a taxpayer that loses a home. If basis is reduced in the year following discharge, as under IRC Section 1017, then the excluded COD income could not be accounted for because the taxpayer had already disposed of the home. If basis were required to be reduced earlier (e.g., at the time of discharge), then the excluded COD income would be accounted for through basis adjustment and the taxpayer would be worse off than a similarly situated taxpayer who had retained the house and was able to defer taxes until the year of sale. An exclusion of certain types of income can result in individuals with identical incomes paying different amounts of tax. A standard of fairness frequently invoked by public finance analysts in evaluating tax policy is "horizontal equity"—a standard that is met when similarly situated tax units pay the same amount of tax. Like other exclusions, excluding debt forgiveness, a unique type of income, violates the standard of horizontal equity. An exclusion of income can also reduce the tax system's progressivity—in other words, likely favor upper-income individuals. This is likely to occur because an exclusion of a given amount is more valuable to persons with higher marginal tax rates. This effect is magnified if homeownership is more concentrated among upper-income individuals. At this point, an example may be useful for illustrating the effect income tax exclusions can have on the tax system's progressivity. Consider two individual homeowners, both of whom incur $20,000 in COD income. The tax benefit differs when the taxpayers are in different tax brackets. The value of the exclusion for a homeowner with lower income, who may be in the 15% income tax bracket, is $3,000, while the value to another homeowner, with higher income and thus in the higher 28% bracket, is $5,600. The higher-income taxpayer, with presumably greater ability to pay taxes, receives a greater tax benefit than the lower-income taxpayer. Congress has provided an exclusion for COD income several times in the past, though the economic and political circumstances for relief were not the same in each case. For example, in 1986 and again in 1993, relief was provided for commercial property owners and farmers, and in 2005, for victims of Hurricane Katrina. The residential housing crisis of 2007 and subsequent recession initiated the most recent legislative action. Lenders report canceled debt income to the IRS on Form 1099-C. A copy is also sent to the borrower, who reports the amount as income. Form 1099-C is used to report all types of canceled debt, not just residential. As shown in Table 2 , the number of 1099-C forms filed and the amount of canceled debt rose during and following the financial crisis. Canceled debt peaked in 2011 at $13.8 billion. The most recent data available show that the amount of canceled debt has fallen 50% from its peak, but still remains elevated relative to the start of the financial crisis, suggesting that some taxpayers are still experiencing financial distress. Unfortunately, the data do not allow for specific conclusions to be drawn about mortgage-related debt. The changes enacted by P.L. 110-142 and then extended by P.L. 110-343 , P.L. 112-240 , P.L. 113-295 , P.L. 114-113 , and P.L. 115-123 are temporary and are scheduled to expire at the end of 2017. Congress may choose to allow the latest extension to expire, thus subjecting canceled mortgage debt income to its traditional tax treatment after 2017. If this were to happen, canceled debt income would be subject to taxation unless the taxpayer meets a qualified exception (e.g., the taxpayer is insolvent). If the exclusion on canceled debt income were to expire, improving awareness about the existing exclusions for canceled debt, such as for insolvency or bankruptcy, may be an option to pursue. Congress may choose to extend the exclusion of canceled debt income again, either temporarily or permanently, possibly with some modifications. Which modifications, if any, are enacted will depend on the goal of policymakers. One consideration for Congress is whether the exclusion provision should be temporary or permanent. Some argue that housing market conditions have improved significantly since conditions bottomed, and therefore warrant a temporary solution for those still feeling the lingering effects of the crash. A temporary exclusion of canceled debt income would appear to be consistent with a policy of minimizing adverse consequences associated with loan renegotiations in the short term. It could also be argued that the temporary exclusion of residential COD income is preferable because owner-occupied housing is already heavily subsidized even without a COD exclusion. Three principal tax provisions for owner-occupied housing currently exist in the tax code: the deduction for mortgage interest, the exclusion of gain on the sales of homes, and the deduction of state and local real estate taxes. When combined these three provisions result in over $125 billion in reduced federal revenue annually. Some economists feel that this preferential tax treatment encourages households to overinvest in housing and less in business investments that might contribute more to increasing the nation's productivity and output. On the other hand, some analysts might argue that the provision should be permanent. A case could be made that a temporary provision is unfair because there is no difference between an individual experiencing canceled debt income in 2010, when foreclosure rates were relatively high compared to three or four years from now, when foreclosure rates may be lower. If the intent is to minimize hardship when taxpayers experience distress, then making the provision permanent would seem consistent with that objective. Several options are possible for determining in what situations canceled mortgage debt income may be excluded from taxation. The broadest modification would exclude all canceled residential debt from income. Currently, only debt associated with the primary (or principal) residence of a taxpayer may be excluded and not vacation homes or investment property. Some policy analysts have suggested disallowing second liens as qualified residential debt. Second liens are not directly ineligible for the exclusion, although currently, qualified debt is restricted to include debt incurred in acquiring, constructing, or substantially improving the taxpayer's principal residence. For some individuals, second liens may be home equity lines of credit; for others, second liens may be debt incurred as part of the purchase of the home. To the extent that home equity lines of credit are used to enhance the home and make capital improvements, it may be consistent with stated policy goals to include this debt as eligible for the exclusion. Yet, home equity lines of credit can also be used to finance consumption, such as vacations or paying off other debt. It may not be consistent with the stated policy goals, some might argue, to include this type of debt in the exclusion. Congress may also wish to consider changing the limit on the amount of canceled debt that can be excluded from income. P.L. 110-142 imposed a limit of $2 million ($1 million if married filing separate returns). Increasing the limit would likely increase revenue loss associated with the exclusion, while decreasing the limit would have the opposite effect. Decreasing the exclusion limit might also reduce the benefit to upper-income taxpayers. Policymakers could modify homeowner eligibility requirements based on ownership tenure or income. The exclusion for canceled debt income could be limited to homeowners who meet certain ownership and/or use tests similar to other housing-related tax provisions. For example, a homeowner must meet both an ownership and use test in order to claim the exclusion for gain on owner-occupied housing that is available under IRC Section 121. The ownership test requires the taxpayer to have owned the house for two of the last five years, while the use test requires the owner to have lived in the house for at least two years out of the last five years. Limiting the exclusion of capital gains in this manner was designed to minimize the possibility that investors, rather than owner-occupants, would exclude capital gains from taxation. If an ownership and/or use test were applied to an exclusion of COD income, the number of tax filers eligible to claim the exclusion might be reduced. This reduction in filers may result in lower revenue loss. This policy option would add complexity to the reporting and filing processes and thus the tax code. In addition, it could be argued that tenure is not relevant to the stated policy goals of mortgage debt cancellation. Some policymakers have suggested that foreclosure assistance be provided only to households with low and moderate incomes. As with other housing tax incentives, such as the mortgage revenue bond program and the first-time homebuyer tax credit for District of Columbia residents, income levels could be capped and the exclusion made unavailable to those households with income above the ceiling. It would seem that income and foreclosure would be highly correlated because lower- income taxpayers may be more financially constrained than higher-income taxpayers. Regardless of whether this is true, it could be argued that household income is not relevant to the stated policy goals for the legislation. This option could reduce the revenue loss associated with the provision, but would add complexity to the administration and tax filing process. As discussed above, current law requires that taxpayers who exclude COD income must "return" some tax benefit by reducing other tax attributes, such as basis in property. Several policy issues arise from this rule. The first is which tax attributes, if any, should be adjusted to account for excluded canceled mortgage debt income. One option is that there be no "attribute reduction" requirement. Alternatively, homeowners could be required to reduce specified tax attributes that include, but are not limited to, basis in the residence (e.g., taxpayers would be able to reduce basis in property other than the home subject to the discharged mortgage). A third option would be to require basis reduction in the taxpayer's residence. All taxpayers would benefit from the first option by not accounting for the excluded COD income. Taxpayer preference between the second option and the third option would depend on his or her circumstances (e.g., whether the taxpayer has basis in other property that would have to be reduced in the event of insufficient basis in the residence). The temporary exclusion of COD income enacted by P.L. 110-142 uses the third option—homeowners are required to reduce basis in the principal residence to account for the excluded COD income. Another issue is when tax attributes should be adjusted. If basis is adjusted, one option could be to make the proposal consistent with current law, under which basis adjustment occurs in the year following discharge of the debt. Alternatively, basis adjustment could occur earlier (e.g., at the time of discharge or exclusion). If basis adjustment occurred in the year after discharge, homeowners losing their home at the time of debt cancellation would have already disposed of the property. The requirement that a basis adjustment in the amount of cancelled debt suggests a desire by policymakers for homeowners to account for the benefit of the cancelled debt. Basis adjustment results in the taxation of cancelled debt income to the extent that gain from the disposition of the home is taxable; however, the timing of the basis adjustment may result in different tax consequences for taxpayers who lose their home. The exclusion of COD income may result in differential treatment of taxpayers depending on basis adjustment timing, eligibility for exclusion of gain from the disposition of the residence, and homeownership retention. Policymakers may wish to account for that differential treatment, although doing so may add complexity and administrative cost to the proposal relative to its current state. | A home foreclosure, mortgage default, or mortgage modification can have important tax consequences. As lenders and borrowers work to resolve indebtedness issues, some transactions are resulting in cancellation of debt. Mortgage debt cancellation can occur when lenders restructure loans, reducing principal balances, or sell properties, either in advance, or as a result, of foreclosure proceedings. Historically, if a lender forgives or cancels such debt, tax law has treated it as cancellation of debt (COD) income subject to tax. Exceptions have been available for taxpayers who are insolvent or in bankruptcy, among others—these taxpayers may exclude canceled mortgage debt income under existing law. The Mortgage Forgiveness Debt Relief Act of 2007 (P.L. 110-142) signed into law on December 20, 2007, temporarily excluded qualified COD income. Thus, the act allowed taxpayers who did not qualify for the existing exceptions to exclude COD income. The provision was effective for debt discharged before January 1, 2010. The Emergency Economic Stabilization Act of 2008 (P.L. 110-343) extended the exclusion of COD income to debt discharged before January 1, 2013. The American Taxpayer Relief Act of 2012 (P.L. 112-240) subsequently extended the exclusion through the end of 2013. The Tax Increase Prevention Act of 2014 (P.L. 113-295) extended the exclusion through the end of 2014. The exclusion was extended again through the end of 2016 by Division Q of P.L. 114-113—the Protecting Americans from Tax Hikes Act (or "PATH" Act). Most recently, the Bipartisan Budget Act of 2018 (P.L. 115-123) retroactively extended the exclusion through the end of 2017. The extension also allowed for debt discharged after 2017 to be excluded from income if the taxpayer had entered into a binding written agreement before January 1, 2018. A rationale for excluding canceled mortgage debt income has focused on minimizing hardship for households in distress. Policymakers have expressed concern that households experiencing hardship and that are in danger of losing their home, presumably as a result of financial distress, should not incur an additional hardship by being taxed on canceled debt income. Some analysts have also drawn a connection between minimizing hardship for individuals and consumer spending; reductions in consumer spending, if significant, can lead to recession. As efforts to minimize the rate of foreclosure are being made, lenders are, in some cases, renegotiating loans with borrowers to keep them in the home. For some policymakers, the exclusion of canceled mortgage debt income may be a necessary step to ensure that homeowner retention efforts are not thwarted by tax policy. Opponents of an exclusion for canceled mortgage debt income might argue that the provision would make debt forgiveness more attractive for homeowners, and could encourage homeowners to be less responsible about fulfilling debt obligations. This report will be updated in the event of significant legislative changes. |
One outgrowth of the nation's "war on drugs" has been a proliferation of governmental initiatives at the federal, state, and local levels to detect and deter illegal drug use in the workplace, the schools, and by recipients of public benefits. Since the late 1980s, the federal government has conducted "random" drug tests of executive branch employees in "sensitive" job positions and has implemented similar procedures for public and private employees in transportation and other safety or security-related industries. Aiding these efforts are state and local governmental testing programs for police officers, firefighters, prison guards, teachers, and other personnel with public safety responsibilities. Beyond employment, states and localities have required other individuals to submit to drug testing, such as students in public schools. Constitutional challenges to "suspicionless" or random governmental drug testing most often focus on issues of personal privacy and Fourth Amendment protections against "unreasonable" searches and seizures. Generally speaking, the government is required by the Fourth Amendment to obtain warrants based on probable cause in order to effectuate constitutional searches and seizures. An exception to ordinary warrant requirements has gradually evolved, however, for cases where a "special need" of the government, not related to criminal law enforcement, is found by the courts to outweigh any "diminished expectation" of privacy invaded by a search. In 1989, the U.S. Supreme Court upheld post-accident drug and alcohol testing of railway employees after major train accidents or incidents, in Skinner v. Railway Labor Executives Association , and of U.S. Customs employees seeking promotion to certain "sensitive" jobs involving firearms use, drug interdiction duties, or access to classified information, in National Treasury Employees Union v. Von Raab . These rulings make clear that "compelling" governmental interests in public safety or national security may, in appropriate circumstances, override constitutional objections to testing procedures by employees whose privacy expectations are diminished by the nature of their duties or the workplace scrutiny to which they are otherwise subject. In Veronia School District v. Acton , the Supreme Court first approved of random drug testing procedures—for high school student athletes rather than public employees—after it had earlier left standing lower court decisions allowing for certain suspicionless testing of police officers, transit employees, nuclear power plant employees, Justice Department lawyers who hold top-secret security clearances, and Army civilian drug counselors. Veronia was subsequently extended by the Court to permit random drug testing of students participating in non-athletic extracurricular activities. However, the Court distinguished earlier rulings when, in Chandler v. Miller , it voided a Georgia law requiring drug testing of candidates for state office because no "special need" substantial enough to warrant suspicionless searches was shown. Additionally, the Court generally has struck down drug testing policies that primarily serve criminal law enforcement purposes, such as in Ferguson v. City of Charleston . There are no federal constitutional limits on the ability of private employers or other non-public entities to conduct drug tests. The Fourth Amendment and other constitutional safeguards apply only to governmental action—federal, state, or local—or private conduct undertaken at the direction of the government. States, via constitutions or statutes, are free to provide individual protections beyond what is allowed pursuant to the Fourth Amendment. This report examines the current state of constitutional law on the subject of governmentally mandated drug testing in employment and of students in the public schools, which is followed by a brief review of federal drug-free workplace programs presently in effect. The constitutional focus of governmental drug testing litigation, whether in the employment, public education, or other administrative context, has been the Fourth Amendment, which protects the "right of the people" to be free from "unreasonable searches and seizures" by the government. This constitutional stricture applies to all governmental action, federal, state, and local, by its own force or through the Due Process Clause of the Fourteenth Amendment. Thus, while private actors are not directly affected, the actions of government as an employer are subject to Fourth Amendment scrutiny. Governmental conduct will generally be found to constitute a "search" for Fourth Amendment purposes where it infringes "an expectation of privacy that society is prepared to consider reasonable...." If a search or seizure has occurred, the court must then determine whether the government's action was reasonable under the circumstances. What a court determines to be "reasonable" depends on the nature of the search and its underlying governmental purpose. Probable cause supported by a warrant is the usual constitutional prerequisite for a criminal search. Even in circumstances where warrantless searches are permitted, they ordinarily "must be based on 'probable cause' to believe that a violation of the law has occurred." Nevertheless, the Supreme Court has determined that neither a warrant nor probable cause is invariably required, and has, under certain circumstances, approved of or let stand "suspicionless" searches, such as sobriety checkpoints, border searches, and metal detector screening. The Fourth Amendment protects against both civil and criminal investigatory processes, though the need for protection against government intrusion decreases if the investigation is entirely unrelated to criminal law enforcement. In such circumstances, a rule less restrictive on the government, based on "reasonable suspicion" of a civil or regulatory law violation, has become the constitutional norm. However, an exception from even this less demanding standard has been recognized for administrative searches by the government to enforce compliance with a regulatory scheme by persons engaged in a "highly regulated industry" on the theory that the very existence of the regulatory program diminishes reasonable expectations of privacy of those involved in the industry. In such situations, a Fourth Amendment standard based on a balancing test has been crafted by the Court. This "special needs" approach appears to confer optimal power on the government to search where "compelling" reason exists and correspondingly less protection to the individual's "diminished expectation of privacy." Even prior to Skinner and Von Raab there was virtual unanimity among the federal courts that governmental drug testing constituted a search that could constitutionally be justified on reasonable suspicion grounds. There is less consensus, however, as to the constitutional propriety of mandatory testing in other circumstances and, particularly, where random testing is imposed as a deterrent to illegal drug use by public employees or for some other governmental objective unrelated to criminal law enforcement. Although not random testing cases, the special needs analysis of Skinner and Von Raab was subsequently applied by the lower federal courts to justify suspicionless, random testing, provided that the requisite nexus between an employee's duties and public safety or other compelling governmental need was demonstrated. As noted, the U.S. Supreme Court has ruled on Fourth Amendment issues raised by workplace drug testing procedures on several occasions. Skinner v. Railway Labor Executives Association upheld post-accident drug and alcohol testing of railway employees involved in major train accidents and incidents, while a program of one-time testing of U.S. Customs employees who apply for promotion to "sensitive jobs" involving carriage of firearms and drug interdiction duties was approved in National Treasury Employees Union v. Von Raab . Although random testing was not involved, these decisions together establish that "compelling" governmental interests in public safety or national security may, in appropriate circumstances, override the constitutional objections of employees who have a "diminished expectation of privacy" due to the nature of duties they perform or workplace scrutiny to which they are otherwise subjected. Chandler v. Miller , on the other hand, voided a Georgia law requiring drug testing of candidates for state office because no "special need" substantial enough to warrant suspicionless searches was shown. Random testing procedures applied to student athletes and participants in extracurricular public school activities have also been approved by the Court. Each of these cases is discussed in-depth below. In Skinner , a panel of the Ninth Circuit had voided on Fourth Amendment grounds Federal Railroad Administration (FRA) regulations requiring breath, blood, and urine tests of railroad workers who are involved in train accidents. The Supreme Court ruled that the entire testing regulation, even portions applicable to certain employee rule infractions that were merely permissive rather than mandatory upon the railroads, carried sufficient government "encouragement, endorsement, and participation ... to implicate the Fourth Amendment." On the merits, the majority held that because "the collection and testing of urine intrudes upon expectations of privacy that society has long recognized as reasonable," FRA testing for drugs and alcohol was a "search" that had to satisfy constitutional standards of reasonableness. The "special needs" of railroad safety, however, made traditional Fourth Amendment requirements of a warrant and probable cause "impracticable" in this context. Nor was "individualized suspicion" deemed by the majority to be a "constitutional floor" where the intrusion on privacy interests are "minimal" and an "important governmental interest" is at stake. According to the Court, covered rail employees had "expectations of privacy" as to their own physical condition that were "diminished by reasons of their participation in an industry that is regulated pervasively to ensure safety...." In these circumstances, the majority held, it was "reasonable" to conduct the tests, even in the absence of a warrant or reasonable suspicion that any employee may be impaired. The Court also rejected another line of attack against the challenged tests which proceeds from the generally accepted scientific and judicial view that standard test protocols are capable indicators only of prior drug use but are not a measure of current job impairment or drug influence. Because of this fact, a number of lower federal courts had voided certain drug tests for not being reasonably related to legitimate governmental interests in assuring employee fitness or competence. In Skinner , however, the majority found the information provided by the tests to be a valid investigative tool which "may allow the FRA to reach an informed judgment as to how a particular accident occurred." In addition, the government "may take all necessary and reasonable regulatory steps to prevent and deter" forbidden drug use by the covered employees. In the Von Raab case, handed down on the same day as Skinner , the Supreme Court upheld drug testing of U.S. Customs Service personnel who sought transfer to certain "sensitive" positions, namely those involving drug interdiction, carrying firearms, or access to classified information, without a requirement of reasonable individualized suspicion. The testing procedure was administered once the employee sought transfer to the sensitive position upon five days notice by the Customs Service. Thus, the drug test in Von Raab was conditioned on the employee's own action in seeking a transfer and no adverse consequence flowed from a later withdrawn transfer application. According to the Court: the Government's compelling interests in preventing the promotion of drug users to positions where they might endanger the integrity of our Nation's borders or the life of the citizenry outweigh the privacy interests of those who seek promotions to those positions, who enjoy a diminished expectation of privacy by virtue of the special physical and ethical demands of those positions. Neither the absence of "any perceived drug problem among Customs employees," nor the possibility that "drug users can avoid detection with ease by temporary abstinence," would defeat the program because "the possible harm against which the Government seeks to guard is substantial [and] the need to prevent its occurrence furnishes an ample justification for reasonable searches calculated to advance the Government's goal." The Court's rulings in Skinner and Von Raab established several constitutional standards potentially relevant to the random testing issue. First, reasonable suspicion was not a constitutional threshold for all governmental drug testing and, therefore, may not preclude carefully crafted random testing in the public sector. Equally important, the balancing test in those cases, based on the "special needs" of the government for assuring transportation safety and the integrity of the federal drug interdiction effort, may as readily be transposed to other regulatory environments where public employees—or, perhaps, applicants for other governmental benefits—may enjoy a "diminished expectation of privacy." Third, as noted above, the Court rejected earlier decisions that had faulted drug testing methodologies due to their inability to detect present drug impairment as opposed to simple past drug use. Beyond detection , it appears the government may have a legitimate interest in deterring employee drug use and that drug test evidence may be relevant to "compelling" governmental concerns. Conversely, the Court, in Chandler v. Miller , disapproved a 1990 Georgia statute requiring candidates for Governor, Lieutenant Governor, Attorney General, the state judiciary and legislature, and certain other elective offices, to file a certification that they have tested negatively for illegal drug use. The majority opinion noted several factors distinguishing the Georgia law from drug testing requirements upheld in earlier cases. First, there was no "fear or suspicion" of generalized illicit drug usage by state elected officials in the law's background that might pose a "concrete danger demanding departure from the Fourth Amendment's main rule." The Court noted that while not an invariable constitutional prerequisite, evidence of historical drug abuse by the group targeted for testing might "shore up an assertion of special need for a suspiciounless general search program." Secondly, the law did not serve as a "credible means" to detect or deter drug abuse by public officials. Since the timing of the test was largely controlled by the candidate rather than the state, legal compliance could be achieved by mere temporary abstinence. A final "telling difference" between the Georgia case and earlier rulings stemmed from the "relentless scrutiny" to which candidates for public office are subjected, as compared to persons working in less exposed work environments. Any drug abuse by public officials is far more likely to be detected in the ordinary course of events, making suspicionless testing less necessary than in the case of safety-sensitive positions beyond the public view. Federal courts in the wake of Skinner and Von Raab have generally approved random or other periodic testing of public employees, or workers in heavily regulated industries, provided that the specific jobs covered are directly related to "compelling" public safety, national security, or drug interdiction functions of the government, and testing is undertaken pursuant to a plan that avoids arbitrary application. A generalized desire for workplace "integrity," absent a heightened governmental interest, has usually been found insufficient to warrant random or other routine testing of governmental employees in the absence of individualized suspicion. Most courts have resisted suspicionless testing procedures as applied to administrative or office personnel who do not pose a threat to public safety or national security. Among programs that have been voided for "overbreadth" are a plan by the Justice Department to test all criminal prosecutors and employees with access to grand jury proceedings; post-accident testing of Office of Personnel Management employees who drive motor vehicles; U.S. Coast Guard drug testing regulations requiring random screening of all private employees aboard commercial vessels; and post-accident testing of any teacher, aide, or clerical workers injured on the job. What emerges is a pattern of case-by-case judicial decisionmaking as to the "reasonableness" of testing in the circumstances presented. Consequently, broad-based testing programs that fail to account for distinctions among employees in terms of the public safety or national security sensitivity of their duties are less likely to pass constitutional scrutiny. Courts have upheld random testing programs that were designed to protect sensitive information. In the Justice Department case, Harmon v. Thornburgh , the U.S. Court of Appeals for the District of Columbia ruled that protection of sensitive information—one of the governmental interests cited in Von Raab —justified the Department's need to test employees with top secret clearances, but not all federal employees involved in grand jury proceedings. The court elaborated: Whatever "truly sensitive" information includes, we agree that it encompasses top secret national security information....We do not believe, however, that the government's interest in preserving all its secrets can justify the testing of all federal prosecutors or of all employees with access to grand jury proceedings. We recognize that every employee within the three categories will have access to information which he is duty-bound not to divulge. But whatever the precise contours of "truly sensitive" information intended by the Von Raab Court, we believe that the term cannot include all information which is confidential or closed to public view. A very wide range of government employees—including clerks, typists, or messengers—will potentially have access to information of this sort. The U.S. Court of Appeals for the D.C. Circuit also upheld a random drug testing policy for certain White House employees. In a unanimous decision, the appellate panel found that the employees' rights to be free from random drug testing was outweighed not only by the government's need to protect the President, but also by the government's need to assure the public that it is protecting the President. "The public interest the government is seeking to protect is undoubtedly of the utmost importance. Few events debilitate the nation more than the assassination of the President." The court noted the link between the risk posed by a drug-using OEOB permanent passholder and the potential harm to the President or the Vice President was "direct" and "immediate." It likened the situation to that of an employee with access to top-secret information, where "a single incident could be disastrous." To highlight this direct connection, the opinion observes: It is possible that a drug-using OEOB passholder could be blackmailed into using his access to the building to assist in an attack on the President. Given the importance of protecting the President's safety, this is all that is required to make this particular search reasonable. It therefore does not violate the Fourth Amendment. The government's "compelling" interest in public safety may also justify suspicionless random testing in certain circumstances. For example, after Von Raab , the Customs Service drug testing program was expanded from frontline drug interdiction personnel to cover random testing of employees in traditional office environments who had access to databases targeting contraband shipments and inspections. In National Treasury Employees Union v. U.S. Customs Service , the D.C. Circuit noted that, because of its link to drug smuggling, the government had an "obvious and compelling" interest in preserving the confidentiality of this database that outweighed the privacy expectations of employees, particularly in light of the intense background checks they underwent prior to employment. Similarly, random testing has been permitted of workers in the transportation, hospital, nuclear power and civilian chemical weapons industries, and of all federal correctional officers of the Bureau of Prisons due to the gravity of risk to be averted by the governmental program. However, several lower courts have invalidated certain drug testing programs because they "cast too wide a net" in defining categories of persons who must be subjected to random testing procedures. National Federation of Federal Employees (NFFE) v. Cheney considered a program that tested civilian employees in the Department of the Army. The random testing of 2,800 civilian employees who flew and serviced Army aircraft and 3,700 civilian law enforcement personnel at Army facilities was upheld, as well as testing of "direct service" employees, mainly drug counselors, in the Army's alcohol and drug abuse prevention program. But, the court rejected a program of random testing for those employees that "work in a more traditional office environment" simply because they were in the "chain of custody" of urine samples. In American Federation of Federal Employees v. Sullivan, the court had to determine whether it was constitutional to randomly drug test motor vehicle operators who did not carry passengers. As dictated by Skinner and Von Raab , the court balanced the government's interest in conducting the tests against the individual's privacy expectations. The court observed: The government's interest here is the safety risk that an impaired government driver might pose to other drivers on the road. While not insubstantial, this is obviously no different than the interest the public and the government have in keeping potentially impaired driver off the road. If there is a sufficient "special governmental need" to permit warrantless searches..., then the federal government could proceed to test any and all drivers on the road. Because the federal agency employees did not carry passengers and did not have access to classified information, the court found that neither the passenger safety rationale nor national security concerns were applicable. For these reasons, the court held that it would be unconstitutional to subject these motor vehicle operators to random drug tests. State or local mandatory testing programs for police or correctional personnel, firefighters, and other "public safety" personnel have usually met with at least qualified judicial approval. In Guiney v. Roach , the First Circuit upheld random testing of Boston police officers who were involved in drug interdiction or who carried firearms, but remanded the case for further consideration regarding random testing of other officers. Similarly, the Sixth Circuit has upheld mandatory testing of firefighters and police officers, concluding that there is no requirement of individualized suspicion when testing employees whose duties are "fraught with ... risks of injury to others...." The Seventh Circuit in Taylor v. O ' Grady held that the Cook County Department of Corrections could constitutionally require employees who "(1) [] had regular access to inmate population, (2) [] reasonable opportunity to smuggle drugs into the inmate population, [or] (3) [] access to firearms" to submit to annual drug testing without advanced warning as to the specific timing of the testing. The program was unconstitutional as applied to other personnel "[s]ince those officers with only administrative or clerical duties or otherwise lacking contact with the jail population do not threaten claimed dangers if impaired while on duty, and since the record does not show they are able to smuggle drugs to the prisoners, the Department gains nothing by testing them." Random or other periodic testing of police and other public safety officers also has been approved by many state courts to confront the issue. The Fifth Circuit's decision, Aubrey v. School Board of Lafayette Parish , emphasizes the need to not only avoid overly broad testing coverage, but also to include certain procedural safeguards in implementing such a policy in accordance with the Fourth Amendment. The question before the court was whether an elementary school custodian was a "safety-sensitive" position that could be randomly tested for illegal drug usage. The district court had approved the testing, arguing the custodian was in a safety-sensitive position because he "handles poisonous solvents and lawn mowers, things that could be dangerous to small children if not handled in a safety-conscious manner." In reversing, the appellate court noted that intrusions on personal privacy that may be unreasonable in some contexts "may be rendered entirely reasonable by the operational realities of the workplace." Valid and compelling public interests must be weighed against the interference with individual liberty. This meant that mandatory testing had to be limited to sensitive positions and hedged with procedural safeguards, such as giving notice to individuals that they may be randomly tested. In this case, however: [n]o evidence was presented to show which positions are considered safety sensitive and which are not, or whether the policy at the elementary school would differ from that at a high school. Nor was any evidence presented to show whether employees in safety-sensitive positions had notice that they would be subject to random drug testing, or what kind of notice they received, or even if [the custodian] had received notice. Based on the rationale that applicants for employment do not have the same expectations of privacy as current employees, the courts have often permitted preemployment testing as a condition of public employment. The Von Raab case itself presented preemployment issues in that the testing there was required as part of the application process for drug enforcement duty. Federal appellate decisions since have generally approved preemployment and probationary testing rules for public employees or workers in federally regulated industries, especially for safety-sensitive positions. However, lower courts often have rejected more broadly-based applicant screening programs. For example, a federal district court in Georgia Association of Educators v. Harris enjoined preemployment testing of all applicants for state jobs in the State of Georgia because it defied the special needs approach of Skinner and Von Raab , stating: The court finds it difficult to even begin applying that balancing test, however, because defendants have failed to specifically identify any governmental interest that is sufficiently compelling to justify testing all job applicants. Moreover, defendants remain oblivious to Von Raab ' s (and indeed, the fourth amendment's [ sic ]) requirement that it connect its interest in testing to the particular job duties of the applicants it wishes to test. Instead, defendants attempt to justify their comprehensive drug testing program based on a generalized governmental interest in maintaining a drug-free workplace. Defendants' position is untenable because neither Von Raab nor its progeny recognize such a generalized interest as sufficiently compelling to outweigh an individual's fourth amendment rights. Courts have interpreted the Fourth Amendment as providing more leeway to test students for drugs in the school setting, as compared to testing adults in the public employment context. In Veronia School District 47J v. Acton , the High Court first considered the constitutionality of student drug testing in the public schools. At issue there was a school district program for random drug testing of high school student athletes, which had been implemented in response to a perceived increase in student drug activity. All student athletes and their parents had to sign forms consenting to testing, which occurred at the season's beginning and randomly thereafter on a weekly basis for the season's duration. Students who tested positive were given the option of either participating in a drug assistance program or being suspended from athletics for the current and following season. A 6 to 3 majority of the Court upheld the program against Fourth Amendment challenge. Central to the majority's rationale was the "custodial and tutelary" relationship that is created when children are "committed to the temporary custody of the State as school master," in effect "permitting a degree of supervision and control that could not be exercised over free adults." Students had diminished expectations of privacy by virtue of routinely required medical examinations, a factor compounded in the case of student athletes by insurance requirements, minimum academic standards, and the "communal undress" and general lack of privacy in the sports' locker rooms. Because "school sports are not for the bashful," student athletes were found to have a lower expectation of privacy than other students. Balanced against this diminished privacy interest was the nature of the intrusion and importance of the governmental interest at stake. First, the school district had mitigated actual intrusion by implementing urine collection procedures that simulated conditions "nearly identical to those typically encountered in public restrooms," by analyzing the urine sample only for presence of illegal drugs—not for other medical information, such as the prevalence of disease or pregnancy, and by insuring that positive test results were not provided to law enforcement officials. School officials unquestionably had an interest in deterring student drug use as part of their "special responsibility of care and direction" toward students. That interest was magnified in Veronia by judicial findings that, prior to implementation of the program, "a large segment of the student body, particularly those involved in interscholastic athletics, was in a state of rebellion ... fueled by drug and alcohol abuse...." Consequently, the Court approved the school district's drug testing policy reasoning that the Fourth Amendment only requires that government officials adopt reasonable policies, not the least intrusive ones available. The majority in Veronia , however, cautioned "against the assumption that suspicionless drug-testing will readily pass muster in other constitutional contexts." A division of opinion soon emerged among the lower courts as to how broadly Veronia could be applied to permit "suspicionless" drug testing that included student groups beyond athletes and in cases where there was no evidence of a systemic drug problem among the student body. For example, the Seventh and Eighth Circuits in nearly identical cases, Todd v. Rush County Schools and Miller v. Wilkes , respectively upheld random drug testing policies that applied not only to student athletes, but also to students participating in any other extracurricular activity, without an identifiable drug problem among the affected student populations in either case. Parting company with the Todd line of decisions was Trinadad School District No. 1 v. Lopez , where the Colorado Supreme Court disapproved of a policy for drug testing all students in extracurricular activities where there was no convincing evidence of higher drug usage rates by students participating in extracurricular activities, or that the reasonable privacy expectations of such students had been so diminished by constraints of the sports culture, or otherwise, as those imposed on student athletes in Veronia . This conflict among the circuits was ultimately settled by the Supreme Court in a 2002 decision, Board of Education of Independent School District No. 92 of Pottawatomie County v. Earls . In 1998 the Tecumseh Public School District adopted a policy that required "suspicionless drug testing" of students wishing to participate "in any extracurricular activity." Such activities included Future Farmers of America, Future Homemakers of America, academic teams, band, chorus, cheerleading, and athletics. Any student who refused to submit to random testing for illegal drugs was barred from all such activities, but was not otherwise subject to penalty or academic sanction. Lindsay Earls challenged the district's policy "as a condition" to her membership in the high school's show choir, marching band, and academic team, but did not protest the policy as applied to student athletics. By a 5 to 4 vote, the U.S. Supreme Court held that the Tecumseh school district's random drug testing program was a "reasonable means" of preventing and deterring student drug use and did not violate the Fourth Amendment. In its role as "guardian and tutor," the majority reasoned, the state has responsibility for the discipline, health, and safety of students whose privacy interests are correspondingly limited and subject to "greater control than those for adults." Moreover, students who participate in extracurricular activities "have a limited expectation of privacy" as they participate in the activities and clubs on a voluntary basis, subject themselves to other intrusions of privacy, and meet official rules for participation. The fact that student athletes in the Veronia case were regularly subjected to physical exams and communal undress was not deemed "essential" to the outcome there. Instead, that decision "depended primarily upon the school's custodial responsibility and authority," which was equally applicable to athletic and nonathletic activities. The testing procedure itself, involving collection of urine samples, chain of custody, and confidentiality of results, was found to be "minimally intrusive" and "virtually identical" to that approved by the Court in Veronia . In particular, the opinion notes test results were kept in separate confidential files only available to school employees with a "need to know," were not disclosed to law enforcement authorities, and carried no disciplinary or academic consequences other than limiting extracurricular participation. "Given the minimally intrusive nature of the sample collection and the limited uses to which the test results are put, we conclude that the invasion of student's privacy is not significant." The majority concluded that neither "individualized suspicion" nor a "demonstrated problem of drug abuse" were necessary predicates for a student drug testing program, and there is no "threshold level" of drug use that need be satisfied. "Finally, we find that testing students who participate in extracurricular activities is a reasonably effective means of addressing the School District's legitimate concerns in preventing, deterring, and detecting drug use." While the focus of judicial scrutiny has largely remained fixed on workplace and public school drug testing, questions have also arisen in regard to testing in other administrative venues. A growing body of case law has developed from the efforts of lower federal and state courts to apply the "special needs" approach to an expanding array of governmental programs and regulatory activities. The Third Circuit, for example, anticipated Skinner and Von Raab when it upheld mandatory testing of horse racing jockeys, officials, and trainers in Shoemaker v. Handel , a decision which has since been extended to other participants in that "heavily regulated" industry. In another regulatory context, the Illinois Supreme Court in Fink v. Ryan upheld that state's "implied consent" statute under the "special needs" exception to the Fourth Amendment and its state constitutional counterpart. The Illinois law authorizes chemical testing for drugs or alcohol of drivers who are arrested and issued a traffic citation for any accident causing serious injury or death. No individualized suspicion was required because the state's special need to suspend and deter chemically impaired drivers went beyond normal law enforcement. Moreover, drivers' expectation of privacy was "diminished" by the highly regulated character of automobile usage upon state highways and because state law imposes a separate duty on drivers in such circumstances to remain at the scene to assist injured parties and law enforcement officials. On the other hand, the Court has struck down drug testing policies that primarily serve criminal law enforcement purposes. In Ferguson v. City of Charleston , the Supreme Court invalidated a drug testing policy of pregnant women, specifically rejecting the state's invocation of the special needs doctrine. In response to the problem of cocaine abuse by expectant mothers and its deleterious impact on fetuses, the City of Charleston joined with a state university hospital to develop a plan to test certain pregnant women for illegal drug abuse. Women who tested positively for drugs during pregnancy were provided substance abuse treatment. If these women tested positive a second time or missed a treatment session, they were arrested. Women who tested positive after labor were reported to police and arrested immediately. Women arrested under the policy complained that the warrantless and unconsented drug tests were conducted for criminal investigatory purposes and were therefore unconstitutional. The Court deemed the balancing test of Von Raab , Veronia , and Chandler inappropriate to the case at hand because the "central and indispensable feature of the policy from its inception was the use of law enforcement to coerce patients into substance abuse treatment." A special need may justify suspicionless drug testing under a program devised for a "proper governmental purpose other than law enforcement." But the exception to Fourth Amendment warrant requirements did not apply "given the pervasive involvement of law enforcement with the development and application of the [drug testing] policy." The Federal Government by statute or executive order has adopted drug-free workplace requirements applicable to federal executive branch agencies, employment in various federally regulated industries, federal contractors and recipients of federal financial assistance. E.O. 12564, issued on September 15, 1986, requires programs to be established by each department or agency within the executive branch to test for illegal drug use by federal employees in sensitive positions and for voluntary employee drug testing. A "sensitive" position is one that an agency head declares "Special Sensitive," "Critical Sensitive," or "Noncritical-Sensitive" pursuant to the Federal Personnel Manual or sensitive under E.O. 10450. It also includes an employee who has been ... or may be granted access to classified information, individuals serving under Presidential appointments, law enforcement officers..., and [o]ther positions that the agency head determines involve law enforcement, national security, the protection of life and property, public health or safety, or other functions requiring a high degree of trust or confidence. In addition, an executive branch employee may be tested based on "reasonable suspicion" of illegal drug use, during an authorized investigation of an accident or unsafe practice, or to follow-up counseling or rehabilitation for illegal drug use through an employee assistance program. Applicants for employment may also be tested. Technical standards to govern specimen collection, scientific analysis, laboratory certification, medical review of positive test results, and access to records are set forth in guidelines issued by the Department of Health and Human Services. Private employers obtaining federal contracts or grants must also take specified steps to maintain a drug-free workplace. The Drug-Free Workplace Act of 1988 covers all entities receiving contract awards of $100,000 or more, all contracts awarded to individuals, and all recipients of federal grants, regardless of grant amount. Specifically, contractors and grantees must certify to the contracting or grantmaking agency that they "will provide a drug-free workplace by publishing a statement prohibiting unlawful manufacture, distribution, dispensation, possession, or use of a controlled substance" in the workplace, "and specifying the actions that will be taken against [offending] employees." The statute also mandates that employees be told about the potential perils of workplace drug abuse and of "available drug counseling, rehabilitation, and employee assistance programs." As a condition of employment, workers are required to report any criminal conviction for drug-related activity in the workplace, and the employer, in turn, must notify the contracting or granting agency and impose appropriate sanctions upon convicted employees. Federal contracts or grants could be terminated or suspended in cases where the employer fails to make a "good faith effort" to maintain a drug-free workplace. The act, however, does not mandate testing employees for illegal drug use. The Drug-Free Workplace Act of 1998 is the small business counterpart to the 1988 Act described above. The 1998 Act establishes financial incentives to encourage development of drug-free workplace programs by small business employers. Under this law, certain eligible businesses may receive financial assistance from the Small Business Administration (SBA) to implement a drug-free workplace program that meets the standards outlined in the act. Such a program may include employee drug testing. Some statutes and regulations have been enacted that impose drug testing requirements beyond those mandated by the 1988 Drug-Free Workplace Act. For example, the Department of Defense (DOD) implemented special drug testing requirements for certain DOD contractors via the Federal Acquisition Regulations Supplement. All contracts involving "access to classified information," and any other domestic contract the agency's "contracting officer determines ... necessary for reasons of national security or for the purpose of protecting health or safety" must include a provision obligating the contractor to establish a drug testing program for employees in "sensitive positions" as part of the contractor's duty to maintain a drug-free workplace. The Civil Space Employee Testing Act of 1991 requires the establishment of a program to test for use of alcohol and controlled substances by employees and contractors of the National Aeronautics and Space Administration (NASA) whose duties include "responsibility for safety-sensitive, security, or national security functions." These testing programs must provide for preemployment, reasonable suspicion, random, and post-accident testing, and they also may include periodic recurring testing if warranted. Furthermore, the testing procedures must incorporate the Department of Health and Human Services (DHHS) mandatory testing and record keeping procedures applicable to federal workplace drug testing programs under E.O. 12564. Mandatory drug and alcohol testing regulations also apply to transportation workers whose jobs have safety and security implications. The Omnibus Transportation Employee Testing Act of 1991 requires substance abuse testing, both for alcohol and unlawful drugs, by numerous employers under the jurisdiction of the Department of Transportation (DOT), which include but are not limited to the commercial trucking, railway, aviation, and mass transit industries. Each DOT operating agency maintains its own list of positions considered safety-sensitive. Five types of drug testing are authorized by the act: preemployment, reasonable suspicion, random, post-accident, and periodic recurring. Employees who test positive for drug or alcohol use may be subject to disqualification or dismissal from employment. As part of their substance abuse testing program, employers must also establish drug rehabilitation programs for their employees. Constitutional law on the subject of governmentally mandated drug testing is primarily an outgrowth of the Fourth Amendment prohibition on unreasonable searches and seizures. Judicial exceptions to traditional requirements of a warrant and individualized suspicion for "administrative" searches have been extended to random drug testing of public employees and school students where the government is able to demonstrate a "special need" beyond the demands of ordinary law enforcement. In the public employment setting, however, special needs analysis has largely been confined to relatively narrow circumstances directly implicating "compelling" public safety, law enforcement, or national security interests of the government. More generalized governmental concerns for the "integrity" or efficient operation of the public workplace have usually not been deemed sufficient to justify interference with the "reasonable expectation of privacy" of workers or other individuals to be tested. Additionally, warrantless, suspicionless drug testing programs that serve primarily a criminal law enforcement purpose are likely to be unconstitutional. The constitutional parameters of "special needs" analysis is outlined in a series of Supreme Court rulings. In Skinner v. Railway Labor Executives Association , the U.S. Supreme Court upheld post-accident drug and alcohol testing of railway employees after major train accidents or incidents, and it approved the testing of U.S. Customs employees seeking promotion to certain "sensitive" jobs involving firearms use, drug interdiction duties, or access to classified information in National Treasury Employees Union v. Von Raab . These decisions established that "compelling" governmental interests in public safety or national security may, in appropriate circumstances, override constitutional objections to testing procedures by employees whose privacy expectations are diminished by the nature of their duties or workplace scrutiny to which they are otherwise subject. In Veronia School District v. Acton, the Supreme Court first approved of random drug testing procedures for high school student athletes, a holding that was subsequently extended, in Board of Education of Independent School District No. 92 of Pottawatomie County v. Earls , to permit random drug testing of students participating in non-athletic extracurricular activities. However, the Court placed limitations on the "special needs" doctrine when, in Chandler v. Miller , it voided a Georgia law requiring drug testing of candidates for state office for lack of a governmental need substantial enough to warrant suspicionless searches. Additionally, the Court generally has struck down drug testing policies that primarily serve criminal law enforcement purposes, such as in Ferguson v. City of Charleston . | Constitutional law on the subject of governmentally mandated drug testing is primarily an outgrowth of the Fourth Amendment prohibition on unreasonable searches and seizures. Judicial exceptions to traditional requirements of a warrant and individualized suspicion for "administrative" searches have been extended to random drug testing of public employees and school students where the government is able to demonstrate a "special need" beyond the demands of ordinary law enforcement. In the public employment setting, however, special needs analysis has largely been confined to relatively narrow circumstances directly implicating "compelling" public safety, law enforcement, or national security interests of the government. More generalized governmental concerns for the "integrity" or efficient operation of the public workplace have usually not been deemed sufficient to justify interference with the "reasonable expectation of privacy" of workers or other individuals to be tested. Additionally, warrantless, suspicionless drug testing programs that serve primarily a criminal law enforcement purpose are likely to be unconstitutional. The constitutional parameters of "special needs" analysis is outlined in a series of Supreme Court rulings. In Skinner v. Railway Labor Executives Association, the U.S. Supreme Court upheld post-accident drug and alcohol testing of railway employees after major train accidents or incidents, and it approved the testing of U.S. Customs employees seeking promotion to certain "sensitive" jobs involving firearms use, drug interdiction duties, or access to classified information in National Treasury Employees Union v. Von Raab. These decisions established that "compelling" governmental interests in public safety or national security may, in appropriate circumstances, override constitutional objections to testing procedures by employees whose privacy expectations are diminished by the nature of their duties or workplace scrutiny to which they are otherwise subject. In Veronia School District v. Acton, the Supreme Court first approved of random drug testing procedures for high school student athletes, a holding that was subsequently extended, in Board of Education of Independent School District No. 92 of Pottawatomie County v. Earls, to permit random drug testing of students participating in non-athletic extracurricular activities. However, the Court placed limitations on the "special needs" doctrine when, in Chandler v. Miller, it voided a Georgia law requiring drug testing of candidates for state office for lack of a governmental need substantial enough to warrant suspicionless searches. Additionally, the Court generally has struck down drug testing policies that primarily serve criminal law enforcement purposes, such as in Ferguson v. City of Charleston. |
Emergency departments (EDs) play an important public health role during emergencies and on a regular basis by providing access to emergency care to all patients regardless of their ability to pay (see Text Box 1 ). Although the original intent of EDs was to provide emergency care, this role has expanded, as patients often seek care in an ED when services are unavailable or inaccessible in the community. Federal law guarantees access to emergency services under the Emergency Medical Treatment and Active Labor Act (EMTALA), which requires that hospitals screen all patients who enter their ED and stabilize those with emergent conditions regardless of the patients' insurance status. Hospitals that fail to do so can be excluded from the Medicare program. As a consequence of EMTALA, hospitals with EDs must provide emergency care, which may be un- or under compensated (i.e., the hospital may not recover any or all of the cost of treatment). Specifically, more than 40% of all ED visits are for individuals who are uninsured or enrolled in Medicaid, two types of patients where hospitals provide care that is un- or under compensated. EDs provide a disproportionate amount of health care to the U.S. population. Specifically, the 4% of physicians who staff EDs are the treating physician in 28% of all acute care visits, and these visits disproportionately involve patients with more dangerous or worrisome symptoms, such as chest pain, respiratory complaints, and abdominal pain. From 1992 to 2012, the number of ED visits grew faster than the U.S. population. This occurred for a number of reasons, including the immediate access to diagnostic resources that EDs provide and community-level declines in access to primary or behavioral health care, which have occurred at the same time as population-level increases in rates of chronic conditions (see Table 1 ). EDs also provide a significant amount of care to safety net populations. EDs handle two-thirds of acute care visits for the uninsured and one half of the acute care visits of people enrolled in Medicaid or the State Children's Health Insurance Program (CHIP). In some cases, EDs are the appropriate site for care, but, in other cases, non-emergent patients seek care in an ED because they lack an alternative source of care. This occurs for a number of reasons, including the patients' insurance status, their relationship to a regular provider, and their ability to secure a timely appointment with that provider. The use of EDs to provide nonemergency care can be costly to payers because services provided in an ED are generally more expensive than those provided in community-based settings. ED services are more expensive, because, for example, EDs have higher fixed costs (in terms of space and staffing), its physicians may order additional tests or laboratory work, and because hospital charges are generally higher than those charged by physician's offices. As a result of increased ED use and declining financial support for providing this volume of care, the Institute of Medicine, in a series of three reports published in 2006, declared that ED care was "at a breaking point." Subsequent work by the Government Accountability Office (GAO) confirmed that these challenges persisted and found that EDs were crowded, that they diverted ambulances because they were unable to accept new patients, and that patients often experienced long waits for care. Although recent changes to health care delivery and financing (e.g., the growth of retail clinics and increases in the number of people who are insured because of the Patient Protection and Affordable Care Act) may improve ED operations for some hospitals, EDs—particularly those in urban area—remain crowded. It is also possible that some policy changes may have unintended consequences increasing ED use or further straining ED finances. The federal government is interested in the availability of ED services and their appropriate use for several reasons, including its role as a payer of health care services, its role in supporting emergency preparedness, and its role in supporting the health care safety net. The federal government is the largest health care payer, through the Medicare and Medicaid programs, and as such, the availability, use, and costs of ED services may be of interest to policy makers. Also, the federal government has made investments in emergency preparedness, programs and efforts that support the health care safety net, and efforts that support health care access in general. Given these investments, Congress may be interested in EDs because a well-functioning ED system is necessary to provide surge capacity in an emergency. The function of the ED system, in turn, often reflects its surrounding community's access to health care services; therefore, understanding the use of EDs, evaluating whether such use is appropriate, and examining strategies employed to reduce inappropriate use may all be of policy interest. This report describes EDs, the role they play in the health care delivery system, and current federal involvement in supporting EDs. It then discusses the causes and consequences of three commonly identified and interrelated challenges that EDs face: (1) crowding, (2) providing repeat care to a subset of patients who are frequent users, and (3) providing care to a large population who have behavioral health conditions when an ED lacks the appropriate resources to provide such treatment. The report concludes with policy options that Congress may consider to potentially improve ED functioning and reduce payer costs. EDs play a role in the U.S. health care system that has expanded beyond their original purpose of providing emergency care. EDs are increasingly relied upon to fill gaps in available care by providing after-hours care, by providing care to the safety net population, and by providing behavioral health care when such care is not otherwise available. EDs are also increasingly providing types of care that have traditionally been provided by primary care providers (PCPs), such as conducting diagnostic testing (e.g., blood testing) and coordinating chronic care (e.g., care to manage a chronic disease such as diabetes). The role of an ED within a hospital has also changed, as EDs, instead of PCPs, increasingly drive hospital admissions, an important source of hospital revenue. This section provides an overview of the expanded role of EDs. All EDs provide similar types of care, but they may see different patient populations depending on their location (e.g., rural areas versus urban areas), and the services offered, as some EDs may offer specialized services such as trauma or burn care. EDs generally provide three types of care: (1) emergency care, (2) unscheduled urgent care, and (3) safety net care (see Text Box 2 ). Emergency care is the primary and original mission of EDs. Unscheduled urgent care may be used to treat an acute problem or the acute exacerbation of a chronic health problem. EDs may provide safety net care because patients have financial or other barriers that prevent them from accessing care from other components of the health care system. Primary and behavioral health care are often provided in an ED as a result of either unscheduled urgent care or as part of an ED's safety net function. In both these cases, it is not optimal to provide these services in an ED. ED use reflects the health needs of the surrounding community and the gaps in care available because EDs provide care to those with few alternate options. Given this, some ED visits may be considered "resource sensitive" and preventable if appropriate community-based resources are available. Community-based resources encompass all types of health care, including primary care, laboratory testing, medical imaging, care provided to treat behavioral health conditions (e.g., care provided to treat mental health and substance use), and all types of specialty care (e.g., orthopedics). Community-based care may be constrained because care is completely unavailable, or is unavailable at certain times, for people with certain types of insurance, or for people who lack insurance. This may occur because a number of areas have provider shortages. The federal government designates primary care health professional shortage areas and makes a number of programs available to alleviate these shortages. Still, there are approximately 6,100 areas designated as having too few primary care providers. ED use may also be driven by the hours that physician offices are open, as EDs are often a source of after-hours care. For example, one study found that 75% of children's ED visits in 2012 occurred at night or on a weekend—hours when physicians offices are traditionally closed—and that this was the most common reason children visited an ED for non-emergent conditions, regardless of insurance status. EDs may be filling gaps in certain communities; but EDs may also be actively seeking patients, particularly those with private insurance coverage who are being treated for uncomplicated medical conditions. As noted, ED care is more expensive for payors than is care provided in outpatient settings, in part, because hospitals receive higher reimbursements from payors to support the higher fix costs of an ED. Given these higher reimbursement rates, hospitals can generate revenue through the ED. In these instances EDs may be filling gaps, but these gaps could have been filled in ways that are less expensive to payers. ED use is also driven by the availability of community-based health service providers that accept safety net populations, such as the uninsured or Medicaid beneficiaries. For example, some physicians do not participate in Medicaid, and some Medicaid beneficiaries report barriers to accessing physician services. This may also be true for uninsured individuals with few options except self-pay for visits, which may not be financially feasible. Communities that have federal health centers—federally funded safety net facilities that are required to provide primary and some specialty and dental care to all individuals regardless of their ability to pay—have lower ED use. Although health centers may employ strategies to reduce ED use, they may be limited in their ability to do so because they are generally not open after hours and many may be operating at or above capacity. Still, facilities that target the safety net population can reduce ED use, which demonstrates that some ED use is resource-sensitive. EDs may fill gaps when needed behavioral health services are unavailable. Patients use EDs for behavioral health care because there may be few other options, because there are shortages of behavioral health providers. Specifically, there are approximately 4,000 areas designated as mental health professional shortage areas and more than half of U.S. counties do not have a practicing behavioral health provider. In addition to provider shortages, there are also shortages of inpatient treatment options for patients who require longer-term treatment. This occurs, in part, because a number of states have decreased funding for inpatient psychiatric care. Patients with mental health conditions may also be brought to an ED by law enforcement when the person is causing a disturbance that law enforcement or other emergency personnel determine requires medical intervention. Although such episodes may be acute, they may not necessarily be best addressed in an ED. Some EDs may lack the services or staff necessary to provide behavioral health care and even in cases when EDs do not lack capacity, providing care to this population is resource intensive. This is particularly the case for patients with both behavioral health conditions and acute or chronic health conditions. A study conducted by the Agency for Healthcare Research and Quality (AHRQ) and the Substance Abuse and Mental Health Services Administration (SAMHSA) found that individuals with mental health and/or substance use disorders that impaired their functioning were more likely to have multiple ED visits during the course of a year (to treat both physical and behavioral health conditions). This was particularly true for individuals who had co-occurring chronic conditions such as diabetes. In part because of the ED's role as a gap filler, conventional wisdom holds that some ED visits are inappropriate when patients use EDs for minor ailments or for convenience. Although some EDs visits are inappropriate (i.e., these visits are to treat conditions that could have been treated in an outpatient setting), researchers have found that this generally occurs because people have few other treatment options or because they were referred to an ED by a health care provider. This is particular true for Medicaid enrollees, where public (and policy maker) perceptions are that Medicaid enrollees misuse EDs. However, the data do not suggest this because EDs more often evaluated Medicaid enrollees as having an urgent or semi-urgent complaint than were privately insured patients seen in the ED. Although Medicaid enrollees use EDs at higher rates than people who are privately insured or uninsured, much of this use can be explained by the higher rates of chronic conditions among Medicaid enrollees, or by Medicaid enrollees' difficulties in securing an appointment with another provider. Because they lack access to other providers, uninsured individuals may use EDs for health conditions that could have been treated in an outpatient setting (e.g., diabetes), but were not because of access issues. Some of the contention that patients use EDs unnecessarily may be an artifact of the terminology that EDs use to classify visits. EDs use the Emergency Severity Index (ESI) to triage patients, which uses the term "non-urgent" to indicate that wait times should not exceed 24 hours. "Non-urgent" complaints do not equate to "unnecessary" complaints. The ESI system categorizes complaints based on needed resources, physical assessment, and risk factors and may classify visits as "non-urgent" based on the severity of the complaint. However, it is often difficult to determine prospectively whether a complaint is non-urgent. Patients may present to EDs with a complaint that they perceive as a true emergency, for instance, receiving an uncomplicated bite from a feral animal. Most people, even educated clinicians, recognize this condition as requiring prompt care; however, because the bite is uncomplicated, it is categorized as "non-urgent." This coding system makes it difficult to determine whether EDs are being used inappropriately because some cases classified as non-urgent may have seemed urgent when the patient presented to the ED. In addition to filling gaps in available primary care, EDs are also taking on some of the role that primary care providers (PCPs) once filled by evaluating and managing chronic illnesses, particularly for older adults. Patients with chronic illnesses may require rapid evaluation and possible treatment; therefore, PCPs and other providers are increasingly referring these patients to EDs. Medical advances have expanded the scope of illnesses treatable in the ED setting because EDs generally offer a number of diagnostic tests that are not readily or simultaneously available in other settings. This expanded diagnostic role of EDs occurs in part for clinical reasons, but it is also driven by administrative factors such as a patient's ability to secure a timely visit with a physician that is included in the patient's insurance plan. The decision to admit a patient to a hospital after rapid diagnostic testing is increasingly being made by an ED physician, which offsets a 24% decline in admissions from PCPs. Though EDs have resources to evaluate patients with chronic illnesses, PCPs are better equipped to manage these patients in the long-term. In general, EDs are not designed to manage chronic illness, and ED provision of this type of care may be detrimental to patients. ED providers do not generally have the patient's full medical records—although increased use of electronic health records could change this—and given the nature of an ED environment, providers face frequent interruptions and are often rushed because of incoming emergencies. This may mean that patients who seek primary care in an ED can receive lower-quality care and are at greater risk of experiencing a medical error than if the care was received in a more appropriate setting. Such unintended consequences, may, in turn, create a feedback loop where these patients require additional ED care. Generally, EDs are considered to be costly for a hospital because they have high fixed costs related to their emergency capacities, which may not be used on a daily basis. However, depending on a hospital's payor mix, EDs may generate revenue for a hospital because they drive inpatient admissions. Specifically, between 2003 and 2009, the total number of hospital admissions increased driven primarily by a 20% increase in non-elective admissions from EDs. Even in cases where an ED visit does not result in an admission, ED visits for individuals who are privately insured can be profitable. This is particularly true when EDs are treating uncomplicated conditions that could have been treated in an outpatient setting. However, ED visits may not be profitable with other payers; outpatient visits for those enrolled in Medicare or Medicaid or who are uninsured may yield reimbursement rates that are lower than the hospital's costs. Despite the potential of such losses, EDs can be profitable overall because of their link to admission; as a consequence, some hospitals have expanded ED services or have created free-standing emergency rooms. Some hospitals are also anticipating that EDs will become revenue generating with the ACA's expansion of private insurance coverage. Although EDs may be profitable for a hospital, particularly when EDs are used to treat uncomplicated conditions, such ED care is generally costly to payors because care could be provided at a lower cost in an outpatient setting. With 15% of ED visits resulting in admissions, these admissions compose nearly half of all hospital admissions and over two-thirds of all non-elective admissions. ED visits that result in admission are particularly common for Medicare beneficiaries. In 2010, sixty percent of ED visits by Medicare beneficiaries resulted in a hospital admission. Although ED visits represent a large percentage of all acute care visits, they account for 2% of all Medicare costs. This outcome occurs partially because when Medicare beneficiaries are admitted after an ED visit, the payment for ED services is included within Medicare's payment for inpatient services. As ED visits for Medicare beneficiaries are more likely to result in an admission, total ED costs are generally underestimated. The implementation of the Affordable Care Act (ACA) may have a number of effects on the use of EDs and their finances, although these effects vary by hospital and depend on the patients they treat. The ACA is generally expected to increase hospital reimbursements for emergency care because fewer people will be uninsured and therefore seeking uncompensated care in an ED. However, insurance coverage rates are expected to vary, in part, because some states will not implement the ACA Medicaid expansion. In states that have implemented the ACA Medicaid expansion, the effects of the ACA are more pronounced because a larger share of the population has gained insurance coverage. Specifically, hospitals in these states report that their expenditures on uncompensated care have decreased since the ACA was implemented. In states that did not implement the ACA Medicaid expansion, these declines have not occurred, but these hospitals are still subject to a number of ACA-related payment reductions that were enacted, in part, because it was expected that the law would decrease the amount of uncompensated care that hospitals would provide. Hospitals that see payment reductions, without concurrent increases in collections, may be further strained by the ACA. The effects of the ACA on ED use are not yet clear. It is possible that the law may decrease ED use, may slow the rate of ED growth, or keep the growth of ED use comparable to the growth that would have occurred without changes. Or it may decrease ED use for certain groups, as one study of ED use by young adults found. However, it is possible that the law may increase ED use; researchers have found that ED use is higher among the newly insured and that ED use increased for those who became Medicaid-eligible in Oregon, a state that had previously implemented a Medicaid expansion. Such increases in ED use could be temporary, as people with unmet needs seek care once they gain coverage, but then use drops as their health care needs are met. ACA could also mean that ED patients are sicker than the ones ED treated prior to the law; as was found in a study of ED use in Massachusetts, a state that enacted health reforms prior to the ACA. Although the full effects of the ACA on ED use are not yet known, use will likely vary by state, and may change over time. In addition, there are concerns that some people newly eligible for Medicaid may not be able to secure timely access to primary care or specialty care providers, and may continue to seek care in the ED. Three new outpatient health care options may change the role of the ED by filling gaps in outpatient and after-hours care. Retail clinics provide unscheduled routine primary care; and may provide some access to care for non-emergency conditions for individuals who are able to pay for such services. Similarly, urgent care clinics provide unscheduled and after-hours access to care for a larger range of services. Hospitals may also choose to operate free-standing emergency rooms that function like an ED, but are not located on hospital grounds. These facilities, if operated by a hospital, would be subject to EMTALA. Other entities—such as private investment groups or ED physicians—have also opened free-standing emergency rooms, which are not subject to EMTALA (see Text Box 3 ). Although these options have the potential to enhance ED function by lessening the EDs' role as a gap filler, it is also possible that their growth may adversely affect EDs, because these facilities tend to be located in areas where patients have high rates of private insurance and these facilities are not required to accept all patients, and therefore, may limit their patients to those with private insurance, a potential source of revenue to EDs. As such, these new provide types could draw insured patients from traditional EDs, making the remaining patients disproportionately uninsured or on Medicaid, which could strain EDs' finances. The federal government both regulates and supports ED services by (1) requiring hospitals with EDs to provide certain emergency services, (2) reimbursing for emergency services provided to individuals enrolled in federal insurance programs, (3) requiring certain private insurance plans to include coverage of emergency health services, and (4) providing funds to hospitals to defray the cost of providing uncompensated care. The federal government also supports hospital preparedness as part of its emergency preparedness activities, and supports the broader health care delivery system in ways that might reduce inappropriate ED use. Specifically, it supports health care safety net facilities, behavioral health care, and efforts to increase care coordination to reduce ED use for individuals with chronic conditions. Examples of federal involvement in hospital-based emergency care are discussed below. The federal government requires—as a condition of Medicare participation—that hospitals with dedicated EDs screen and provide treatment to patients with emergent conditions regardless of a patient's ability to pay. This requirement is set forth in the Emergency Medical Treatment and Active Labor Act (EMTALA), which was enacted in 1986 as part of the Consolidated Omnibus Budget Reconciliation Act of 1985 ( P.L. 99-272 ). EMTALA was enacted in response to controversies that arose when patients died because some hospitals refused emergency services to uninsured patients as a way of reducing the amount of uncompensated care the hospitals provided. This practice is known as "dumping." EMTALA requires that patients be medically evaluated—through an appropriate medical screening exam (MSE)—and that patients be transferred to a hospital that can provide necessary services if the screening hospital is unable to provide appropriate care. Hospitals have discretion about the types of specialty physicians they have available on-call. If a hospital lacks an appropriate on-call physician to treat a particular patient it may transfer the patient to a facility that has an appropriate physician available. A number of hospitals have difficulty in recruiting specialists to provide ED on-call coverage. For a number of reasons, specialty physicians may not want to take ED call. One reason is liability risk (or perceptions of that risk). Individual physicians are not subject to EMTALA; instead, hospitals are and may be sued by private individuals who are injured as a result of a hospital not meeting its EMTALA requirements. Physicians cannot be sued for injuries incurred as a result of an EMTALA violation, but may be liable for injuries to ED patients that result from errors or negligence on the part of the treating physician. Physicians may perceive this liability to be high and may feel at a greater risk when treating ED patients because they often treat these patients quickly, without complete knowledge of their underlying medical conditions. Specialty physicians may also not wish to take ED call because, if they do, they are required—under the hospital's EMTALA requirement—to respond within a designated time frame or face a fine ($50,000) and possible exclusion from the Medicare program. The lack of specialty physicians willing to take ED call may have a larger impact on health care access. Some hospitals are unable to secure specialty physicians—a particular issue for high-risk specialties (e.g., neurosurgery)—and have to close their ED or divert patients to other hospitals with these specialists. This may create a feedback loop whereby patients do not seek care at these hospitals because the hospital does not offer the full range of services, which may make it difficult for the hospital to remain open. Although EMTALA permits hospitals to bill patients who receive care as a result of the requirement, EMTALA has created the perception to some patients that EDs are a source of free care for the uninsured and that EDs must provide full treatment to patients even if they present with non-emergent conditions. These perceptions, in turn, may drive ED use for the uninsured, as ED use is often used for non-acute, non-emergent conditions by uninsured individuals. In addition, though hospitals bill uninsured patients, the amounts that hospitals receive from uninsured patients are generally less than those received from insured patients. In some cases, the uninsured may be billed at higher rates than those billed to insurers; however, not all uninsured individuals will pay for services because some are unable to do so, and because some hospitals have indigent-care programs that provide free or reduced care. Not all hospitals have EDs, although some states require hospitals to have an ED to be licensed. In states without this requirement, the entity that operates the hospital determines whether or not a hospital has an ED. Specifically, hospitals that are not-for-profit or those operated by state and local governments are more likely to have an ED—nearly all these types of hospitals have an ED, whereas only two-thirds of investor-owned hospitals do. Not-for-profit and state and local hospitals operate EDs and provide charity care (i.e., uncompensated care) as part of their missions. In addition, the ACA requires that hospitals that have tax-exempt status meet a "community benefit standard," although this can be satisfied in a number of ways; some hospitals do so by providing free or reduced care. The federal government finances care provided to beneficiaries enrolled in Medicare, Medicaid, and CHIP. Under each of these programs, emergency services are a covered benefit. As such, beneficiaries are eligible to receive services in EDs with hospitals receiving reimbursements that vary by the services provided, the program providing reimbursements, and the location and type of hospital providing services. Emergency health services are also considered to be an "essential health benefit" under the ACA. As such, non-grandfathered private insurance plans offered through the nongroup and small group markets must cover emergency services. Together, Medicare, Medicaid, CHIP, and private insurance plans offered through ACA exchanges provide insurance coverage to approximately 120 million people or approximately 37% of the U.S. population. The costs associated with hospitals providing uncompensated care have been defrayed by three federal sources: Medicare disproportionate share hospital (DSH) payments, Medicaid DSH payments, and payments for undocumented immigrants. Through the Medicare and Medicaid programs, the federal government provides DSH payments to hospitals that treat large numbers of low-income patients. Although these payments can be used to support uncompensated care provided by an ED, in some cases they are not. Instead, in some states DSH payments are used to defray uncompensated inpatient care costs or all of the uncompensated care that a hospital provides. The ACA, because it was expected to reduce the size of the uninsured population, included changes to Medicare and Medicaid DSH payments. Subsequent laws have amended Medicaid DSH payment reductions and delayed these reductions until FY2017. Hospitals also receive reimbursements for some emergency care provided to unauthorized aliens, nonimmigrants and legal permanent residents who are not eligible for Medicaid because, for the latter, there is a five-year waiting period before legal permanent residents are eligible for Medicaid. These reimbursements are for services that qualify as "Emergency Medicaid," and cover services from emergency providers (including hospitals, but also including emergency transport) that treat an emergency or services for a pregnant woman that are related to her pregnancy (including prenatal care, labor, delivery, and post-partum care). "Emergency Medicaid" is not available for all of the conditions for which people seek treatment in an ED, nor are these funds available for services provided to all unauthorized aliens, nonimmigrants, or legal permanent residents; "Emergency Medicaid" funds are only available for services provided to individuals who would have otherwise qualified for Medicaid, which, unless a state has implemented the Medicaid expansion, does not include childless adults. In addition to reimbursements available from Medicaid, from FY2005 to FY2008, the federal government allotted annual funding to states for certain emergency care provided to undocumented aliens. The federal funding was allotted to the six states with the highest number of undocumented alien apprehensions receiving one-third of total funding. States, in turn, provide or have provided funding to hospitals, physicians, and ambulance service providers for emergency services provided to eligible patients. Although funding has not been allotted since FY2008, some states still have funds remaining from their allocation. As of May 2014, twenty-nine states have exhausted their allocation under this program, so new claims for services are not being accepted in these states. Although this funding source is or was available, for some hospitals it may not represent full reimbursement for care provided. This occurs in part because it is difficult to determine a particular hospital's need for these funds because hospitals do not ask about a patient's immigration status when providing care. The federal government supports hospital emergency preparedness through the Hospital Preparedness Program administered by the HHS Assistant Secretary for Preparedness and Response (ASPR). The program began in FY2002, and funding for the program peaked in FY2003 with an appropriation of $515 million; funding since that time has declined by nearly 50% as the program's FY2014 appropriation was $255 million. The program awards grants to support the ability of communities and hospitals to provide surge capacity during a public health emergency. Although these grants do not support day-to-day ED operations, support to strengthen medical surge capacity may include the development of processes to enhance ED operations so that hospitals have the capacity to surge during an emergency. ASPR also has authority to award grants to support trauma care, although these grants have not been funded. Trauma care is a specific type of care, provided in designated centers that provide more intensive services than those that are traditionally available in an ED. Trauma centers are distinct from EDs, but generally trauma centers will also have an ED. In the absence of a designated trauma center, EDs provide care to severely injured patients until they can be transferred to an appropriate trauma center. Given issues of ED crowding, funding to support designated trauma centers may mean that EDs would provide less trauma care prior to a transfer, which could free up ED resources. The federal government supports general health infrastructure, including the health care safety net. This support is not specifically related to emergency care, but has the potential to reduce ED use by reducing the ED's need to fill health system gaps. Determining whether or not this occurs is difficult as these programs do not directly aim to reduce ED use. For example, HHS's Health Resources and Services Administration (HRSA) supports the development of the health care workforce, focusing particularly on providers who care for disadvantaged populations. Such support does not focus on reducing ED use, but may reduce the need for some resource-sensitive ED use. In an effort more focused on reducing ED use, HRSA awards grants to support federal health centers that provide primary care, dental care, and behavioral health care to all individuals regardless of their ability to pay. Research has found that these health centers reduce ED use, in particular, for conditions that could have been treated in an outpatient setting (e.g., asthma). The Centers for Medicare & Medicaid Services (CMS), the agency that administers the Medicare, Medicaid, and CHIP programs, has awarded funds to states as part of its $50 million Emergency Room Diversion Grant Program. The program seeks to increase the number of community health centers, extend the hours at existing centers, and better coordinate care as part of CMS's efforts to reduce ED use among Medicaid beneficiaries. Grants were awarded to 20 states from FY2006 through FY2009. EDs provide behavioral health care services because these services are often unavailable in the community. County-level data suggest that counties with available behavioral health outpatient options have lower ED use for behavioral health conditions. The federal government, through SAMSHA, supports efforts to increase access to behavioral health care; though such support is not specifically related to emergency care, SAMHSA programs might reduce ED use. Specifically, SAMHSA support includes formula and competitive grants to states and territories to support community-based mental health and substance abuse treatment and prevention services. Competitive grants to support these services are available to other entities, including private organizations and local communities. SAMHSA also provides technical assistance and workforce support. Given that provider shortages limit access to behavioral health care such support could help ensure that behavioral health services are available. CMS has also awarded funds to states to test whether reimbursing certain psychiatric facilities to which Medicaid payments have traditionally been prohibited would reduce Medicaid costs for psychiatric patients. These prohibited facilities are called Institutions for Mental Disease (IMDs); they are inpatient facilities that have more than 16 beds and a patient roster in which more than half of the patients have severe mental illness. Traditionally, Medicaid has not been able to reimburse these facilities for services they provide to Medicaid beneficiaries between the ages of 22 and 64. Some experts believe that the exclusion increases ED use. This CMS-funded demonstration will examine health care costs overall, but given high ED use for behavioral health care conditions, this demonstration could provide information about whether reimbursing these facilities lowers ED use. The federal government also supports care coordination through medical homes, accountable care organizations, and other mechanisms. Care coordination generally aims to improve health and reduce costs by preventing the exacerbations of chronic conditions that may necessitate an ED visit. A number of ongoing federal initiatives are administered by CMS, and as such, these initiatives focus on coordinating care as a way of reducing costs for beneficiaries of these programs. As discussed further below, a number of these initiatives include efforts to reduce ED use. The federal government supports medical research primarily through the National Institutes of Health (NIH). Within the NIH, it supports the NIH's Office of Emergency Care Research (OECR). This office aims to coordinate emergency care related research across the various NIH institutes and centers. A number of institutes within the NIH support emergency care research, generally in the context of a given disease or population that the institute focuses on (e.g., the National Heart, Lung, and Blood Institute supports research on cardiac emergency care and/or the National Institute on Aging supports research on emergency care for older adults). OECR serves a broader coordination function and attempts to identify funding opportunities related to emergency care and/or those related to treating emergent medical conditions. It does not directly fund research grants. This NIH office is relatively new; it began in 2012 as a result of NIH efforts that followed up on the IOM emergency care reports. Nationwide, EDs have developed different strategies to deliver the care most appropriate to their respective communities. Despite differences, EDs generally face three common challenges to their ability to effectively provide care: (1) they are crowded, (2) they must provide repeat care to frequent users who could be more effectively treated in other settings, and (3) they must provide (or attempt to provide) care to patients with behavioral health conditions. Not all EDs will face these challenges because many of these concerns are related to the population that the ED serves. Hospitals that serve patients who have greater access to health care because they are privately insured or have Medicare coverage may not experience these challenges. Some hospitals have also developed strategies that have alleviated these concerns, or have implemented some of the strategies noted below. Still a number of EDs face these three challenges, which are defined and discussed below. Crowding is a situation in which the need for services exceeds an ED's capacity to provide these services. It often entails patients experiencing long wait times and/or being treated or monitored in non-treatment areas (e.g., hallways). Generally, crowding reflects dysfunctions in the health care system; although it seems like an ED problem, it is actually a systemic problem. As discussed, EDs fill gaps in the health care system. In some communities, or for some populations, EDs may be the only available health care option. This gap-filling role, coupled with fewer available EDs, has resulted in crowded conditions at the remaining available EDs. Research shows that crowding reduces access to timely care by causing EDs to divert ambulances and by contributing to long wait times, in some cases so long that patients choose to leave without being seen (LWBS). Diverted ambulances and patients who LWBS typically travel to the next closest ED; this may cause another ED to become crowded, in turn, causing a domino effect among the area's remaining EDs. Crowding also reduces a hospital's capacity to absorb surges in patient volume, both daily and in the event of a public health emergency. Crowding occurs disproportionately in hospitals in urban areas, (referred to as metropolitan statistical areas [MSAs]), which make up two-thirds of all hospitals and provide 85% of all ED care. Crowding is particularly common in MSAs where the growth in the health care infrastructure has not kept pace with population growth. Hospitals in MSAs are more crowded; as a result, they divert more ambulances and have longer wait times. MSA hospitals generally treat patients in their adjacent areas, and may also receive patients from further away because they offer specialty services (e.g., trauma or burn care). Under EMTALA, hospitals offering such specialty services must accept transferred patients requiring this care; hospitals have to accept these patients even if their EDs are already crowded, which may further increase crowding. Crowding results from a number of health system factors; specifically, it is a symptom of the mismatch in the larger supply and demand of health care services. ED crowding is often examined through the "input-throughput-output model," which helps identify factors from the perspective of an ED (see Figure 1 ). Although the model presents a number of factors that cause crowding; boarding—where hospitals keep admitted patients in an ED until a bed is available—is generally considered to be the primary cause of crowding. Hospitals may board admitted patients because they lack inpatient beds or because they lack nursing staff to care for additional admitted patients. In some cases, hospitals may have inpatient beds available, but these beds may be reserved for patients with particular conditions (because nurses and other staff are trained to care for patients with particular ailments) or may be reserved for elective surgical procedures, resulting in a situation where a person is boarded in an ED even though the hospital has a physical bed available. Admitted patients may be boarded in an ED for hours or days. Generally, patients who are boarded have worse outcomes, including higher death rates and longer lengths of stay. Boarded patients, by virtue of requiring an inpatient admission, are often the sickest patients in an ED; as such, their presence further exacerbates crowding because they consume ED resources that would otherwise be available for incoming emergencies. Although boarding is the primary cause of crowding, a number of health system changes could alleviate crowding, as the "input-throughput-output model" indicates. Input is any condition, event, or system characteristic that contributes to the demand for emergency care, unscheduled urgent care, or safety net care. The demand for ED care depends on the volume of patients requiring emergency care and the volume of patients who are seeking care in the ED because it is after-hours or because they lack another source of care (e.g., safety net patients). When the ambulatory care system is unable to provide the community with these kinds of services, people turn to the ED, thereby increasing demand. Throughput factors are events that influence a patient's length of stay (LOS) in an ED. A person's LOS is the length of time from arrival to discharge and involves two phases: (1) triage and room placement, and (2) diagnostic testing, ED treatment, and discharge. Throughput factors, for example, are the number of CT scans, laboratory tests, and medications a person will need; whether the ED physician will have to consult a specialist; or how long it takes to see a physician initially. The model includes boarding in the throughput phase because it occurs within the ED and affects department operations; however, boarding results from a shortage of inpatient beds and should be considered separately from throughput factors that are under the control of the ED. The health of the population that the ED serves may also affect throughput. For example, as the population ages, ED patients may require more care to manage chronic conditions, including specialty care, which some EDs have difficulty obtaining. Output refers to the disposition of a patient from an ED, including hospital admission, transfer to another facility, patient discharge, or patient death. It also refers to the ability of the ambulatory care system to provide appropriate care after a person leaves an ED. A hospital's available capacity determines whether an ED can transfer admitted ED patients to the inpatient unit. When a hospital lacks available beds or inpatient nursing staff, the ED will keep the patient (i.e., board the patient), either in hallway beds or in the rooms, which may reduce the capacity to receive incoming ambulances and patients. Inpatient bed availability varies by hospital and by specialty. Some hospitals reserve medical inpatient beds for elective surgical procedures, even when its ED is holding patients. Hospitals have a number of financial incentives to reserve beds for these procedures, including the higher reimbursement rate for certain elective procedures and the guarantee of being paid for elective procedures because insurance coverage is checked before procedures are scheduled. As such, some hospitals have incentives to make sure that beds are filled and attempt to schedule surgeries to do so, meaning that few beds will be unoccupied and available for ED patients. Shortages of beds in particular specialties may disproportionally affect crowding and the outcomes of ED patients. Shortages of beds in psychiatric units may be a particular contributor to crowding, as behavioral health patients are boarded on average twice as long as those waiting for hospital beds. Given that behavioral health patients are generally resource intensive, their boarding may disproportionately contribute to crowding. Shortages of intensive care unit (ICU) beds are a particular concern for ED patients who require such care. These patients are particularly vulnerable, the number of these patients has increased, and they have higher mortality rates when they are not promptly moved to the ICU setting. Crowding affects the health care delivery system at multiple levels. Specifically, it affects patients, hospitals, and payers. It does so primarily through increased costs and adverse health outcomes because treatment is delayed or forgone. Crowding reduces access to critical ED care by delaying the time in which patients are able to receive treatment, which may affect patient health. Specifically, for some conditions treatment must occur during a critical period or there will be adverse outcomes. Some of the symptoms of crowding, such as LWBS, ambulance diversion, and boarding also have specific effects on patients' health. For example, patients who LWBS would not be evaluated for a medical emergency that could have been prevented. Crowding may cause an ED to initiate ambulance diversion, which affects both the patient and the community. Ambulance diversion extends the patient's length of time in the ambulance, the length of time to see a physician, and the length of time before the ambulance can respond to other emergencies. Boarding can have particular health effects on elderly patients, who generally have worse outcomes when compared to patients with similar characteristics who were not boarded. Finally, when patients are admitted to a unit or a physician's service, it is expected that they will receive a specific combination of treatments; however, an ED may not have the appropriate equipment or staff who know how to perform these specific combinations of treatments. Inpatient units have specialized staff, strict nurse-to-patient ratios, and daily routines—all of which aim to provide the appropriate standard of care to meet a patient's needs. Crowding, in general, and boarding, in particular, affect hospital finances by reducing ED and inpatient volume and decreasing revenue earned from serving additional patients. Each time an ambulance is diverted or patient LWBS, hospitals lose an opportunity to bill. One study on a single hospital calculated that reducing wait times by 120 minutes or less could increase revenue nearly $4 million dollars over the course of a year. It also found that moving boarded patients to inpatient beds within two hours increased the annual "functional treatment capacity" of an ED by 10,397 hours, or 433 days. Boarding also increases length of stay; for example, one study found that patients who board for over 24 hours experienced a 12% longer hospital stay. When hospitals are paid under a fixed-payment scheme (such as are used by Medicare), it is in the hospital's financial interest to reduce the length of stay so that the patient's costs do not exceed the predetermined payment amount, as the hospital must absorb the additional costs. Hospitals may also wish to reduce crowding and ED wait times to attract patients. Some hospitals—particularly those trying to attract private insured patients—will publicly advertise wait times as part of their marketing. In addition, CMS publicly reports certain hospital-level quality data, including measures related to ED wait times and some that are affected by ED crowding, (e.g., measures related to pain management and timely antibiotic administration). Prospective patients can use these data to select a hospital that has better ED outcomes and shorter wait times. Some of these ED measures are also linked to Medicare payment under the Hospital Inpatient Quality Reporting Program; as such, hospitals face financial penalties based on their reporting of some of the ED-related measures. Crowding may also be costly to hospitals because it can contribute to hospital-level nursing shortages. EDs often have more difficulty filling staff vacancies due to the intensity of emergency care. Crowding can exacerbate this issue because it could increase staff turnover among ED nurses, leaving the hospital with more vacancies to fill. It may also leave hospitals with a more junior nursing staff because more experienced staff may be more likely to leave. Researchers have found that increased patient-care demands push experienced staff to leave their jobs, in part, because of decreased job satisfaction, but also because some staff may fear that conditions are jeopardizing patient safety and are putting them at risk of losing their licenses (physicians may also have liability concerns because of these increased patient care demands). Such concerns would also apply to ED physicians and may make it difficult for some hospitals to recruit and retain their services. The effect of crowding on staffing and staff turnover also adds to a hospital's financial pressures, because it is costly to recruit staff and new staff requires training—for example, new ED nurses require months of training to obtain the basic skills needed to deliver ED care. Crowding may increase health care costs for payers. It may also have particular costs for the Medicare program, because it is the largest payer for inpatient care. As crowding can delay treatment, it increases the likelihood that patients will experience adverse events—an injury that results from medical intervention and not the patient's underlying medical condition—which are more common in older adults. Adverse events are costly to payers because they often require additional medical treatment beyond the original medical condition that caused the patient to seek care in the ED. A number of strategies may reduce crowding; generally, such strategies focus on ways that hospitals can reduce boarding by increasing the number of inpatient beds available. For example, hospitals may consider the following strategies: Moving boarders to inpatient halls: doing so places boarded patients in a quieter, less crowded, and a better-staffed setting that has been shown to be safe. It also frees up emergency department beds and can expedite the patient being placed in a proper inpatient bed. Undertaking active bed management, by appointing a single person to track beds (e.g., a "bed czar"), by using a computer system to track beds, or other methods to address system-level bottlenecks. Using "reverse triage," which employs a system designed for creating capacity during disasters by discharging patients who have a low need for an inpatient bed. Smoothing elective surgical schedules by distributing procedures evenly over the week to decrease peaks in demand for inpatient beds and the need to cancel procedures because beds are not available. Implementing the "four hour rule": this rule, implemented in the United Kingdom and Western Australia, requires EDs to evaluate, treat, discharge, or admit patients in four hours or less. Although this policy reduces boarding, some have raised concerns that it may reduce the quality of care because it encourages EDs and hospitals to discharge patients early, when it may not be medically appropriate. A number of current programs may also reduce boarding. For example, in 2012, CMS required hospitals to report data related to boarding and ED length of stay. The public reporting of these data and their inclusion in some CMS quality programs may provide hospitals with incentives to reduce crowding. The Medicare program requires that hospitals meet certain conditions to participate in the Medicare program (called conditions of participation). One of these conditions is that hospitals must be accredited, although hospitals can choose to be accredited by a state regulatory organization, often hospitals will seek to be accredited by the Joint Commission, which accredits and certifies health care organizations. The Joint Commission adopted requirements—effective January 1, 2014—that hospitals address boarding for the purposes of accreditation. Both CMS's and the Joint Commission's changes are new, so the full effects are not yet known, but both policy changes may incentivize hospitals to reduce crowding. Another issue affecting ED care is that of frequent ED users. Although no formal definition exists, for purposes of this report, a frequent user is an individual who uses an ED multiple times a year. Frequent users represent a small number of ED users overall, but account for a high number of total ED visits. One study, for example, estimated that frequent users (defined in the study as individuals with three or more visits annually) represented 29% of all ED users but 60.4% of all ED visits. Although most frequent ED users have high rates of chronic conditions, anecdotal evidence and media reports have fueled a misconception that frequent ED users are a disadvantaged population who unnecessarily use EDs for conditions that could be treated in an ambulatory setting. Frequent users are a concern for policy makers because (1) they contribute to crowding; (2) they increase costs for payers, including government payers; and (3) their ED use may reflect poor care coordination in other settings (e.g., they lack primary care or coordinated primary and specialty care to manage their asthma and seek care at an ED for an asthma attack). Frequent users are not a monolithic group; as such, policy options need to target the different types of frequent users. Frequent ED users can be divided into three broad sub-categories, based on utilization patterns: frequent non-emergent users (i.e., people who use EDs frequently to treat conditions that do not require emergency care), high-cost health system users, and very frequent ED users. The causes of ED visits differ by the three types as do the policy levers that could be employed to reduce the number of frequent visits (see Table 2 ). As Table 2 demonstrates, changes to the ambulatory care system to make care more accessible and coordinated can reduce frequent ED use. Such strategies include adding additional providers, opening or expanding outpatient care settings (e.g., retail clinics; see " New Types of Health Care Facilities May Change the EDs' Role "), increasing provider hours, creating or expanding nurse advice lines, and expanding or initiating health education campaigns that encourage appropriate ED use. Other strategies seek to prevent the need for ED use by managing chronic conditions, coordinating care across providers, and more frequently monitoring patients. These strategies may also include analytic tools (e.g., electronic health records) to share data across providers. In attempts to control costs, CMS has initiated programs that focus on Medicare or Medicaid beneficiaries who are frequent health system users. CMS calls these "super-utilizer" programs. These programs do not necessarily focus on high-ED users, but may include High-Cost Health System Users and the Very Frequent ED Users because these users are expensive. Specifically, chronically ill individuals account for 5% of the total population but nearly half of all health care spending. This pattern of concentrated spending also occurs among Medicaid beneficiaries, where 1% of the Medicaid population is responsible for 22% of the spending. Although not all of this spending occurs in EDs, EDs are a gateway for hospital admissions, where the bulk of this spending occurs. As such, managing chronic conditions so that ED visits are avoided may reduce costs. CMS is undertaking initiatives focused on super-utilizers, as are private payers and providers, such as hospitals. Though specific programs employed to target super-users vary, they generally involve methods to target the most appropriate program participants by trying to identify participants who exhibit characteristics that are consistent with having high-cost, preventable health care use. A number of new payment models are being tested as a way to control costs; because they include incentives to coordinate care, they may also reduce frequent users. Under a fee-for-service payment scheme, providers receive additional compensation for providing additional care, which may incentivize providing additional services to frequent users rather than coordinating care and seeking to prevent ED use for this group. Under alternate payment models that reward care coordination or provide incentives to achieve certain performance targets, providers lack such incentives. A number of the strategies undertaken to reduce super-users involve testing new payment methods (see Text Box 4 ). The federal government has provided explicit support for the Medicare program and for state Medicaid programs to develop care coordination programs, that may, among other policy goals, reduce the number of super-utilizers by managing chronic conditions to reduce the number of times these patients seek ED care. Such federal support includes the following examples: Accountable Care Organizations (ACOs) are groups of health care providers that join together to provide coordinated care to a group of Medicare beneficiaries in exchange for a share of any savings realized from coordinating such care. ACOs are eligible for shared savings if the Medicare spending for assigned beneficiaries falls below a historical benchmark and if they meet certain quality benchmarks. Bundled Payment for Care Improvement Initiative (BPCI): Selected health care organizations participate in a new payment model where the health care organizations are reimbursed for episodes of care. These payment arrangements aim to provide high-quality coordinated care. Medicaid Health Homes: States may receive a higher Federal Medical Assistance Percentage (FMAP)—the percentage of the state's Medicaid program that the federal government pays —to support interdisciplinary care provided by the health home team. Targeted Case Management: States may add a Targeted Case Management (TCM) service to their Medicaid program to enhance existing health home or managed care models. EDs face two distinct behavioral health care challenges. The first is that EDs may be ill-equipped to treat patients who are primarily seeking care to treat a behavioral health condition. The second is that an increasing number of patients with physical health conditions also have behavioral health conditions, which makes treating their physical ailments more difficult. In general, EDs are strained to provide the former and are challenged in providing the latter because these cases are resource-intensive and exacerbate already crowded conditions. The number of behavioral health- only visits has also increased rapidly, with the number of these visits growing at a rate four times higher than the growth in non-behavioral health visits. Mental health and substance use disorders are generally not appropriate to treat in an ED because they are not acute conditions; instead, they require treatment and monitoring over time, which is not in concert with the type of services that EDs are designed to provide. The major exception to this is an acute episode: either an acute psychiatric episode or an overdose or adverse drug reaction for individuals with substance use issues. These cases often present in an ED; they may be symptomatic of uncontrolled behavioral health conditions, but often an ED is the proper site of care in these instances. Generally, patients with behavioral health conditions present in an ED because of insufficient community resources available to manage the patients' needs. A number of communities have shortages of mental health and substance abuse services. Such shortages may also be underestimated because rates of both behavioral health conditions are underreported. Community level conditions such as increases in drug use in certain communities (e.g., the recent increases in heroin use in certain communities) may also affect ED use for behavioral health conditions, as individuals who overdose or have adverse drug reactions may present to EDs. Insurance coverage may also contribute to behavioral health conditions being seen in EDs. An AHRQ/SAMSHA study found that uninsured individuals with behavioral health conditions were most likely to have had multiple ED visits during the course of a year. Among those seen in the ED, these individuals were least likely to be admitted. This study also found that the likelihood of admission varied by patient characteristics (such as demographic characteristics), insurance status, and the size of the hospital (larger hospitals offered more specialty services and were more likely to admit patients). The use of an ED to provide behavioral health care, in particular for the uninsured population, may also contribute to the financial constraints that EDs face, as some of this care may be uncompensated. One of the major effects of treating behavioral health care in an ED is crowding. This occurs because EDs that lack behavioral health resources may board these patients while waiting to transfer them to an appropriate facility. Such facilities are in short supply; therefore, some behavioral health patients may end up waiting in an ED for hours and often days for an available bed. Patients with behavioral health conditions may also contribute to crowding because they may be more difficult to care for, thus requiring more staff resources than a patient without a behavioral health condition. Being treated in an ED may also be particularly stressful for individuals with certain mental health conditions because EDs by their very nature are chaotic. This might exacerbate certain mental health conditions. Treating these behavioral health patients in an ED may also be challenging because EDs lack many of the services that these patients need. For example, behavioral health patients often require consults from specialists (e.g., psychiatrists) who may not be on-site so patients must wait in the ED for such consults. Or EDs may not have needed detoxification services. Treating behavioral health care in an ED could also contribute to crowding because emergency room procedures to triage patients with psychiatric conditions are less well-developed than those used to triage patients with physical ailments, which may complicate and delay treatment for patients. Research has also found that ED providers do not feel comfortable providing care to emergency psychiatric patients, have received less training to do so, and believe that these patients may be more violent to ED staff. The availability of community behavioral health treatment can reduce the use of EDs for patients. For example, an AHRQ-SAMSHA study found that counties with community mental health centers had fewer ED visits for mental health conditions, as did counties with inpatient psychiatric and chemical dependency treatment facilities, which had fewer ED visits for people with behavioral health conditions. Hospitals themselves can make inpatient psychiatric beds available or can create relationships with chemical dependency treatment facilities to which they can discharge ED patients with behavioral health conditions. Programs that seek to increase access to behavioral health care (see " Behavioral Health Support ") can also reduce ED use. Insurance coverage may also influence ED use for behavioral health services. For example, some treatment facilities do not accept Medicaid patients, so Medicaid patients often have fewer treatment options and may present to an ED. The implementation of the ACA, which requires behavioral health coverage by some private insurance plans, coupled with federal parity requirements, should increase coverage for behavioral health conditions. Increased coverage if coupled with access to community level providers could reduce ED use for behavioral health conditions because conditions would be better managed. It is unclear whether this would occur because federal parity requirements do not require all plans to include behavioral health coverage and because provider shortages may prevent individuals who gain coverage to access behavioral health care services. To alleviate some of the issues raised regarding emergency care, Congress might consider using various policy levers, including (1) oversight, (2) reimbursement changes to federal programs, (3) directed spending, (4) changes to statutory mandates, and (5) watchful waiting. Congress may also consider a combination of these levers. The discussion below is not exhaustive, but it represents options that Congress may consider to address some of the emergency care concerns raised in this report. Congress has oversight of executive branch agencies, which it may leverage to improve ED operations. For example, it could conduct oversight hearings on topics related to ED care, or it could investigate the efforts of involved federal agencies to improve ED care. Congress has used its oversight in this area in the past; for example, it has commissioned GAO reports in this area. Congress may consider holding a hearing (or a series of hearings) on topics related to ED care. Congress may also consider requesting a report or reports in this area, to be undertaken by the involved federal agencies (e.g., CMS, SAMSHA), GAO, or another entity. Such oversight might motivate HHS to address some of the considerations discussed in this report, even in the absence of other congressional activity. As mentioned, hospitals must meet certain conditions, including being accredited by the Joint Commission or another entity, to participate in the Medicare program (called conditions of participation). Medicare can influence hospital processes by amending its conditions of participation and requiring the Joint Commission to accredit hospitals based on this amended criteria. For example, as part of its accrediting process, the Joint Commission requires that hospitals develop procedures for boarding, including the boarding of psychiatric patients. To improve ED function, the Medicare program could encourage (or require) the Joint Commission to amend its accreditation criteria to encourage or require hospital-level changes that would affect ED flow, such as placing a cap on the number of elective admissions a hospital can have when the ED is boarding patients, or requiring that hospitals smooth their elective surgery schedule so that surgeries are scheduled throughout the week instead of clustered on certain days. Medicare could also consider amending its conditions of participation to improve ED functioning in emergencies. This strategy is currently under consideration as CMS proposed, in December of 2013, to strengthen emergency preparedness requirements for all Medicare and Medicaid participating hospitals. The new conditions of participation would require hospitals to have emergency preparedness programs and emergency preparedness plans. Congress may consider providing funding to support programs or payments that may alleviate ED delivery issues. Congress could do so either through entitlement programs, such as Medicare and Medicaid, or through discretionary programs. In some cases, statutory changes may be required to create new programs or to extend funding in cases where authorized funding has expired. A number of the challenges that EDs face are financial. As such, the federal government may consider whether hospitals require additional funding to support ED services or whether current funding sources (e.g., Medicare and Medicaid reimbursements) are sufficient. For example, some hospitals provide uncompensated care to individuals who are not eligible for Medicaid because of their immigration status. Though funds had been appropriated to defray the cost of this care, they have not been appropriated since FY2010; however, hospitals may be able to discharge some of their ED spending for those ineligible for Medicaid because of their immigration status through "Emergency Medicaid." Congress could consider whether "Emergency Medicaid" is sufficient or could consider appropriating targeted funds to support hospitals that provide high volume of uncompensated care to undocumented immigrants, similar to the program that existed until FY2010. Congress could also consider the current system of DSH payments and whether such payments are sufficient and/or whether these payments are adequately targeted so that the hospitals with the highest burdens of uncompensated care receive these payments. Congress could consider whether a different funding source that provides explicit funding for emergency care under EMTALA is warranted, as an expert group that reviewed EMTALA requirements recommended. As discussed, efforts to prevent ED use may lower costs; as such, Congress may wish to consider whether past efforts—such as the Emergency Room Diversion Grant program —that aim to reduce ED use by increasing the services available to Medicaid beneficiaries were successful at reducing ED use and whether such efforts should be continued and/or expanded. Congress may also wish to examine whether current efforts that seek to reduce ED use by coordinating care and preventing exacerbations of chronic conditions are sufficient and if such efforts should be expanded. Congress may also consider changes to reimbursement policies in federal programs that affect ED functioning. For example, Emergency Medical Services (EMS) brings patients to an ED who could have been stabilized elsewhere because, in some cases, EMS systems are not reimbursed unless the patient is brought to a hospital. This reimbursement policy may create incentives to transport patients to an ED in instances when it may not be medically necessary to do so. Experts suggest that changes to reimbursement policy could mean that fewer patients are transported to EDs, thereby reducing ED crowding and lowering costs in general. Some have suggested that Medicaid psychiatric hospitals reimbursement policies constrain the supply of available psychiatric beds and that those reimbursement policies should be amended. Medicaid prohibits payment to Institutions for Mental Disease (IMDs) for services rendered to adults between the ages of 22 and 64. IMDs are inpatient facilities with more than 16 beds and a patient roster in which more than half of the patients have severe mental illness. Some suggest that this exclusion makes it difficult to obtain care for individuals in this age range with Medicaid coverage. The Medicaid IMD exclusion may contribute to ED crowding in two ways: (1) it constrains treatment options, leading individuals to seek care in an ED, and (2) once an individual seeks care in the ED, it constrains discharge options, which may lead to boarding. Hospitals face a number of challenges related to providing primary and behavioral health care in part because of provider shortages. The federal government makes investments in supporting primary care both at the facility and at the provider level. Options could be considered to target these investments in areas where EDs are particularly crowded or where ED use for primary care is particularly common. Similar strategies could be employed for targeting federal behavioral health investments. Some recent evidence suggests that urgent care centers that focus on treating the mentally ill have reduced ED use in certain areas; policy makers could evaluate whether such centers could be expanded and whether federal investments are needed to do so. ED use is also particularly common among the homeless population, which often lacks other sources of care or may have untreated behavioral health care needs. Although the federal government supports health centers for the homeless, some homeless individuals may seek care in EDs or may be brought to EDs by law enforcement during a psychiatric episode. Research on frequent users has found that homelessness is an underlying cause of frequent ED use. Congress may consider, as a way of reducing ED use (and associated costs), providing additional resources to support health care for the homeless or by providing resources to better coordinate health and social services. In addition to specific funding to hospitals for services provided, Congress could consider providing support for emergency care research or the emergency care workforce. Currently the NIH has the Office of Emergency Care Research (OECR) to coordinate emergency care research. This office does not have dedicated funding to support general research on emergency care. Instead, NIH/OECR coordinates research on emergency care needed to treat specific diseases or populations. As such, there is little support for research that focuses on emergency care as a system; such research may be useful to develop policies or procedures that could alleviate ED delivery system concerns. Congress may also wish to consider whether the current emergency care workforce is sufficient; and if Congress determines that it is not, it may wish to consider providing support to develop and sustain the emergency care workforce. Congress may also consider appropriating funds to support the development of crowding quality measures. At present, a number of measures are used to quantify crowding, such as the Emergency Department Work Index, or ED occupancy rate; CMS also collects data on similar measures such as LWBS, and "time spent in the ED before being sent home," but these measures do not reflect the full scope of crowding because they do not reflect the full input-throughput-output model of crowding. EMTALA is the major federal statutory mandate that governs ED care. As such, Congress may consider a number of statutory changes to EMTALA that could improve the flow of ED patients. Specifically, it could consider implementing a number of recommendations made by the EMTALA Technical Advisory Group (TAG) to the HHS Secretary in 2007. The TAG made the following recommendations, which could address some of the issues raised in this report: Require hospitals with specialized behavioral health capabilities, to accept the transfer of patients who are gravely disabled or a danger to themselves or others, or who have an emergent medical condition, if the receiving hospital has the resources and capacity to provide appropriate care. Amend the EMTALA statute to include liability protection for hospitals, physicians, and other licensed independent practitioners who provide services to patients as part of the hospital's EMTALA requirement. Others have suggested providing broader liability protections that are not exclusive to providers serving under the hospital's EMTALA requirements, but that would apply to EMTALA care (see Text Box 5 ). Require that hospitals and medical staff develop and revise an annual plan for on-call coverage that includes, at a minimum, evaluation of the following factors: (1) advertised and licensed hospital capabilities and services provided, (2) community demand for ED services as determined by ED visits, (3) transfers out of hospital for emergency services, (4) physician resources, and (5) past call plan performance. In addition to the TAG's recommendation, Congress may also consider amending the EMTALA statute or the regulations that implement EMTALA to specify that if an ED does not have the capacity to take on additional patients, but the hospital has available inpatient capacity, the inpatient unit must board the patients who would have otherwise been boarded in the ED. Watchful waiting is an option that is always available to Congress. If, for example, Congress determines that many of the challenges that EDs face are driven by the uninsured population or by fragmented care in the delivery system, Congress may consider waiting to see whether the implementation of the ACA's insurance expansion or the ACA's care coordination initiatives alleviate some or all of the current challenges. For this or a number of other reasons, Congress may allow the situation to unfold without further congressional involvement. Improving how EDs function will require system-wide changes in health care delivery, as ED care is affected by a number of factors in the health care delivery system beyond an ED's control. Doing so may have the corollary benefit of reducing health care costs, because ED care is more costly than providing similar treatment in an outpatient setting. In addition, the current delivery challenges that EDs face increase costs because they delay patients' access to timely services. A number of health system factors affect ED care, including insurance coverage; the availability of inpatient hospital care; and the availability of outpatient providers, in general, after hours, and their willingness to accept particular insurance types. Several of these health system factors are in flux, and how such changes play out may improve or harm ED function. For example, the growth of urgent care, retail clinics, and efforts to expand access to insurance and better coordinate care may improve ED operations, but these changes may have unintended consequences and may not affect all EDs equally. Delivery system changes are also occurring in the midst of population-level changes, which may increase the need for ED services because the population is aging with higher rates of chronic disease. Taken together, the issue of ED use and its functioning may require monitoring because a number of the variables that affect it are evolving. | Hospital-based Emergency Departments (EDs) are required to stabilize patients with emergent conditions regardless of the patients' ability to pay as a requirement of the Emergency Medical Treatment and Active Labor Act (EMTALA). Given this requirement, EDs play an important part in the health care safety net by serving the uninsured, the underserved, and those enrolled in Medicaid. Open 24 hours a day, EDs provide emergency care, urgent care, primary care, and behavioral health care services in communities where these services are unavailable or unavailable after hours. EDs also play a key role during emergencies, such as natural disasters. Some EDs are challenged to provide effective care. For example, EDs provide a disproportionate amount of health care to the U.S. population, in general, and to the safety net population, in particular. Specifically, while 4% of all U.S. physicians are ED physicians, they are the treating physicians in 28% of all acute care visits. Some EDs face financial challenges. ED services are costly both to payers, because services provided in an ED are more costly than those provided in community-based settings, and to hospitals, because operating an ED has high fixed costs and because if patients enter with an emergent condition, hospitals are required by EMTALA to stabilize the patient regardless of the patient's ability to pay. As providers of uncompensated safety net care, some EDs are crowded, in part because hospitals lack staff or inpatient beds to transfer patients from the ED, and in part because of the large number of patients who seek care in the ED because care is unavailable or inaccessible in the community. Crowded conditions have resulted in some patients experiencing long wait times, which, at times, delays access to care and results in worse health outcomes. In addition, hospitals, particularly those in urban areas, are regularly diverting ambulances because they are too crowded to accept new patients. This report describes EDs and the role they play in the health care delivery system. It also discusses the federal role and interest in supporting emergency care. The federal government is the largest payer for overall health care, through the Medicare and Medicaid programs. Also, the federal government has made investments in emergency preparedness, programs and efforts that support the health care safety net, and health care access in general. Given these investments, Congress may be interested in EDs because a well-functioning ED system is necessary to provide surge capacity in an emergency. The function of the ED system, in turn, reflects its surrounding community's access to health care services; therefore, understanding the use of EDs, evaluating whether such use is appropriate, and examining strategies employed to reduce inappropriate use may all be of policy interest. This report discusses three commonly identified and interrelated challenges that EDs face: (1) crowding in EDs, (2) providing repeat care to a subset of patients who are frequent users, and (3) providing care to a large population who have behavioral health conditions when an ED lacks the appropriate resources to provide such treatment. Finally, this report concludes with some policy options that Congress might consider to improve ED functioning and reduce payer costs. This report focuses on EDs that are available to the general population; as such, it does not include EDs operated by the Departments of Defense or Veterans Affairs or those operated by the Indian Health Service. |
Pursuant to the United Nations Framework Convention on Climate Change, the United Stateshas published "national inventories of anthropogenic emissions by sources and removals by sinksof all greenhouse gases not controlled by the Montreal Protocol, using comparable methodologies... agreed upon by the Conference of the Parties." (11) (See Table 1 .) Table 1. U.S. Greenhouse Gas Emissions (MMTCE),1990-2001 Source: Environmental Protection Agency, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2001 (April 2003), EPA 430R03004. (Datafor 1991-1994 provided by EPA.) Following international convention, EPA presents the data in teragrams ofCO 2 equivalent; CRS has converted thefigures to million metric tons of carbon equivalent (MMTCE), a metric that is more familiar to most U.S.policymakers. a Land-use changes and forestry sinks that sequester carbon; included in net emissions total only. The Environmental Protection Agency (EPA) publishes the official emissions data annually. (12) The United States also from timeto time reports on emissions andexplains its climate change programs in the Climate Action Report (CAR) to theUnited Nations; the third CAR was published in 2002. (13) The U.S. baselines for the UNFCCC and the Kyoto Protocol are shown in Table 2 . For the UNFCCC commitment, the baseline is 1990 emissions, or 1,675MMTCE; if the United States had acceded to the Kyoto targets, the baseline wouldhave been 1,676 MMTCE, a negligible difference. By definition, sinks are not included in calculating the baselines. Table 2. U.S. Baseline Year Greenhouse Gas Emissions Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990 - 2001) April 2003, EPA 430R03004. The emissions baselines shown in Table 2 are not immutable. Each annual report includes updated estimates based on methodological and data revisions,although such changes are usually small. Revisions are discussed at some length ineach report. The criteria for calculating emissions agreed upon by the Conference ofParties hinge on both current technical knowledge and policy judgments. Newtechnical information can change factors, for example concerning calculation ofgreenhouse gas equivalents; and policy judgments can be adjusted, for exampleconcerning the time frame for calculating effects. In addition, a few technical issuesremain unresolved, for example in assigning emissions from fuels burned ininternational travel. However, any changes tend to be modest, seldom affecting totalsmuch more than plus or minus 1%, except for sequestration figures, which have beensubject to larger changes. (14) Besides actual quantities of emissions, an alternative measure of a nation's contribution to global warming is "greenhouse gas intensity of the economy" -- thatis, emissions per unit of gross domestic product (GDP). In effect, this measurefocuses on the efficiency of the economy in terms of greenhouse gas emissions: themore efficient, the fewer emissions per dollar of economic output and thus the lowerthe "greenhouse gas intensity." For the United States, greenhouse gas intensity hasbeen declining since at least the 1980s; for the 1990s, the decline in intensity wasabout 10%, based on net emissions (15) (see Table 3 ). Projecting greenhouse gas emissions involves modeling the nation's economicgrowth and activity, with special attention to variables affecting fossil fuelcombustion. The modeling also depends on assumptions about energy policydirections. If reducing emissions becomes a goal, then projections become subject to the outcome of unresolved issues in how the emissions reductions goals might bemet. For example, the major source of CO 2 emissions, fossil fuel combustion, is influenced by overall economic activity and growth as well as by energy policydecisions such as development of non-carbon based substitutes, the rate of adoptionof energy efficient technologies, and the retirement rate of nuclear facilities, amongothers. These policy factors are difficult to predict in the absence of a concreteclimate change policy. (16) The climate change planproposed by President Bush inFebruary 2002 provides some new policy directions, but many elements depend oncongressional action (e.g., for funding) or voluntary private sector initiatives, makingprojections of their impact problematic. Table 3. U.S. Greenhouse Gas Intensity (1990-2001) Source: Table 1; Economic Report of the President , February 2003, Table B-2; CRScalculations. The third U.S. Climate Action Report ( CAR 2002 ) projects greenhouse gas emissions at 5-year intervals through 2020. For this report, the projections arefollowed only to 2010 (see Figures 1 and 2 ), because of the difficulties in projectinginto the more distant future. Also, 2010 provides a basis for evaluating a relationshipto the Kyoto Protocol targets. Sources: Historical data (through 2001): EPA, Inventory of U.S. Greenhouse GasEmissions and Sinks: 1990 - 2001 , April 2003, EPA 430R03004, pp.ES-2 - ES-4. Projections (to 2010): U.S. Department of State, Climate Action Report 2002 , May 2002. [Data converted to MMTCE by CRS.] Sources: Historical data (through 2001): EPA, Inventory of U.S. Greenhouse GasEmissions and Sinks: 1990 - 2001 , April 2003, EPA 430R03004, pp.ES-2 - ES-4. Projections (to 2010): U.S. Department of State, Climate Action Report 2002 , May 2002. [Data converted to MMTCE by CRS.] The CAR 2002 estimate for aggregate gross greenhouse emissions (17) in 2010 is 2,213MMTCE (see Figure 3 ). The President's 2002 initiative to reduce greenhouse gas intensityproposes a series of policy initiatives that it estimates "will achieve 100 million tons ofreduced emissions in 2012." (18) Extrapolatingbetween the CAR 2002 projections from 2010to 2015 (a 1.9% annual growth rate), the 2012 projected emission level would be 2,298MMTCE. The President's initiative suggesting a decline in emissions of 100 million tonsin 2012 would reduce this to 2,198 MMTCE, representing a reduction of about 4.4% from"business as usual" gross greenhouse emissions in that year. In addition, largely separatefrom federal activities, a number of state and local governmental initiatives, as well as avariety of private sector activities, are underway to address greenhouse gas emissions. CAR 2002 only makes point estimates, but some sense of the implications of varying assumptions that affect the estimates can be gleaned from examining an alternative sourceof CO 2 emissions data, the Energy Information Agency's (EIA's) Annual Energy Outlook series. (19) (Because of minor differences in datacalculation and presentation, EIA's annualemissions figures differ slightly from EPA's.) The EIA report's projections of CO 2 emissions include sensitivity analyses to various changes in assumptions, and since CO 2 from fuel combustion accounts for about 80% of U.S.greenhouse gas emissions, the analysis is a reasonable test of the projections. Theassumptions EIA examines include economic growth, technological innovation, oil prices,electricity demand, and others. The first two, economic growth and technologicalinnovation, have the greatest effect on variance in projections of CO 2 emissions (see Table4 ). For 2010, compared to EIA's "reference case" (which is equivalent to a "business asusual" case), low economic growth would reduce projected emissions by about 2%, (20) whilehigh economic growth would increase projected emissions by about 3%. Compared to thereference case that assumes anticipated technological developments, static technology wouldresult in emissions rising about 2%, while a "high-technology" case is projected to reduceemissions about 2%. The point reference case -- CAR's point estimate -- effectivelyassumes the several variances affecting emissions cancel out. But if all the variancesincreasing emissions prove true and cumulative, then projected emissions for 2010 could be5% or more higher than the point estimate; conversely, if all the variances decreasingemissions prove true and cumulative, emissions could be 5% or more lower. Sources: Historical data (through 2001): EPA, Inventory of U.S. Greenhouse GasEmissions and Sinks: 1990 - 2001 , April 2003, EPA 430R03004, pp.ES-2 - ES-4. Projections (to 2010): U.S. Department of State, Climate Action Report 2002 , May 2002. [Data converted to MMTCE by CRS.] Upperand lower bound equal + 5% and - 5%, as discussed in text. President's initiative is from documents on theAdministration plan at http://www.whitehouse.gov/news/releases/2002/02/climatechange.html . Table 4. Impact of Economic Assumptions on Projections of CO2Emissions Source: EIA, Annual Energy Outlook 2003 (January 2003) DOE/EIA-0383(2003), pp. 174,218. Some studies suggest that even greater variance in projections is possible -- for example, that new energy-efficient technologies could be deployed more quickly thangenerally assumed if appropriate policies were instituted. A November 2000 DOE study,commonly called the "New 5-Lab Study," shows that energy efficiency gains in thetransportation, industry, commercial, and residential sectors could reduce emissions from the"business as usual" scenario. (21) The "business asusual" scenario in this study is very similarto EIA's reference case, though it projects somewhat smaller emissions in 2010 (1,769MMTCE from fossil fuel combustion, compared to EIA's most recent projection of 1,800). The study compares "moderate" and "advanced" scenarios "that are defined by policies thatare consistent with increasing levels of public commitment and political resolve to solvingthe nation's energy-related challenges." Policies examined include "fiscal incentives,voluntary programs, regulations, and research and development." (22) Under the "moderate scenario," energy efficiency is improved through such policies as expanded labeling, new efficiency standards, tax credits, and cost-shared R&D; renewableenergy grows more rapidly than in the "business as usual" scenario, and a higher proportionof nuclear power is retained. Under the "advanced scenario," which has more aggressivedemand- and supply-side policies and a doubling of R&D, a federally sponsored carbontrading system is announced in 2002 and implemented in 2005 with a clearing equilibriumprice of $50 per ton of carbon. (23) The results ofthis analysis are shown in Table 5 . Table 5. Impact of Technology/Efficiency Assumptions on Projectionsof CO2 Emissions Source: DOE, Interlaboratory Working Group, Scenarios for a Clean Energy Future ,ORNL/CON-476 and LBNL-44029 (Oak Ridge, TN: Oak Ridge National Laboratory;Berkeley, CA: Lawrence Berkeley National Laboratory, 2000), Table 1.8, p. 1.18. This "New 5-Lab Study" thus suggests that if specified policies were adopted, emissions could be considerably lower than even EIA's high-technology scenario indicates, by as muchas 17% compared to EIA's high-technology reduction in emissions of about 2%. EPA andthe Department of Energy (DOE) have underway a number of programs to foster thedevelopment and deployment of energy-efficient technologies. (24) The President's greenhouse gas intensity reduction initiative is a new variable affecting projections. It would have the effect of reducing anticipated emissions below "business asusual" levels in the future (see Figure 3 ); however, the initiative does not reflect the levelof aggressiveness assumed by the "New 5-Lab Study" for policy interventions to achieve its"advanced scenario" for rapid penetration of energy-efficient technologies. Under the UNFCCC, the United States committed to the voluntary goal of holdinggreenhouse gas emissions at the end of the 1990s to their 1990 levels. If the United Stateshad met this goal, its greenhouse gas emissions for 2000 would have been 1,675 MMTCE. However, U.S. emissions in 2000 were 1,921 MMTCE (not counting sinks). These figuresindicate that in 2000, the nation was exceeding its UNFCCC greenhouse gas emissionscommitment by 246 MMTCE, or nearly 15%. If the United States had acceded to the Kyoto Protocol, its greenhouse gases emissions target for the period 2008-2012 would have been 5 times 93% of the 1,676 MMTCEbaseline, or 1,559 MMTCE on average per year for the period. This hypothetical goal wouldimply reductions equal to the difference between the goal and what would be "business asusual emissions" for the period 2008-2012. Based on the CAR projection that emissions willbe 2,213 MMTCE in 2010, the average annual reduction that would be necessary for theUnited States to meet the Kyoto target of 1,559 MMTCE per year for 2008-2012 would be654 MMTCE per year, or about 30% below the estimated level of "business as usual"emissions. Higher than base case economic growth or lower penetration of energy-efficienttechnologies would mean that emissions would be even higher (and reductions necessary tomeet a goal like Kyoto greater). Slower economic growth, or faster penetration ofenergy-efficient technologies as suggested by the 5-Lab Study, would decrease emissions(and hence reductions to meet a goal). The President's greenhouse gas initiative has the goal of reducing, through voluntary activities, the intensity of net greenhouse gas emissions per unit of economic activity by 18%over the next 10 years; this compares to a projected "business as usual" decline in intensityof 14% for the period -- compared to a decline during the 1990s of about 10% (see Table3 ). According to the White House announcement, this goal means that the current (2002)intensity of 183 metric tons of carbon emissions per million dollars of GDP would fall to 151MMTCE per million dollars of GDP in 2012 (see Figure 4 ). (25) At the anticipated increasedrate of intensity decline, total emissions would decline 100 MMTCE below "business asusual" emissions (although the absolute amount of emissions would continue to rise). It istoo early to assess progress toward the Administration's goal of diminishing greenhouse gasintensity. Source: Global Climate Change Policy Book http://yosemite.epa.gov/oar/globalwarming.nsf/UniqueKeyLookup/SHSU5BNMAJ/$File/bush_gccp_021402.pdf These projected emissions levels (and any implied reductions) are gross estimates and do not take sinks into account (except for the intensity projection). As previously noted, thebaseline could be revised, at least slightly. More important, such projections depend onassumptions about economic trends as well as about policy actions at the local, domestic, andinternational levels. However, whatever the assumptions, the trend in total emissionsexperienced over the past decade and projected for the next decade is clearly upward, whilethe UNFCCC goal was for stabilization and the Kyoto Protocol calls for emissions levelsof developed nations to decline. If one is concerned about assessing the implications of possible reduction requirementsin the future, two further factors must be considered. One is sequestration, which removesCO 2 from the atmosphere, thereby reducing gross emissions. The second is a series ofproposed trading mechanisms that could allow a country to take credit for reductions itsponsors in other countries. The United States was a strong supporter of including both thesevariables in the Kyoto Protocol. Sequestration could directly diminish a country's reductionrequirement; trading does not change a reduction requirement, but it could affect costs andwho would actually achieve the reductions. Carbon Sequestration. Atmospheric greenhouse gas levels are affected not only by emissions, but also by carbon sinks --processes that remove and sequester carbon from the atmosphere. Activities that affectsequestration include farming and forestry practices. For example, a positive net growth oftrees removes carbon from the atmosphere; clearing forests typically releases carbon. Table1 , "U.S. Greenhouse Gas Emissions, 1990 -2001," includes figures for carbon sequestrationfrom land-use activities and forestry, which are the difference between "total emissions" and"net emissions." The UNFCCC states that signatory nations shall commit to "promote sustainable management, and promote and cooperate in the conservation and enhancement, asappropriate, of sinks and reservoirs of all greenhouse gases ... , including biomass, forestsand oceans as well as other terrestrial, coastal and marine ecosystems" (Article 4(1)(d)). The Kyoto Protocol also would provide that sinks can be taken into account in calculating a nation's emissions and its reduction obligation. "The net changes ingreenhouse gas emissions from sources and removals by sinks resulting from directhuman-induced land-use change and forestry activities, limited to afforestation, reforestation,and deforestation since 1990, measured as verifiable changes in stocks ... shall be used tomeet" the 2008-2012 commitments (Article 3(3)). In general, then, a net increase inhuman-induced carbon sequestration from forestry practices between 1990 and 2008-2012would be subtracted from emissions during the period, thereby reducing the amount of actualemissions that will have to be curtailed. Conversely, net negative sequestration from forestrypractices would be added to the emissions that will have to be reduced. Just how this calculation would be done is not prescribed in the Protocol, and disagreements on how much carbon sequestration could be counted toward a nation'sreduction obligations were debated through several subsequent conferences. In July 2001,the Sixth Conference of Parties in Bonn (COP6) agreed to limits on sequestration activitiesthat could be credited against the Protocol's reduction requirements. Although the UnitedStates chose not to participate in these proceedings, the Conference stated in a footnote (26) thatunder the methodology agreed upon, the United States could take credit for net increases ofsequestration of up to 28 million metric tons per year. Emissions Trading. Emissions trading, strongly supported by the United States in the Kyoto negotiations, derives from the principleof economic efficiency -- that reductions, if necessary, should be achieved at the lowestcost. Trading mechanisms thus are designed to allow low-cost reductions to substitute forhigher-cost ones. The idea is that a country could achieve its reduction goal not only byreducing its domestic emissions, but also by reducing emissions elsewhere. Trading does notactually reduce a nation's reduction requirement, but it does allow it to contract for and tocount reductions elsewhere that are cheaper to achieve than domestic ones. The Kyoto Protocol provides for emissions trading mechanisms (27) that can be used to"supplement" domestic reductions; this offers the possibility that actual domestic greenhousegas reductions achieved by a party to the Kyoto Protocol will be less than the party's actualcommitment. Some portion of the reduction requirement could be shifted elsewhere. TheClinton Administration argued that emission trading would be critical to U.S. compliancewith Kyoto; (28) a Clinton Administration economicanalysis suggested that U.S. compliancecosts would drop from $193 per ton with no international emissions trading to $23 per tonwith global trading. (29) COP6 agreed that therewould be no quantitative limit on the amountof credit a country could receive from trading, but that domestic action must constitute asignificant part of a nation's reduction efforts. (30) With no quantitative limit on trading, anyestimate of actual domestic reduction required to comply with the Kyoto Protocol, or of thecosts involved, remains problematic -- and is moot as long as the United States declines toparticipate in the Kyoto process. The precise numerical projections of greenhouse gas emissions (or of proposedreductions) should be viewed as indicative (see Figure 3 ). They are less accurate than theyappear, given the potential for revisions in data and the uncertainties of projections. But inassessing the status of U.S. greenhouse gas emissions, the trendline for aggregate greenhousegas emissions is clear: for the United States, the overall trend is up. None of the reviewedscenarios using assumptions that diminish emissions -- low economic growth, putting offretirement of nuclear facilities, accelerated fostering of energy-efficient technologies, thePresident's voluntary program to reduce greenhouse gas intensity -- reverses the upwardtrend in aggregate greenhouse gas emissions by 2010. (31) Historical data show that the United States failed to meet its voluntary commitment under the UNFCCC for returning aggregate emissions at the end of the 1990s decade to the1990 level. Any goal to reduce emissions to or below 1990 levels would require thecontinuing upward trend to turn down. Even with the potential for sequestration andemissions trading to reduce domestic reduction efforts, a goal to reverse greenhouse gasemissions trends would represent an extraordinary technical and political challenge for U.S.energy and environmental policy. | This report reviews U.S. emissions of greenhouse gases in the contexts both of domestic policy and of international obligations and proposals. On October 15, 1992, the United States ratified theUnited Nations Framework Convention on Climate Change (UNFCCC), which entered into forceon March 21, 1994. This committed the United States to "national policies" to limit "itsanthropogenic emissions of greenhouse gases," with a voluntary goal of returning "emissions ofcarbon dioxide [CO 2 ] and other greenhouse gases [methane (CH 4 ), nitrous oxide(N 2 O),hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF 6 )]" at the "endof the decade" to "their 1990 levels." Subsequently, in the 1997 Kyoto Protocol to the UNFCCC, the United States participated in negotiations that ended with agreement on further reductions that could become legally binding. TheUnited States signed the Kyoto Protocol in 1998, but President Clinton did not send it to the Senatefor advice and consent. President Bush has said that he rejects the Protocol, and former U.S.Environmental Protection Agency Administrator Christine Todd Whitman told reporters that theAdministration would not be pursuing the UNFCCC commitment either. Instead, President Bushhas proposed to shift the nation's climate change program from a goal of reducing emissions per seto a goal of reducing energy intensity -- the amount of greenhouse gases emitted per unit ofeconomic productivity. Under the proposal, the intensity, which has been declining for a numberof years, would decline 18% between 2002 and 2012, as opposed to a 14% projected "business asusual" decline. Meanwhile, the UNFCCC "end of the decade" deadline has passed and U.S. greenhouse gas emissions continue on an upward trend, though with dips in 1991 and in 2001, attributed mostly toeconomic slowdowns. Based on historical data, 2001 emissions were about 13% in excess of theUNFCCC goal. Overall, from 1990 to 2001, U.S. greenhouse gas emissions (weighted by globalwarming potential) have increased an average of about 1.1% per year. Projections suggest that U.S.emissions will continue to rise for at least the next decade. Reversing the upward trend ingreenhouse gas emissions would represent an extraordinary technical and political challenge to U.S.energy and environmental policy. This report will be updated as necessary. |
The world meets 25% of its primary energy demand with coal, a number projected to increase steadily over the next 25 years. Overall, coal is responsible for about 20% of global greenhouse gas emissions. With respect to carbon dioxide (CO 2 ), the most prevalent greenhouse gas, coal combustion was responsible for 41% of the world's CO 2 emissions in 2005 (11 billion metric tons). Coal is particularly important for electricity supply. In 2005, coal was responsible for about 46% of the world's power generation, including 50% of the electricity generated in the United States, 89% of the electricity generated in China, and 81% of the electricity generated in India. Coal-fired power generation is estimated to increase 2.3% annually through 2030, with resulting CO 2 emissions estimated to increase from 7.9 billion metric tons per year to 13.9 billion metric tons per year. For example, during 2006, it is estimated that China added over 90 gigawatts (GW) of new coal-fired generating capacity, potentially adding an additional 500 million metric tons of CO 2 to the atmosphere annually. Developing a means to control coal-derived greenhouse gas emissions is an imperative if serious reductions in worldwide emissions are to occur in the foreseeable future. Developing technology to accomplish this task in an environmentally, economically, and operationally acceptable manner has been an ongoing interest of the federal government and energy companies for a decade, but no commercial system to capture and store these emissions is currently available for large-scale coal-fired power plants. Arguably the most economic and technologically challenging part of the carbon capture and sequestration (CCS) equation is capturing the carbon and preparing it for transport and storage. Depending on site-specific conditions, the capture component of a CCS system can be the dominant cost-variable, and the component that could be improved most dramatically by further technological advancement. As indicated in Table 1 , capture costs could be 5-10 times the cost of storage. Breakthrough technologies that substantially reduce the cost of capturing CO 2 from existing or new power plants, for example by 50% or more, would immediately reshape the economics of CCS. Moreover, technological breakthroughs would change the economics of CCS irrespective of a regulatory framework that emerges and governs how CO 2 is transported away from the power plant and sequestered underground. In contrast, the cost of transporting CO 2 and sequestering it underground is likely less dependent on technological breakthroughs than on other factors, such as: the costs of construction materials and labor (in the case of pipelines for CO 2 transport); the degree of geologic characterization required to permit sequestration; the requirements for measuring, monitoring, and verifying permanent CO 2 storage; the costs of acquiring surface and subsurface rights to store CO 2 ; costs of insurance and long-term liability; and other variables driving the cost of transportation and sequestration. That is not to say that the transportation and storage components of CCS are independent of cost and timing. Depending on the degree of public acceptance of a large-scale CCS enterprise, the transportation and sequestration costs could be very large, and it may take years to reach agreement on the regulatory framework that would guide long-term CO 2 sequestration. But the variables driving cost and timing for the transportation and storage of CO 2 are less amenable to technological solution. This report examines the current effort to develop technology that would capture CO 2 . First, the report outlines the current status of carbon capture technology. Second, the report examines the role of government in developing that technology, both in terms of creating a market for carbon capture technology and encouraging development of the technology. Finally, the report concludes with a discussion of implications of capture technology for climate change legislation. Major reductions in coal-fired CO 2 emissions would require either pre-combustion, combustion modification, or post-combustion devices to capture the CO 2 . Because there is currently over 300 GW of coal-fired electric generating capacity in the United States and about 600 GW in China, a retrofittable post-combustion capture device could have a substantial market, depending on the specifics of any climate change program. The following discussion provides a brief summary of technology under development that may be available in the near term. It is not an exhaustive survey of the technological initiatives currently underway in this area, but illustrative of the range of activity. Funding for current government research and development activities to improve these technologies and move them to commercialization are discussed later. Post-combustion CO 2 capture involves treating the burner exhaust gases immediately before they enter the stack. The advantage of this approach is that it would allow retrofit at existing facilities that can accommodate the necessary capturing hardware and ancillary equipment. In this sense, it is like retrofitting post-combustion sulfur dioxide (SO 2 ), nitrogen oxides (NOx), or particulate control on an existing facility. A simplified illustration of this process is provided in Figure 1 . Post-combustion processes capture the CO 2 from the exhaust gas through the use of distillation, membranes, or absorption (physical or chemical). The most widely used capture technology is the chemical absorption process using amines (typically monoethanolamine (MEA)) available for industrial applications. Pilot-plant research on using ammonia (also an amine) as the chemical solvent is currently underway with demonstration plants announced. These approaches to carbon capture are discussed below. Numerous other solvent-based post-combustion processes are in the bench-scale stage. The MEA CO 2 carbon capture process is the most proven and tested capture process available. The basic design (common to most solvent-based processes) involves passing the exhaust gases through an absorber where the MEA interacts with the CO 2 and absorbs it. The now CO 2 -rich MEA is then pumped to a stripper (also called a regenerator) which uses steam to separate the CO 2 from the MEA. Water is removed from the resulting CO 2 , which is compressed while the regenerated MEA is purged of any contaminants (such as ammonium sulfate) and recirculated back to the absorber. The process can be optimized to remove 90-95% of the CO 2 from the flue gas. Although proven on an industrial scale, it has not been applied to the typically larger volumes of flue gas streams created by coal-fired power plants. The technology has three main drawbacks that would make current use on a coal-fired power plant quite costly. First is the need to divert steam away from its primary use—generating electricity—to be used instead for stripping CO 2 from MEA. A second related problem is the energy required to compress the CO 2 after it's captured—needed for transport through pipelines—which lowers overall power plant efficiency and increases generating costs. A study by the Massachusetts Institute of Technology (MIT) estimated the efficiency losses from the installation of MEA from 25%-28% for new construction and 36%-42% for retrofit on an existing plant. This loss of efficiency comes in addition to the necessary capital and operations and maintenance cost of the equipment and reagents. For new construction, the increase in electricity generating cost on a levelized basis would be 60%-70%, depending on the boiler technology. In the case of retrofit plants where the capital costs were fully amortized, the MEA capture process would increase generating costs on a levelized basis by about 220%-250%. A third drawback is degradation of the amine through either overheating (over 205 degrees Fahrenheit [F]) in the absorber or through oxidation from oxygen introduced in the wash water, chemical slurry, or flue gas that reacts with the MEA. For example, residual SO 2 in the flue gas will react with the MEA to form ammonium sulfate that must be purged from the system. This could be a serious problem for existing plants that do not have highly efficient flue gas desulfurization (FGD) or selective catalytic reduction (SCR) devices (or none), requiring either upgrading of existing FGD and SCR equipment, or installation of them in addition to the MEA process. One approach to addressing the shortcomings of MEA identified above is to use an MEA-based formulation of different amines. The goal of the formulation is improve the reaction rates and CO 2 carrying capacity of the solvent under typical power plant conditions. One such proprietary amine-based technology has been developed by Fluor (called Economine FG Plus). Fluor states that its MEA-based solvent is specially formulated to recover CO 2 from low pressure, oxygen-containing streams, such as boiler stack gases found in conventional coal-fired power plants. The treatment process is similar to generic gas treating processes, using simple, time-tested gas treating equipment. To address contamination of the solvent, the Fluor technology focuses on cleaning up impurities in the flue gas (e.g., SO 2 , NOx, hydrochloric acid, and hydrofluoric acid) in order to inhibit the formulation of ammonium sulfate and other heat-stable salts. Thus the process requires installation of modern SO 2 (with additional enhancements), NOx, Hg, and particulate controls upstream of the carbon capture technology to address the impurities. Solvent temperature issues are dealt with through the use of an intercooler system within the absorber. Finally, other enhancements in the process reduce the process energy consumption. Fluor's technology has significant experience on a small commercial scale, including the only CO 2 recovery unit that has operated on the flue gas of a natural gas-fired turbine power plant under typical power plant conditions. Between 1991 and 2005, the Fluor facility at the Bellingham, MA, power plant captured 360 shorts tons of CO 2 daily for use in the food and beverage industry. In September 2009, NRG Energy and Fluor announced that Economine FG Plus would be installed on a 60 megawatt (MW) slipstream at NRG's WA Parish plant (Unit 7) in Texas, with a plan to be operational by 2013. The captured CO 2 would be sold or used for enhanced oil recovery (EOR). DOE will provide up to $154 million toward the project. Other combinations of amines and other chemicals have been developed to increase the efficiency and reduce the energy requirements of capture processes. Using blends of water, amines, and other chemicals developed by the University of Regina's International Test Centre for CO 2 Capture, the Purenergy CCS Capture System is designed to be modular, shop-built, and transported to the site. Currently a module is designed to handle the flow of a 50 MW facility with multi-unit train installation possible. In December 2009, a commercial demonstration for Purenergy CCS was announced by Basin Electric and HTC Pure Energy, using a 20 MW slipstream at Basin Electric's Antelope Valley Station in North Dakota. Commercial operation is planned for 2012. The CO 2 produced will be transported via an existing CO 2 pipeline to Canada for use in EOR. An approach to mitigating the oxidation problem identified above is to use an ammonia-based solvent rather than MEA. Ammonia is an amine that absorbs CO 2 at a slower rate than MEA. In a chilled ammonia process, the flue gas temperature is reduced from about 130 degrees F to about 35-60 degrees F. This lower temperature has two benefits: (1) it condenses the residual water in the flue gas, which minimizes the volume of flue gas entering the absorber; and (2) it causes pollutants in the flue gas, such as SO 2 , to drop out, reducing the need for substantial upgrading of upstream control devices. Using a slurry of ammonium carbonate and ammonium bicarbonate, the solvent absorbs more than 90% of the CO 2 in the flue gas. The resulting CO 2 -rich ammonia is regenerated and the CO 2 is stripped from the ammonia mixture under pressure (300 pounds per square inch [psi] compared with 15 psi using MEA), reducing the energy necessary to compress the CO 2 for transportation (generally around 1,500 psi). The chilled ammonia process is a proprietary process, owned by Alstom. In collaboration with American Electric Power (AEP) and RWE AG (the largest electricity producer in Germany), Alstom began operating its technology on a 20 MW slipstream at AEP's Mountaineer plant in West Virginia in September 2009 and injecting the captured CO 2 into deep saline formations onsite in October 2009. In March 2010, AEP received an award from DOE to cover as much as half the estimated $668 million cost required to scale up the Mountaineer project to capture and store CO 2 from a 235 MW slipstream (approximately 1.5 million tons annually). Once commercial viability is demonstrated at Mountaineer, AEP plans to install the technology at its 450 MW Northeastern Station in Oologah, OK, early in the next decade. The captured gas would be used for EOR. The target is for full commercialization in 2015. A second ammonia-based, regenerative process for CO 2 capture from existing coal-fired facilities does not involve chilling the flue gas before it enters the absorber. Using higher flue gas temperatures increases the CO 2 absorption rate in the absorber and, therefore, the CO 2 removal. However, the higher flue gas temperatures also mean that upgrades to existing FGD devices would be necessary. This process, called ECO 2 , is being developed by Powerspan. Powerspan announced test results for its 1 MW pilot unit, located at FirstEnergy Corp's R.E. Burger Plant, in December 2009. The pilot plant tests suggest that carbon capture and compression costs with ECO 2 are below $50 a ton at 90% reduction. Currently, a requirement for the pre-combustion capture of CO 2 is the use of Integrated Gasification Combined-Cycle (IGCC) technology to generate electricity. There are currently four commercial IGCC plants worldwide (two in the United States) each with a capacity of about 250 MW. The technology has yet to make a major breakthrough in the U.S. market because its potential superior environmental performance is currently not required under the Clean Air Act, and as discussed above for carbon capture technology, its higher costs can not be justified (see the Virginia State Corporation Commission decision, discussed below). Carbon capture in an IGCC facility would happen before combustion, under pressure using a physical solvent (e.g., Selexol and Rectisol processes), or a chemical solvent (e.g., methyl diethanolaimine (MDEA)). A simplified illustration of this process is provided in Figure 2 . Basically, the IGCC unit pumps oxygen and a coal slurry into a gasifier to create a syngas consisting of carbon monoxide and hydrogen. The syngas is cleaned of conventional pollutants (SO 2 , particulates) and sent to a shift reactor which uses steam and a catalyst to produce CO 2 and hydrogen. Because the gases are under substantial pressure with a high CO 2 content, a physical solvent can separate out the CO 2 . The advantage of a physical solvent is that the CO 2 can be freed and the solvent regenerated by reducing the pressure—a process that is substantially less energy intensive than having to heat the gas as in an MEA stripper. From the capture process, the CO 2 is further compressed for transportation or storage, and the hydrogen is directed through gas and steam cycles to produce electricity. MIT estimates the efficiency loss from incorporating capture technology on an IGCC facility is about 19% (from 38.4% efficiency to 31.2%). This loss of efficiency comes in addition to the necessary capital and operations and maintenance cost of the equipment and reagents. For new construction, the estimated increase in electricity generating cost on a levelized basis generally ranges from 22%-25%, with American Electric Power estimating the cost increase at 41%. There is a lot of activity surrounding the further commercialization of IGCC technology and in the demonstration of carbon capture methods on that technology. As illustrated in Figure 3 , numerous projects are currently in the development pipeline. The FutureGen initiative—delayed by DOE's decision to restructure the program in early 2008 and subsequently revived in 2009 with funding from P.L. 111-5 —may influence how other IGCC projects develop (see box below ). Attempts to address CO 2 during the combustion stage of generation focus on increasing the CO 2 concentration of the flue gas exiting the boiler. The more concentrated the CO 2 is when it exits the boiler, the less energy (and cost) is required later to prepare it for transport or storage. The most developed approach involves combusting the coal with nearly pure oxygen (>95%) instead of air, resulting in a flue gas consisting mainly of highly concentrated CO 2 and water vapor. Using existing technology, the oxygen would be provided by an air-separation unit—an energy-intensive process that would be the primary source of reduced efficiency. The details of this "oxy-fuel" process are still being refined, but generally, from the boiler the exhaust gas is cleaned of conventional pollutants (SO 2 , NOx, and particulates) and some of the gases recycled to the boiler to control the higher temperature resulting from coal combustion with pure oxygen. The rest of the gas stream is sent for further purification and compression in preparation for transport and/or storage. Depending on site-specific conditions, oxy-fuel could be retrofitted onto existing boilers. A simplified illustration of this process is provided in Figure 4 . The largest oxy-fuel demonstration projects under development are the Vattenfall Project in Germany and the Callide Oxyfuel Project in Queensland, Australia. The Vattenfall project is a 30 MW pilot plant being constructed at Schwarze Pumpe, which began operation in September 2008. The captured CO 2 will be put in geological storage once siting and permitting processes are completed. The Callide Project is being sponsored by CS Energy, who, with six partners, is retrofitting a 30 MW boiler at its Callide-A power station with an oxy-fuel process. Operation of the oxy-fuel process is scheduled for 2011, with transport and geological storage of the CO 2 planned for 2011. Numerous other bench- and pilot-plant scale initiatives are underway with specific work being conducted on improving the efficiency of the air-separation process. MIT estimates the efficiency losses from the installation of oxy-fuel at 23% for new construction and 31%-40% for retrofit on an existing plant (depending on boiler technology). This loss of efficiency comes in addition to the necessary capital and operations and maintenance cost of the equipment and reagents. For new construction, the increase in electricity generating cost on a levelized basis would be about 46%. In the case of retrofit plants where the capital costs are fully amortized, the oxy-fuel capture process would increase generating costs on a levelized basis by about 170%-206%. As summarized in Table 2 , CO 2 capture technology is currently estimated to significantly increase the costs of electric generation from coal-fired power plants. Research is ongoing to improve the economics and operation of carbon capture technology. DOE's National Energy Technology Laboratory (NETL) is supporting a variety of carbon capture technology research and development (R&D) projects for pre-combustion, oxy-combustion, and post-combustion applications. A detailed description of all the NETL projects, and of carbon capture technology R&D efforts in the private sector, is beyond the scope of this report. However, funding from DOE (described later) is supporting approximately two dozen carbon capture research projects that range from bench-scale to pilot-scale testing. The types of research explored in the NETL-supported projects include the use of membranes, physical solvents, oxy-combustion, chemical sorbents, and combinations of chemical and physical solvents. According to the NETL, these technologies will be ready for slipstream tests by 2014 and for large-scale field testing by 2018. As discussed above, some projects pursued by the private sector are ready for pilot-scale testing (e.g., the AEP Mountaineer project in West Virginia). Generally, studies that indicate that emerging, less carbon-intensive new technologies are both available and cost-effective incorporate a price mechanism (such as a carbon tax) that provides the necessary long-term price signal to direct research, development, demonstration, and deployment efforts (called "demand-pull" or "market-pull" mechanisms). Developing such a price signal involves variables such as the magnitude and nature of the market signal, and its timing, direction, and duration. In addition, studies indicate combining a sustained price signal with public support for research and development efforts is the most effective long-term strategy for encouraging development of new technology (called "technology-push" mechanisms). As stated by Richard D. Morgenstern: "The key to a long term research and development strategy is both a rising carbon price, and some form of government supported research program to compensate for market imperfections." The various roles the government could take in encouraging development of environmental technologies are illustrated in Figure 5 . The federal role in the innovation process is a complex one, reflecting the complexity of the innovation process itself. The inventive activity reflected by government and private research and development efforts overlap with demand pull mechanisms to promote or require adoption of technology, shaping the efforts. Likewise, these initiatives are facilitated by the government as a forum for feedback gained through both developed and demonstration efforts and practical application. The process is interlinked, overlapping, and dynamic, rather than linear. Attempting to implement one role in a vacuum can result in mis-directed funding or mis-timing of results. This section discusses these different roles with respect to encouraging development of carbon capture technology, including (1) the need for a demand-pull mechanism and possible options; (2) current technology-push efforts at the U.S. Department of Energy (DOE) and the questions they raise; and (3) comparison of current energy research and development efforts with past mission-oriented efforts. Economists note that the driving force behind the development of new and improved technologies is the profit motive.... However, market forces will provide insufficient incentives to develop climate-friendly technologies if the market prices of energy inputs do not fully reflect their social cost (inclusive of environmental consequences).... Even if energy prices reflect all production costs, without an explicit greenhouse gas policy firms have no incentive to reduce their greenhouse gas emissions per se beyond the motivation to economize on energy costs. For example, a utility would happily find a way to generate the same amount of electricity with less fuel, but without a policy that makes carbon dioxide emissions costly, it would not care specifically about the carbon content of its fuel mix in choosing between, say, coal and natural gas. For firms to have the desire to innovate cheaper and better ways to reduce emissions (and not merely inputs), they must bear additional financial costs for emissions. Much of the focus of debate on developing carbon capture technology has been on research, development, and demonstration (RD&D) needs. However, for technology to be fully commercialized, it must meet a market demand—a demand created either through a price mechanism or a regulatory requirement. As suggested by the previous discussion, any carbon capture technology for coal-fired power plants will increase the cost of electricity generation from affected plants with no increase in efficiency. Therefore, widespread commercialization of such technology is unlikely until it is required, either by regulation or by a carbon price. Indeed, regulated industries may find their regulators reluctant to accept the risks and cost of installing technology that is not required by legislation. This sentiment was reflected in a recent decision by the Virginia State Corporation Commission in denying an application by Appalachian Power Company (APCo) for a rate adjustment to construct an IGCC facility: The Company asserted that the value of this project is directly related to (1) potential future legal requirements for carbon capture and sequestration; and (2) the proposed IGCC Plant's potential ability to comply cost effectively with any such requirements. Both of these factors, however, are unknown at this time and do not overcome the other infirmities in the Application. The legal necessity of, and the capability of, cost-effective carbon capture and sequestration in this particular IGCC Plant, at this time, has not been sufficiently established to render APCo's Application reasonable or prudent under the Virginia Statute we must follow. At the same time, there is reluctance to invest in technology that is not required, and the unresolved nature of greenhouse gas regulation is affecting investment in any coal-fired generation. The risk involved in investing in coal-fired generation absent anticipated greenhouse gas regulations is outlined in "The Carbon Principles" announced by three Wall Street banks—Citi, JP Morgan Chase, and Morgan Stanley—in February 2008. As stated in their paper: The absence of comprehensive federal action on climate change creates unknown financial risks for those building and financing new fossil fuel generation resources. The Financial Institutions that have signed the Principles recognize that federal CO 2 control legislation is being considered and is likely to be adopted during the service life of many new power plants. It is prudent to take concrete actions today that help developers, investors and financiers to identify, analyze, reduce and mitigate climate risks. Similarly, lack of a regulatory scheme presents numerous risks to any RD&D effort designed to develop carbon capture technology. Unlike a mission-oriented research effort, like the Manhattan Project to develop an atomic bomb, where the ultimate goal is victory and the cost virtually irrelevant, research efforts focused on developing a commercial device need to know what the market wants in a product and how much the product is worth. At the current time, the market value of a carbon capture device is zero in much of the country because there is no market for carbon emissions or regulations requiring their reduction. All estimates of value are hypothetical—dependent on a reduction program or regulatory regime that doesn't exist. With no market or regulatory signals determining appropriate performance standards and cost-effectiveness criteria, investment in carbon capture technology is a risky business that could easily result in the development of a "white elephant" or "gold-plated" technology that doesn't meet market demand. While the "threat" of a carbon regime is stimulating RD&D efforts and influencing decisions about future energy (particularly electricity) supply, the current spread of greenhouse gas control regimes being proposed doesn't provide much guidance in suggesting appropriate performance and cost-effectiveness benchmarks for a solution with respect to coal-fired generation. For example, isolating just one variable in the future price of carbon under a cap-and-trade program—tonnage reduction requirement—the future value of carbon reductions can vary substantially. As illustrated by Figure 6 , three possible reduction targets in 2050—maintaining current 2008 levels (287 billion metric tons [bmt]), reducing emissions to 50% of 1990 levels (203 bmt), and reducing emissions to 20% of 1990 levels (167 bmt)—result in substantially different price tracks for CO 2 . Without a firm idea of the tonnage goal and reduction schedule, any deployment or commercialization strategy would be a high-risk venture, as suggested by the previously noted Virginia State Corporation Commission conclusion. There are two basic approaches to a demand-pull mechanism: (1) a regulatory requirement, and (2) a price signal via a market-based CO 2 reduction program. These approaches are not mutually exclusive and can serve different goals. For example, a regulation focused on new construction (such as the New Source Performance Standard under Section 111 of the Clean Air Act ) could be used to phase in deployment of carbon capture technology and prevent more coal-fired facilities from being constructed without carbon capture (or ensure they would be at least "ready" for carbon capture later). At the same time, a carbon tax or cap-and-trade program could be initiated to begin sending a market signal to companies that further controls will be necessary in the future if they decide to continue operating coal-fired facilities. It is an understatement to say that the new source performance standards promulgated by the EPA were technology-forcing. Electric utilities went from having no scrubbers on their generating units to incorporating very complex chemical processes. Chemical plants and refineries had scrubbing systems that were a few feet in diameter, but not the 30- to 40-foot diameters required by the utility industry. Utilities had dealt with hot flue gases, but not with saturated flue gases that contained all sorts of contaminants. Industry, and the US EPA, has always looked upon new source performance standards as technology-forcing, because they force the development of new technologies in order to satisfy emissions requirements. The most direct method to encourage adoption of carbon capture technology would be to mandate it. Mandating a performance standard on coal-fired power plants is not a new idea; indeed, Section 111 of the Clean Air Act requires the Environmental Protection Agency (EPA) to develop New Source Performance Standards (NSPS) for any new and modified power plant (and other stationary sources) that in the Administrator's judgment "causes, or contributes significantly to, air pollution which may reasonably be anticipated to endanger public heath or welfare." NSPS can be issued for pollutants for which there is no National Ambient Air Quality Standard (NAAQS), like carbon dioxide. In addition, NSPS is the floor for other stationary source standards such as Best Available Control Technology (BACT) determinations for Prevention of Significant Deterioration (PSD) areas and Lowest Achievable Emission Rate (LAER) determinations for non-attainment areas. The process of forcing the development of emission controls on coal-fired power plants is illustrated by the 1971 and 1978 SO 2 NSPS for coal-fired electric generating plants. The Clean Air Act states that NSPS should reflect "the degree of emission limitation achievable through the application of the best system of emission reduction which (taking into account the cost of achieving such reductions and any non-air quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated." In promulgating its first utility SO 2 NSPS in 1971, EPA determined that a 1.2 pound of SO 2 per million Btu of heat input performance standard met the criteria of Sec. 111—a standard that required, on average, a 70% reduction in new power plant emissions, and could be met by low-sulfur coal that was available in both the eastern and western parts of the United States, or by the use of emerging flue gas desulfurization (FGD) devices. At the time the 1971 Utility SO 2 NSPS was promulgated, there was only one FGD vendor (Combustion Engineering) and only three commercial FGD units in operation—one of which would be retired by the end of the year. This number would increase rapidly, not only because of the NSPS, but also because of the promulgation of the SO 2 NAAQS, the 1973 Supreme Court decision preventing significant deterioration of pristine areas, and state requirements for stringent SO 2 controls, which opened up a market for retrofits of existing coal-fired facilities in addition to the NSPS focus on new facilities. Indeed, most of the growth in FGD installations during the early and mid-1970s was in retrofits—Taylor estimates that between 1973 and 1976, 72% of the FGD market was in retrofits. By 1977, there were 14 vendors offering full-scale commercial FGD installation. Despite this growth, only 10% of the new coal-fired facilities constructed between 1973 and 1976 had FGD installations. In addition, the early performance of these devices was not brilliant. In 1974, American Electric Power (AEP) spearheaded an ad campaign to have EPA reject FGD devices as "too unreliable, too impractical for electric utility use" in favor of tall stacks, supplementary controls, and low-sulfur western coal. This effort was ultimately unsuccessful as the Congress chose to modify the NSPS requirements for coal-fired electric generators in 1977 by adding a "percentage reduction" requirement. As promulgated in 1979, the revised SO 2 NSPS retained the 1971 performance standard but added a requirement for a 70%-90% reduction in emissions, depending on the sulfur content of the coal. At the time, this requirement could be met only through use of an FGD device. The effect of the "scrubber requirement" is clear from the data provided in Figure 7 . Based on their analysis of FGD development, Taylor, Rubin, and Hounshell state the importance of demand-pull instruments: Results indicate that: regulation and the anticipation of regulation stimulate invention; technology-push instruments appear to be less effective at prompting invention than demand-pull instruments; and regulatory stringency focuses inventive activity along certain technology pathways. That government policy could force the development of a technology through creating a market should not suggest that the government was limited to that role, or that the process was smooth or seamless. On the latter point, Shattuck, et al., summarize the early years of FGD development as follows: The Standards of Performance for New Sources are technology-forcing, and for the utility industry they forced the development of a technology that had never been installed on facilities the size of utility plants. That technology had to be developed, and a number of installations completed in a short period of time. The US EPA continued to force technology through the promulgation of successive regulations. The development of the equipment was not an easy process. What may have appeared to be the simple application of an equipment item from one industry to another often turned out to be fraught with unforeseen challenges. The example indicates that technology-forcing regulations can be effective in pulling technology into the market—even when there remains some operational difficulties for that technology. The difference for carbon capture technology is that for long-term widespread development, a new infrastructure of pipelines and storage sites may be necessary in addition to effective carbon capture technology. In the short-term, suitable alternatives, such as enhanced oil recovery needs and in-situ geologic storage, may be available to support early commercialization projects without the need for an integrated transport and storage system. Likewise, with economics more favorable for new facilities than for retrofits, concentrating on using new construction to introduce carbon capture technology might be one path to widespread commercialization. As an entry point to carbon capture deployment, a regulatory approach such as NSPS may represent a first step, as suggested by the SO 2 NSPS example above. Much of the current discussion of developing a market-pull mechanism for new carbon capture technology has focused on creating a price for carbon emissions. The literature suggests that this is an important component for developing new technology, perhaps more important even than research and development. As stated by the Congressional Budget Office (CBO): Analyses that consider the costs and benefits of both carbon pricing and R&D all come to the same qualitative conclusion: near-term pricing of carbon emissions is an element of a cost-effective policy approach. That result holds even though studies make different assumptions about the availability of alternative energy technologies, the amount of crowding out caused by federal subsidies, and the form of the policy target (maximizing net benefits versus minimizing the cost of reaching a target). Two basic approaches can be employed in the case of a market-based greenhouse gas control program: a carbon tax and a cap-and-trade program. The carbon tax would create a long-term price signal to stimulate innovation and development of new technology. This price signal could be strengthened if the carbon tax were escalated over the long run—either by a statutorily determined percentage or by an index (such as the producer price index). A carbon tax's basic approach to controlling greenhouse gas emissions is to supply the marketplace with a stable, consistent price signal—a signal that would also inform innovators as to the cost performance targets they should seek in developing alternative technologies. Designed appropriately, there would be little danger of the price spikes or market volatility that can occur in the early stages of a tradeable permit program. A cap-and-trade program creates a price signal for new technology through a market price for carbon permits (called allowances)—an allowance is a limited authorization to emit one metric ton of carbon dioxide equivalent (CO 2 e). In a cap-and-trade system, these allowances are issued by the government and either allocated or auctioned to affected companies who may use them to comply with the cap, sell them to other companies on the market, or bank them for future use or sale. The resulting market transactions result in an allowance price. This price on carbon emissions, however, can be both uncertain and volatile. In addition, a low allowance price may be insufficient to encourage technology development and refinement. For example, the 1990 acid rain control program effectively ended the development of FGD for retrofit purposes by setting an emission cap that resulted in low allowance prices and that could be met through the use of low-sulfur coal. Noting that only 10% of phase 1 facilities chose FGD to comply with its requirements, Taylor, et al., state: The 1990 CAAA, however, although initially predicted to increase demand for FGD systems, eroded the market potential for both dry and wet FGD system applications at existing power plants when the SO 2 allowance trading market returned low-sulfur coal to its importance in SO 2 control.... As a result, research in dry FGD technology declined significantly. In this case, the flexibility provided by the 1990 acid rain regulations discouraged inventive activity in technologies that might have had broader markets under the traditional command-and-control regimes in place prior to 1990. [footnotes from original text omitted] A cap-and-trade program need not have such a result. For example, to more effectively promote carbon capture technology, the price signal under a greenhouse gas reduction program could be strengthened by requiring the periodic auctioning of a substantial portion of available allowances rather than giving them away at no cost. The SO 2 program allocated virtually all of its allowance at no cost to affected companies. Auctioning a substantial portion of available allowances could create a powerful price signal and provide incentives for deploying new technology if structured properly. The program could create a price floor to facilitate investment in new technology via a reserve price in the allowance auction process. In addition, the stability of that price signal could be strengthened by choosing to auction allowances on a frequent basis, ensuring availability of allowances close to the time of expected demand and making any potential short-squeezing of the secondary market more difficult. One positive aspect of the acid rain cap-and-trade experience for encouraging deployment of technology was the effectiveness of "bonus" allowances and deadline extensions as incentives to install FGD. Specifically, about 3.5 million of the allowances were earmarked for Phase 1 power plants choosing to install 90% control technology (such as FGD). Such units were allowed to delay Phase 1 compliance from 1995 to 1997 and receive two allowances for each ton of S02 reduced below a 1.2 lb. per mmBtu level during 1997-1999. The 3.5 million allowance reserve was fully subscribed, and was a major factor in what FGD was installed during Phase 1 of the program. This experience may bode well for proposed CCS "bonus allowance" provisions in several greenhouse gas reduction schemes currently introduced in the Congress. The Department of Energy (DOE) is engaged in a variety of activities to push development and demonstration of carbon capture technologies. These activities include direct spending on research and development, and providing loan guarantees and tax credits to promote carbon capture projects. These technology-push incentives, and the issues they raise, are discussed below. The federal government has recognized the potential need for carbon capture technology—as part of broader efforts to address greenhouse-gas induced climate change—since at least 1997, when DOE spent approximately $1 million for the entire CCS program. Table 3 shows that DOE programs that provide funding for CCS-related activities totaled nearly $575 million for FY2009, a significant increase since 1997. Funding for CCS R&D increased by nearly 58% from FY2008 to FY2009. Table 3 also shows that funding appears to have decreased for CCS R&D in FY2010 as compared to FY2009, and the request for FY2011 is slightly lower than the FY2010 amounts. However, funding from P.L. 111-5 , the American Recovery and Reinvestment Act of 2009 (ARRA, shown in the last column of the table), increases overall spending for CCS dramatically compared to previous years. DOE indicated in its FY2011 budget request that its Office of Fossil Energy will propose a new budget structure for FY2012 to reflect the increased focus on CCS technologies within the DOE Clean Coal program. The FY2011 budget request further stated that research, development, and deployment of CCS is a major component of global activities needed if coal power plants with CCS are to be deployed "in a timeframe consistent with climate stabilization goals." DOE indicated that these activities may lead to mass commercial deployment of CCS by 2020. Funding for carbon capture and sequestration technology has increased substantially as a result of enactment of ARRA ( P.L. 111-5 ). In the compromise legislation considered in conference on February 11, 2009, the conferees agreed to provide $3.4 billion through FY2010 for fossil energy research and development within the Department of Energy (DOE). Of that amount, $1.52 billion would be made available for a competitive solicitation for industrial carbon capture and energy efficiency improvement projects, according to the explanatory statement accompanying the legislation. This provision likely refers to a program for large scale demonstration projects that capture CO 2 from a range of industrial sources. A small portion of the $1.52 billion would be allocated for developing innovative concepts for reusing CO 2 , according to the explanatory statement. Of the remaining $1.88 billion, $1 billion would be available for fossil energy research and development programs. The explanatory statement did not specify which program or programs would receive funding, however, or how the $1 billion would be allocated. However, on June 12, 2009, Energy Secretary Chu announced that the $1 billion would be used to support a renewed FutureGen facility in Mattoon, IL. Of the remaining $880 million, the conferees agreed to allocate $800 million to the DOE Clean Coal Power Initiative Round III solicitations, which specifically target coal-based systems that capture and sequester, or reuse, CO 2 emissions. Lastly, $50 million would be allocated for site characterization activities in geologic formations (for the storage component of CCS activities), $20 million for geologic sequestration training and research, and $10 million for unspecified program activities. With the announcement that $1 billion of the ARRA funds would be used to restart FutureGen, nearly all of the $3.4 billion agreed to by conferees will be used for CCS activities, which represents a substantial infusion of funding compared to current spending levels. This also amounts to a large and rapid increase in funding over what DOE has spent on CCS cumulatively since FY1997. Moreover, the bulk of DOE's CCS program will shift to the capture component of CCS, unless funding for the storage component increases commensurately in annual appropriations. The large and rapid increase in funding, compared to the magnitude and pace of previous CCS spending, may raise questions about the efficacy of a "crash" CCS program as part of a long-term strategy to reduce CO 2 emissions. This issue is discussed further below. Appropriations represent one mechanism for funding carbon capture technology R&D and deployment; others include loan guarantees and tax credits, both of which are available under current law. Loan guarantee incentives that could be applied to CCS were authorized under Title XVII of the Energy Policy Act of 2005 (EPAct2005, P.L. 109-58 , 42 U.S.C. §§16511-16514), and were given indefinite authorization under the Omnibus Appropriations Act, 2009 ( P.L. 111-8 ). Title XVII of EPAct2005 authorizes the Secretary of Energy to make loan guarantees for projects that, among other purposes, avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases. The Omnibus Appropriations Act for FY2009 restates the loan guarantee authority and provides $6 billion in loan guarantees for coal-based power generation and industrial gasification activities at retrofitted and new facilities that incorporate CCS or other beneficial uses of carbon. The act provides an additional $2 billion in loan guarantees for advanced coal gasification. Title XIII of EPAct2005 provided for tax credits that could be used for Integrated Gasification Combined Cycle (IGCC) projects and for projects that use other advanced coal-based generation technologies (ACBGT). For these types of projects, the aggregate credits available under EPAct2005 totaled up to $1.3 billion: $800 million for IGCC projects, and $500 million for ACBGT projects. Qualifying projects under Title XIII of EPAct2005 were not limited to technologies that employ carbon capture technologies, but the Secretary of the Treasury was directed to give high priority to projects that include greenhouse gas capture capability. An additional $350 million of tax credits were made available for coal gasification projects. Sections 111 and 112 of P.L. 110-343 , Division B, the Energy Improvement and Extension Act of 2008 (part of the Emergency Economic Stabilization Act of 2008), increased the aggregate tax credits available from $1.65 billion to $3.15 billion. Section 111 added an additional $1.25 billion to the existing tax credit authority for ACBGT projects. Section 112 added an additional $250 million to $350 million in existing authority for the coal gasification investment credit, for gasification projects that separate and sequester at least 75% of the project's total CO 2 emissions. Section 115 of the act added a new tax credit for sequestering CO 2 and storing it underground. The section provides for a credit of $20 per metric ton of CO 2 captured at a qualified facility and disposed of in secure geological storage, and $10 per metric ton if the CO 2 is used as a tertiary injectant for the purposes of enhanced oil or natural gas recovery. To qualify for the tax credit, the facility must capture at least 500,000 metric tons of CO 2 per year. If CO 2 is used for enhanced oil or gas recovery, a tax credit would be available only for an initial injection; CO 2 subsequently recaptured, recycled, and re-injected would not be eligible for a tax credit. Each of the funding mechanisms described above—appropriations, loan guarantees, and tax credits—are examples of government "pushing" carbon capture technologies (the upper left arrow in Figure 5 ) via direct spending and through private sector incentives. Thus far, however, these activities are taking place in a vacuum with respect to a carbon market or a regulatory structure. Lacking a price signal or regulatory mandate, it is difficult to assess whether a government-push approach is sufficient for long-term technology development. Some studies appear to discount the necessity of a price signal or regulatory mandate, at least initially, and place a higher priority on the successful demonstration of large-scale technological, economic, and environmental performance of technologies that comprise all of the components of an integrated CCS system: capture, transportation, and storage. So far, however, the only federally sponsored, fully integrated, large-scale CCS demonstration project—called FutureGen (see box below )—failed in its original conception, which may have been due, in part, to the lack of a perceived market. DOE announced it was restructuring the FutureGen program because of its rising costs, which are difficult to assess against the project's "benefits" without a monetary value attached to those benefits (i.e., the value of carbon extracted from the fuel and permanently sequestered). A carbon market would at least provide some way of comparing costs against benefits. One could argue that the benefits of CCS accrue to the amelioration of future costs of environmental degradation caused by greenhouse gas-induced global warming. Although it may be possible to identify overall environmental benefits to removing CO 2 that would otherwise be released to the atmosphere, assigning a monetary value to those benefits to compare against costs is extremely difficult. As discussed above, several studies underscore the value of a long-term price or regulatory signal to shape technological development and, presumably, to help determine a level of federal investment needed to encourage commercialization of an environmental technology such as carbon capture. As stated by Fischer: With respect to R&D for specific applications (such as particular manufacturing technologies or electricity generation), governments are notoriously bad at picking winners... [e.g., the breeder reactor]. The selection of these projects is best left to private markets while the government ensures those markets face the socially correct price signals. Despite the lack of regulatory incentives or price signals, DOE has invested millions of dollars since 1997 into capture technology R&D, and the question remains whether it has been too much, too little, or about the right amount. In addition to appropriating funds each year for the DOE program, Congress signaled its support for RD&D investment for CCS through provisions for tax credits available for carbon capture technology projects and through loan guarantees. Congress also authorized a significant expansion of CCS spending at DOE in the Energy Independence and Security Act of 2007 (EISA, P.L. 110 - 140 ), which would authorize appropriations for a total of $2.2 billion from FY2008 through FY2013. Although EISA places an increased emphasis on large-scale underground injection and storage experiments, the legislation authorizes $200 million per year for projects that demonstrate technologies for the large-scale capture of CO 2 from a range of industrial sources. Lastly, ARRA provides a dramatic infusion of funding for CCS RD&D over the next several years. Legislation introduced in the 110 th Congress would have authorized specific amounts of spending for CCS and capture technology development. Notably, the Carbon Capture and Storage Early Deployment Act ( H.R. 6258 ) would have authorized distribution utilities to collect an assessment on fossil-fuel based electricity delivered to retail customers. The assessment would total approximately $1 billion annually, and would be issued by a corporation—established by referendum among the distribution utilities—as grants or contracts to private, academic, or government entities to accelerate commercial demonstration or availability of CO 2 capture and storage technologies and methods. This legislation contained elements that resembled, in many respects, recommendations offered in the MIT report. Hearings were held, but the measure was not reported out of committee. Other bills introduced in the 110 th Congress included incentives such as tax credits, debt financing, and regulations to promote CO 2 capture technology development. For example, S. 3132 , the Accelerating Carbon Capture and Sequestration Act of 2008, would have provided a tax credit of $20 per metric ton of CO 2 captured and stored. S. 3233 , the 21 st Century Energy Technology Deployment Act, would have established a corporation that could issue debt instruments (such as bonds) for financing technology development. A priority cited in S. 3233 was the deployment of commercial-scale CO 2 capture and storage technology that could capture 10 million short tons of CO 2 per year by 2015. A bill aimed at increasing the U.S. production of oil and natural gas while minimizing CO 2 emissions, the American Energy Production Act of 2008 ( S. 2973 ), called for the promulgation of regulations for clean, coal-derived fuels. Facilities that process or refine such fuels would be required to capture 100% of the CO 2 that would otherwise be released at the facility. None of the bills were enacted into law. In the 111 th Congress, H.R. 2454 , the American Clean Energy and Security Act of 2009, and S. 1733 , the Clean Energy Jobs and American Power Act, are the two primary energy and climate change legislative proposals. H.R. 2454 passed the House on June 26, 2009, and S. 1733 was ordered to be reported by the Senate Environment and Public Works Committee on November 5, 2009. The CCS provisions in both bills are similar (some sections are identical), and both bills appear to share the goal of fostering the commercial development and deployment of CCS projects as an important component of mitigating greenhouse gas emissions. Both bills contain similar provisions that would create a program to accelerate the commercial availability of CO 2 capture and storage technologies and methods by awarding grants, contracts, and financial assistance to electric utilities, academic institutions, and other eligible entities (similar to H.R. 6258 of the 110 th Congress, discussed above). Both bills would also create a second program that would distribute emission allowances from the cap-and-trade provisions to qualifying electric generating plants and industrial facilities. One bill introduced in the 111 th Congress, the New Manhattan Project for Energy Independence ( H.R. 513 ), calls for a system of grants and prizes for RD&D on the scale of the original Manhattan project, with a goal of attaining energy independence for the nation. Other legislation introduced in the 110 th Congress invoked the symbolism of the Apollo program of the 1960s to frame proposals for large-scale energy policy initiatives that include developing CCS technology. The relevance and utility of large-scale government projects, such as the Apollo program, or the Manhattan project, to developing carbon capture technology are explored in the following sections. Some policymakers have proposed that the United States invest in energy research, development, and demonstration activities at the same level of commitment as it invested in the past during the Manhattan project and the Apollo program. As analogues to the development of technologies to reduce CO 2 emissions and thwart long-term climate change, the Manhattan project and Apollo program are imperfect at best. They both had short-term goals, their success or failure was easily measured, and perhaps most importantly, they did not depend on the successful commercialization of technology and its adoption by the private sector. Nevertheless, both projects provide a funding history for comparison against CO 2 capture technology cost projections, and as examples of large government-led projects initiated to achieve a national goal. The Manhattan project and Apollo program are discussed briefly below. The federal government's efforts to promote energy technology development in response to the energy crisis of the 1970s and early 1980s may be a richer analogy to CO 2 capture technology development than either the Manhattan project or Apollo program. After the first oil crisis in 1973, and with the second oil crisis in the late 1970s, the national priority was to reduce dependence on foreign supplies of energy, particularly crude oil, through a combination of new domestic supplies (e.g., oil shale), energy efficiency technologies, and alternative energy supplies such as solar, among others. The success of these efforts was to have been determined, in part, by the commercialization of energy technologies and alternative energy supplies and their incorporation into American society over the long term. Similarly, many analysts see the development of CCS technology as a necessary step needed over the next several decades or half-century to help alleviate human-induced climate change, which is itself viewed as a global problem for at least the next century or longer. As discussed more fully later, the outcome of the federal government's efforts to promote energy technologies in the 1970s and 1980s may be instructive to current approaches to develop CCS technology. The Manhattan project took place from 1942 to 1946. In July 1945, a bomb was successfully tested in New Mexico, and used against Japan at two locations in August 1945. In 1946, the civilian Atomic Energy Commission was established to manage the nation's future atomic activities, and the Manhattan project officially ended. According to one estimate, the Manhattan project cost $2.2 billion from 1942-1946 ($22 billion in 2008 dollars), greater than the original cost and time estimate of approximately $148 million for 1942 to 1944. The Apollo program encompassed 17 missions including six lunar landings that took place from FY1960 to FY1973. Although preliminary discussions regarding the Apollo program began in 1960, Congress did not decide to fund it until 1961 after the Soviets became the first country to send a human into space. The peak cost for the Apollo program occurred in FY1966 when NASA's total budget was $4.5 billion and its funding for Apollo was $3.0 billion. According to NASA, the total cost of the Apollo program for FY1960-FY1973 was $19.4 billion ($97.9 billion in 2008 dollars). The first lunar landing took place in July 1969. The last occurred in December 1972. Figure 8 shows the funding history for both the Manhattan project and Apollo program. The Department of Energy has its origins in the Manhattan project, and became a Cabinet-level department in 1977, partly in response to the first oil crisis of 1973, caused in part by the Arab oil embargo. Another oil crisis (the "second" oil crisis) took place from 1978-1981 as a result of political revolution in Iran. Funding for DOE energy R&D rose in the 1970s in concert with high oil prices and resultant Carter Administration priorities on conservation and development of alternative energy supplies. Crude oil prices fell during the 1980s and the Reagan Administration eliminated many energy R&D programs that began during the oil crisis years. Figure 8 shows the rise and fall of funding for DOE energy technology programs from 1974 to 2008. Current DOE spending on CCS technology development (discussed above) is far below levels of funding for the Manhattan project and Apollo program and for the energy technology R&D programs at their peak spending in the late 1970s and early 1980s. The development of CO 2 capture technology is, of course, only one component of all federal spending on global climate change mitigation. However, the total annual federal expenditures on climate change, including basic research, are still far less than the Manhattan project and Apollo program, although similar to DOE energy technology development programs during their peak spending period. For comparison, the FY2008 budget and FY2009 budget request for DOE's energy technology R&D is approximately $3 billion per year. (See Figure 8 .) Even if spending on CO 2 capture technology were increased dramatically to Manhattan project or Apollo program levels, it is not clear whether the goal of developing a commercially deployable technology would be realized. As mentioned above, commercialization of technology and integration of technology into the private market were not goals of either the Manhattan project or Apollo program. For the Manhattan project, it did not matter what the cost was, in one sense, if a consequence of failing to build a nuclear weapon was to lose the war. For CO 2 capture, the primary goal is to develop a technology that would be widely deployed and thus effective at removing a substantial amount of CO 2 over the next half century or more, which necessarily requires its commercialization and widespread use throughout the utility sector. A careful study of one of the federal projects initiated in response to the energy crisis of the 1970s and early 1980s—the Synthetic Fuels Corporation (SFC)—may provide a valuable comparison to current thinking about the federal role in CO 2 capture technology development: The government's attempt to develop a synthetic fuels industry in the late 1970s and early 1980s is a case study of unsuccessful federal involvement in technology development. In 1980, Congress established the Synthetic Fuels Corporation (SFC), a quasi-independent corporation, to develop large-scale projects in coal and shale liquefaction and gasification. Most of the projects centered on basic and conceptual work that would contribute to demonstration programs in later stages, although funds were expended on several prototype and full-scale demonstration experiments. Formed in response to the 1970s energy crisis, the SFC was intended to support projects that industry was unable to support because of technical, environmental, or financial uncertainties. Federal loans, loan guarantees, price guarantees, and other financial incentives totaling $20 billion were authorized to spur industry action. Although SFC was designed to continue operating until at least 1992, the collapse in energy prices, environmental concerns, lack of support from the Reagan Administration, and administrative problems ended the synthetic fuels program in 1986. [citations from original text omitted] One of the primary reasons commonly cited for the failure of the SFC was the collapse of crude oil prices during the 1980s, although other factors contributed. Without a stable and predictable price for the commodity that the SFC was attempting to produce in specific, mandated quantities, the structure of the SFC was unable to cope with market changes: The failure of the federal government's effort to create a synthetic fuels industry yields valuable lessons about the role of government in technology innovation. The synthetic fuels program was established without sufficient flexibility to meet changes in market conditions, such as the price of fuel. Public unwillingness to endure the environmental costs of some of the large-scale projects was an added complication. An emphasis on production targets was an added complication. An emphasis on production targets reduced research and program flexibility. Rapid turnover among SFC's high-level officials slowed administrative actions. The synthetic fuels program did demonstrate, however, that large-scale synthetic energy projects could be build and operated within specified technical parameters. [citations from original text omitted] It may be argued that DOE's initial decision to "restructure" the FutureGen program (as originally conceived, see box above ) was partly attributable to the project's inflexibility in dealing with changing market conditions, in this case the rise in materials and construction costs and the doubling of FutureGen's original price estimate. However, the analogy between FutureGen and the SFC is limited. Although the SFC failed in part because of collapsing oil prices (the costs of the SFC program could be measured against the benefits of producing oil), for FutureGen the value of CO 2 avoided (i.e., the benefit provided by the technology) is not even calculable for comparison to the costs of building the plant, because there is no real global price for CO 2 . The market conditions that contributed to the downfall of the SFC, however, could be very different from the market conditions that would arise following the creation of a price for CO 2 emissions. The stability and predictability of the price signal would depend on the mechanism: carbon tax, allowance pricing, or auctions. A mechanism that allowed for a long-term price signal for carbon would likely benefit CO 2 capture technology R&D programs. Any comprehensive approach to reducing greenhouse gases substantially must address the world's dependency on coal for one-quarter of its energy demand, including almost half of its electricity demand. To maintain coal as a key component in the world's energy mix in a carbon-constrained future would require developing a technology to capture and store its CO 2 emissions. This situation suggests to some that any greenhouse gas reduction program be delayed until such carbon capture technology has been demonstrated. However, technological innovation and the demands of a carbon control regime are interlinked; therefore, a technology policy is no substitute for environmental policy and must be developed in concert with it. This linkage raises issues for legislators attempting to craft greenhouse gas reduction legislation. For the demand-pull side of the equation, the issue revolves around how to create the appropriate market for emerging carbon capture technologies. Table 4 compares four different "price" signals across five different criteria that influence their effectiveness in promoting technology: Magnitude : What size of price signal or stringency of the regulation is imposed initially? Direction : What influences the direction (up or down) of the price signal or stringency of the regulation over time? Timing : How quickly is the price or regulation imposed and strengthened? Stability : How stable is the price or regulation over time? Duration : How long is the price or regulation imposed on affected companies? In general, the criteria suggest that regulation is the surest method of forcing the development of technology—price is not necessarily a direct consideration in decision-making. However, regulation is also the most limiting; technologies more or less stringent than the standard would have a limited domestic market (although foreign opportunities may be available), and development could be frozen if the standards are not reviewed and strengthened periodically. In contrast, allowance prices would provide the most equivocal signal, particularly if they are allocated free to participants. Experience has shown allowance prices to be subject to volatility with swings both up and down. The experience with the SO 2 cap-and-trade program suggests the incentive can be improved with "bonus" allowances; however, the eligibility criteria used could be perceived as the government attempting to pick a winner. In contrast, carbon taxes and allowance auctions (particularly 100% auctions with a reserve price) provide strong market-based price signals. A carbon tax is the most stable price signal, providing a clear and transparent signal of the value of any method of greenhouse gas reductions. Substantial auctioning of allowances also places a price on carbon emissions, a price that can be strengthened by incorporating a reserve price into the structure of the auction. However, each of these signals ultimately depends on the environmental goal envisioned and the specifics of the control program: (1) the stringency of the reduction requirement; (2) the timing of desired reductions; (3) the techniques allowed to achieve compliance. The interplay of these factors informs the technology community about the urgency of the need for carbon capture technology; the price signal informs the community what cost-performance parameters are appropriate for the emerging carbon market. The nature of that price signal (regulatory, market, stability) informs the community of the confidence it can have that it is not wasting capital on a "white elephant" or on a project that the market does not want or need. The issues for technology-push mechanisms are broader, and include not only the specifics of any reduction program and resulting price signal, but also international considerations and the interplay between carbon capture technology, storage, and the potential need for CO 2 transport. Groups as diverse as The Pew Center, the Electric Power Research Institute, DOE, and MIT have suggested "roadmaps" and other schemes for preparing carbon capture technology for a pending greenhouse gas reduction program. Generally, all of these approaches agree on the need for demonstration-size (200-300 MW) projects to sort out technical performance and cost effectiveness, and identify potential environmental and safety concerns. The Energy Independence and Security Act of 2007 ( P.L. 110 - 140 ) reflected Congress's desire for more integrated demonstration projects, and ARRA provides a dramatic step increase in funding for CCS technology over a relatively short period. Finally, it should be noted that the status quo for coal with respect to climate change legislation isn't necessarily the same as "business as usual." The financial markets and regulatory authorities appear to be hedging their bets on the outcomes of any federal legislation with respect to greenhouse gas reductions, and are becoming increasingly unwilling to accept the risk of a coal-fired power plant with or without carbon capture capacity. This sort of limbo for coal-fired power plants is reinforced by the MIT study, which makes a strong case against subsidizing new construction (allowed for IGCC under the EPAct2005) without carbon capture because of the unattractive costs of retrofits: Coal plants will not be cheap to retrofit for CO 2 capture . Our analysis confirms that the costs to retrofit an air-driven SCPC [supercritical pulverized coal] plant for significant CO 2 capture, say 90%, will be greater than the costs to retrofit an IGCC plant. However, ... the modifications needed to retrofit an IGCC plant for appreciable CCS are extensive and not a matter of simply adding a single simple and inexpensive process step to an existing IGCC plant.... Consequently, IGCC plants without CCS that receive assistance under the 2005 Energy Act will be more costly to retrofit and less likely to do so. The concept of a " capture ready " IGCC or pulverized coal plant is as yet unproven and unlikely to be fruitful. The Energy Act envisions "capture ready" to apply to gasification technology. [citation omitted] Retrofitting IGCC plants, or for that matter pulverized coal plants, to incorporate CCS technology involves substantial additional investments and a significant penalty to the efficiency and net electricity output of the plant. As a result, we are unconvinced that such financial assistance to conventional IGCC plants without CCS is wise. [ emphasis in original ] As noted earlier, lack of a regulatory scheme (or carbon price) presents numerous risks to any research and development effort designed to develop carbon capture technology. Ultimately, it also presents a risk to the future of coal. | Any comprehensive approach to substantially reduce greenhouse gases must address the world's dependency on coal for one-quarter of its energy demand, including almost half of its electricity demand. To maintain coal in the world's energy mix in a carbon-constrained future would require development of a technology to capture and store its carbon dioxide emissions. This situation suggests to some that any greenhouse gas reduction program be delayed until such carbon capture technology has been demonstrated. However, technological innovation and the demands of a carbon control regime are interlinked; a technology policy is no substitute for environmental policy and should be developed in concert with it. Much of the debate about developing and commercializing carbon capture technology has focused on the role of research, development, and deployment (technology-push mechanisms). However, for technology to be fully commercialized, it must also meet a market demand—a demand created either through a price mechanism or a regulatory requirement (demand-pull mechanisms). Any conceivable carbon capture technology for coal-fired power plants will increase the cost of electricity generation from affected plants because of efficiency losses. Therefore, few companies are likely to install such technology until they are required to, either by regulation or by a carbon price. Regulated industries may find their regulators reluctant to accept the risks and cost of installing technology that is not required. The Department of Energy (DOE) has invested millions of dollars since 1997 in carbon capture technology research and development (R&D), and the question remains whether it has been too much, too little, or about the right amount. In addition to appropriating funds each year for the DOE program, Congress supported R&D investment through provisions for loan guarantees and tax credits. Congress also authorized a significant expansion of carbon capture and sequestration (CCS) spending at DOE in the Energy Independence and Security Act of 2007. Funding for carbon capture technology has increased substantially as a result of enactment of the American Recovery and Reinvestment Act of 2009. Legislation introduced in the 111th and 110th Congresses invokes the symbolism of the Manhattan project of the 1940s and the Apollo program of the 1960s to frame proposals for large-scale energy policy initiatives that include developing CCS technology. However, commercialization of technology and integration of technology into the private market were not goals of either the Manhattan project or Apollo program. Finally, it should be noted that the status quo for coal with respect to climate change legislation isn't necessarily the same as "business as usual." The financial markets and regulatory authorities appear to be hedging their bets on the outcomes of any federal legislation with respect to greenhouse gas reductions, and becoming increasingly unwilling to accept the risk of a coal-fired power plant with or without carbon capture capacity. The lack of a regulatory scheme presents numerous risks to any research and development effort designed to develop carbon capture technology. Ultimately, it also presents a risk to the future of coal. |
Housing and mortgage markets in the United States have experienced significant turmoil in recent years. After several years of increasing, house prices began to decrease around 2006, contributing to increasing mortgage delinquency and foreclosure rates that reached historic levels. This turmoil had far-reaching implications for individual households and communities, as well as for the financial system and economy as a whole. During the 113 th Congress, which convened from January 3, 2013, through January 2, 2015, housing markets showed some signs of stabilizing, although concerns remained. Even though housing markets showed some signs of improvement, Congress continued to grapple with multiple issues related to the aftermath of the recent turmoil in housing and mortgage markets. These issues included considering large-scale reforms to the housing finance system and overseeing the implementation of new rules related to mortgage lending that were enacted in response to issues that were perceived to have contributed to the housing market collapse. Even as the economy recovers, lower-income households, who are more likely to be renters, may find it more difficult to find adequate, affordable housing. Furthermore, in response to concerns about the long-term budget outlook, Congress has been providing less funding for many domestic discretionary programs, including housing programs primarily administered by the Department of Housing and Urban Development (HUD). In this light, the 113 th Congress considered issues such as how to prioritize funding for housing assistance programs in an environment of fiscal austerity, as well as possible reforms to certain housing assistance programs. This report begins by providing an overview of the state of housing markets (both homeownership and rental) and the mortgage market in order to provide context for the policy issues that were active during the 113 th Congress. It then provides a brief description of certain major housing issues that were considered during the 113 th Congress. These issues are broadly divided into two categories: issues related to homeownership and housing finance, and issues related to housing assistance for low-income households. This report is meant to provide a broad overview of the issues and is not intended to provide detailed information or analysis. However, this report does include references to other, more in-depth CRS reports on the issues when possible. Housing markets are local, rather than national, in nature, and therefore housing market conditions can vary dramatically across the country. Nonetheless, on a national level, many housing market indicators showed positive signs during the 113 th Congress. In homeownership markets, home sales and home prices increased in 2013. This, in turn, can have a number of positive economic effects, including reducing the number of homeowners who owe more on their mortgages than their homes are worth and leading to an increase in construction activity. However, rising home prices can make it more difficult for some prospective homebuyers to buy homes. Rental markets were generally tightening, meaning that rents were rising and vacancy rates falling. Tightening rental markets may make it more difficult for some families, particularly those at the lower end of the income scale, to find adequate, affordable rental housing. On a national basis, homeownership markets showed some signs of strengthening during the 113 th Congress after several years of weakness. In 2013, house prices increased, foreclosure rates decreased, and home sales increased slightly from their levels in recent years. However, during the first several months of 2014, some housing indicators were lower than they had been during the same period of 2013, raising concerns that the housing recovery was slowing. For example, new and existing home sales and housing starts were lower in early 2014 than they had been during the same period in 2013. Most housing indicators ended 2014 at about the same levels as 2013: home prices continued to increase in 2014, but at a lower rate than 2013, while home sales and housing starts were relatively flat from year to year. Nationally, home prices began to rise again in the beginning of 2012 after several years of declines. Figure 1 shows the rate of change in house prices in each quarter from the same quarter a year earlier. As the figure shows, between 2000 and 2007, house prices consistently increased compared to the same period in the previous year, although towards the end of that time period house prices increased at lower rates than they had during the beginning of the period. Beginning in late 2007, house prices began to decline on a year over year basis, and continued to do so for several years before beginning to increase once again in early 2012. Home prices began to rise on a national level again in 2012, and continued to increase on a year-over-year basis in each quarter in 2013 and 2014. However, in many markets, home prices were still well below what they were at their peak. Furthermore, while house prices continued to increase in 2014, the rate of year-over-year house price appreciation was lower than it had been in 2013. While rising house prices are good for existing homeowners, and can have positive effects on the economy as a whole, they can also have the effect of making homeownership less affordable for prospective homebuyers. Rising home prices had the effect of reducing the number of people who owe more on their mortgages than their homes are worth, referred to as being in a negative equity position. Negative equity can impact homeowners' ability to avoid foreclosure if they experience income shocks or limit a household's ability to move in response to a change in circumstances. CoreLogic, a real estate data firm, reported that rising home prices helped 4 million homeowners reach positive equity in 2013, and another 1 million reached positive equity during 2014. As Figure 2 shows, the percentage of mortgaged homes with negative equity had decreased to about 11% in the fourth quarter of 2014, down from highs of about 25% as recently as the fourth quarter of 2011. Still, over 5 million homeowners remained in negative equity positions. While the overall percentage of mortgaged homes in negative equity positions has been decreasing, the share of mortgaged homes with negative equity varies widely by state. In the fourth quarter of 2014, Nevada had the highest share of mortgaged homes with negative equity (24%), while Texas had the smallest share (under 3%). As home prices rise, more homeowners may decide to put their homes on the market, increasing the supply of homes for sale. As shown in Figure 3 and Figure 4 , sales of both existing homes and new homes remain well below the levels they were at prior to the housing market turmoil of recent years. Existing home sales outnumber new home sales by a wide margin. Existing home sales generally number in the millions each year, while new home sales are usually in the hundreds of thousands. Both existing home sales and new home sales showed some increases during the 113 th Congress, although existing home sales decreased slightly in 2014 compared to 2013. The number of existing home sales was nearly 5.1 million in 2013 and 4.9 million in 2014, up from 4.6 million in 2012 and 4.3 million in 2011. Existing home sales in 2013 and 2014 were higher than in the years from 2008-2012, but remained lower than any year from 1998 through 2007. The number of new home sales in 2013 was over 429,000, up from 368,000 in 2012 and 306,000 in 2011. The number of new home sales increased slightly in 2014, to 437,000. The number of home sales is important because, among other things, it can affect new housing construction. When the demand for homes exceeds the supply of available homes on the market—either due to increasing demand from homebuyers or a low inventory of homes for sale—then new homes may be built to meet the demand. Construction of new homes can be an important contributor to the economy and create jobs. According to Census data, and as shown in Figure 5 , housing starts in one-unit residential buildings were generally between about 1.2 million and 1.6 million per year between 2000 and 2007, reaching a peak of 1.7 million in 2005. Since that time, however, housing starts fell to 600,000 per year in 2008 and under 500,000 per year in each of the next three years. In 2012, housing starts in one-unit buildings began showing a slight uptick, increasing to over 500,000. In 2013, housing starts exceeded 600,000, and in 2014 they came close to 650,000. However, housing starts still remained well below the levels seen throughout the 1990s and 2000s. Delinquency and foreclosure rates began to increase dramatically in the United States beginning in the middle of 2006, and have remained at elevated levels since then. However, over the last few years, foreclosure inventory rates decreased from their peak levels as fewer mortgages became delinquent and entered the foreclosure process. Foreclosure completions on some mortgages that were in the foreclosure process for an extended period of time may have also contributed to the decrease in the share of mortgages that are in the foreclosure process. Figure 6 shows the percentage of all mortgages that were in the foreclosure inventory—meaning that they were in some stage of the foreclosure process—in each quarter since the beginning of 2001. The foreclosure inventory rate was about 2.3% in the third quarter of 2014. This was down from a peak of 4.6% that was reached during 2010, but was still high by historical standards. In 2013, there were about 40 million units of renter-occupied housing nationwide, and renters accounted for about 35% of all occupied housing units. Over one-third of rental housing is in one-unit structures, and nearly 60% is in single-family (1-4 unit) structures. Thirty percent of rental housing is in buildings with 10 or more units. In general, renter households are younger, smaller, more likely to be minorities, and have lower incomes than owner households. The number of households that rent their homes has been increasing in recent years. During the 113 th Congress, rental markets across the country were generally tight, meaning that rents were rising and vacancy rates were falling. The share of renters relative to owners has been increasing in recent years. As shown in Figure 7 , from 2004 to 2006, rates of renters fell to a historic low of 31% in the mid-2000s as homeownership rates reached historic highs. Since then, homeownership rates have fallen and rates of rental occupancy were about 36% in 2014, a rate not seen since 1994 and about equal to the historic average (35% from 1965-present). This increase in the share of renters is at least partly attributable to the lingering effects of the economic downturn of 2007-2009. Although some previously owner-occupied single-family housing has been converted to rental housing in recent years, the increasing number of renter households has led to lower vacancy rates, indicating a tightening of the rental market. As Figure 8 shows, rental vacancy rates, after a period of historic highs that peaked at over 10%, fell to about 7.5% in 2014. With vacancy rates falling, rents have been increasing. According to data from the U.S. Census Bureau, the median asking rent for a vacant rental unit in 2014 was $762 per month, compared to $746 in 2013 and $739 in 2012 (in constant 2014 dollars). Rents were generally increasing in most areas of the country; according to Harvard's Joint Center for Housing Studies State of the Nation's Housing Report , research by MPF Research showed rents increasing during 2013 in 85 of 93 metropolitan areas that were included in its research, although the rate of increases slowed in many areas. In the aftermath of the 2007-2009 recession, many households experienced joblessness or income loss. Renters' incomes have generally not kept pace with increases in rents, and rental housing affordability may be an issue for many households. One common definition of affordability classifies housing as affordable if a household is paying no more than 30% of its income in housing costs. Under this definition, households that pay more than 30% of income for housing are considered to be cost-burdened, and households that pay more than 50% of their income for housing costs are considered to be severely cost-burdened. According to the Joint Center for Housing Studies, citing data from the American Community Survey, about half of all renters—a total of 21 million households—were cost-burdened in 2012. The share of renters paying more than 30% of their income for housing costs was increasing at all income levels. Not surprisingly, however, lower-income households were the most likely to be cost-burdened, as it is more difficult for these households to find housing that costs less than 30% of their incomes. According to HUD, there were 7.7 million renters who were considered to have "worst case housing needs" in 2013, the most recent data available. Households with worst case housing needs are defined as renters with incomes at or below 50% of area median income who do not receive federal housing assistance and who pay more than half of their incomes for rent, live in severely inadequate conditions, or both. The number of households with worst case housing needs in 2013 represented a decrease from 2011, when there were 8.5 million households experiencing worst case housing needs, but was 30% higher than in 2007, when fewer than 6 million households were experiencing worst case housing needs. The number of households experiencing worst case housing needs in recent years is shown in Figure 9 . Most households experiencing worst case housing needs are cost burdened; only 3% of households experiencing worst case housing needs live in housing that is physically inadequate. Since the collapse of the housing "bubble," the mortgage market has been characterized by less mortgage credit availability. Many lenders and private mortgage insurers tightened their underwriting standards for mortgages, making it difficult for some prospective homebuyers to qualify for a loan or increasing the costs of a mortgage. Some observers expressed concerns that new mortgage rules could limit access to mortgages for some potential borrowers or that mortgage credit might be less available due in part to regulatory uncertainty. Several new federal regulations related to mortgage lending that were mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act, P.L. 111-203 ) went into effect during the 113 th Congress, potentially reducing uncertainty among lenders. On the demand side, economic factors depressed household formation, reducing demand from first time homebuyers, and the home price declines of previous years and the resultant negative equity limited some existing homebuyers' ability to "move up" in the market and buy larger homes. The mortgage market in recent years has largely consisted of mortgages insured by government agencies, such as the Federal Housing Administration (FHA), or purchased by Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs) that are currently under government control. The share of new mortgages backed by one of these entities reached as high as about 90% in recent years. According to the Urban Institute, using data from Inside Mortgage Finance, over 60% of new residential mortgages originated in 2013 were backed by Fannie Mae or Freddie Mac, with FHA or the Department of Veterans Affairs (VA) insuring an additional 20%. During 2014, the share of new mortgages backed by Fannie Mae or Freddie Mac had fallen to about 50%, while the FHA and VA share remained just above 20%. The remaining mortgages were mostly held on bank balance sheets (27%), with a small percentage (less than 1%) being securitized through private companies rather than Fannie Mae, Freddie Mac, or Ginnie Mae (which guarantees mortgage-backed securities made up of government-insured mortgages, such as FHA-insured mortgages). The composition of mortgages originated in 2014 is shown in Figure 10 .The overall dollar amount of mortgage originations decreased in 2014 compared to 2013, to $1.2 trillion from $1.8 trillion. The high shares of mortgages being backed by the GSEs or by government mortgage insurance programs has led to debates about whether steps should be taken to reduce the government's role in the mortgage market, and, if so, what those steps should be and how quickly they should be taken. While some policymakers would like to see government agencies and the GSEs take steps to reduce their market share, such as raising fees or reducing the size of mortgages that they will guarantee, others policymakers have expressed concerns that such steps could reduce credit availability and make housing less affordable, possibly negatively impacting housing markets. Although mortgage lending was tighter in recent years, interest rates were historically low, possibly contributing to some households' decisions to obtain mortgages and contributing to higher rates of refinancing. As Figure 11 illustrates, the average monthly interest rate on 30-year fixed-rate mortgages has been under 5% since May 2010, and was under 4% for most of 2012 and the first half of 2013. Interest rates started to slowly rise again in the second half of 2013 but generally remained below 4.5%. In 2014, the average monthly interest rate on 30-year fixed rate mortgages generally fell from its high of 4.4% in January, and ended the year at under 4%. Some have expressed concerns that when interest rates eventually rise, the increase might weaken the housing market by inhibiting home sales and refinancing activity. As rates begin to rise, fewer potential homebuyers might enter the market, and fewer households will be able to benefit from lowering their interest rate by refinancing. Rising interest rates could also deter some existing homeowners from selling their homes, since any new mortgages these homeowners obtained would likely have higher interest rates than what they are currently paying. Despite interest rates remaining low during 2014, mortgage origination volumes were lower than in 2013 due to a decrease in refinancing activity. Although interest rates remain low, many of the households that could benefit from refinancing into mortgages with lower interest rates may have already done so. A number of the housing issues that were on the agenda of the 113 th Congress had to do with housing finance or homeownership. One major issue that Congress considered was the possible large-scale reform of the housing finance system. Other housing finance-related issues on Congress's agenda included deliberation on specific programs or policies that could impact the availability or affordability of mortgages for certain households, including oversight of mortgage-related rulemakings and consideration of foreclosure prevention programs and policies. As financial markets in general and the mortgage market in particular continued to recover from the 2007-2009 recession, congressional interest began to concentrate on reforming the housing finance system and determining the future role of the federal government in housing finance. Presently, the federal government guarantees and insures mortgages through the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the Department of Agriculture's rural housing programs. In addition, Fannie Mae and Freddie Mac, two congressionally chartered government-sponsored enterprises devoted to housing finance, are in conservatorship and have support contracts with the Department of the Treasury. During the 113 th Congress, discussions of housing finance reform largely centered on the GSEs, although the role of FHA was also debated. Among the goals of housing finance reform are: Preventing taxpayers from having to provide assistance again in the future. To date, Treasury has invested $188 billion in Fannie Mae and Freddie Mac and received over $200 billion in dividends. The Federal Reserve and Treasury provided additional support by purchasing bonds and mortgage-backed securities (MBS) issued by Fannie Mae and Freddie Mac. Returning private capital to the mortgage market. Since the recession, the government has directly or indirectly guaranteed 75% to 85% of mortgages originated. Ensuring that mortgages are available and affordable to creditworthy borrowers. In particular, there is concern that without government support for the mortgage market, homeowners will not have access to affordable, 30-year fixed rate, prepayable mortgages. Obtaining the best return on the funds already provided to Fannie Mae and Freddie Mac. There were several bills introduced to reform the housing finance system. Two bills that were the subject of committee action were H.R. 2767 , the Protecting American Taxpayers and Homeowners Act (the PATH Act), in the House, and S. 1217 , the Housing Finance Reform and Taxpayer Protection Act (commonly referred to as the Johnson-Crapo bill), in the Senate. Both bills were ordered to be reported out of their respective committees, but neither was considered by the full House or Senate. In the House, the PATH Act proposed to wind down Fannie Mae and Freddie Mac over several years. It would have replaced them with a National Mortgage Market Utility that would facilitate mortgage securitization but would not provide a government guarantee. The act would have also eliminated or delayed the implementation of certain existing regulations that some believed to be inhibiting the recovery in the mortgage market. In addition, as discussed in the following section, the PATH Act would have reformed the Federal Housing Administration (FHA), including removing it from the Department of Housing and Urban Development and making it an independent agency as well as taking steps to improve its finances. In the Senate, the Johnson-Crapo bill would have wound down Fannie Mae and Freddie Mac and created the Federal Mortgage Insurance Corporation (FMIC) to oversee a new federal mortgage insurance program. The FMIC would have been an independent agency charged with supporting the mortgage market and providing reinsurance on eligible mortgage-backed securities (MBS). These MBS would have had an explicit full-faith-and-credit federal government guarantee, and the FMIC would have regulated aspects of the mortgage market related to these MBS. Johnson-Crapo did not propose any changes to FHA, but another Senate bill ( S. 1376 ), also discussed in the following section, would have addressed FHA. For more information on the current structure of the housing finance system, see CRS Report R42995, An Overview of the Housing Finance System in the United States , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. For more information on the PATH Act and Corker-Warner, see CRS Report R43219, Selected Legislative Proposals to Reform the Housing Finance System , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. For more information on the GSEs and general options for GSE reform, see CRS Report R40800, GSEs and the Government's Role in Housing Finance: Issues for the 113 th Congress , by [author name scrubbed]. FHA, an agency within HUD, insures private mortgage lenders against losses on certain mortgages. If a borrower with an FHA-insured mortgage does not repay the loan as promised, then FHA will repay the lender the remaining amount that it is owed. The provision of FHA insurance is intended to encourage lenders to offer affordable mortgages to households who otherwise may find it difficult to qualify for mortgages at affordable rates, such as households with small down payments. FHA's home mortgage insurance program is intended to be self-supporting and to pay for the costs of defaulted mortgages through fees, or premiums, that it charges to borrowers, rather than through appropriations. In recent years, increasing foreclosure rates and falling home prices have led to large increases in the costs that FHA expects to incur on the loans that it currently insures. FHA, like all federal credit programs subject to the Federal Credit Reform Act of 1990, has permanent and indefinite budget authority to draw funds from Treasury to cover any unexpected increases in the cost of guaranteed loans. At the end of FY2013, FHA used this authority to receive $1.7 billion from Treasury to ensure that it had sufficient funds to cover all of its expected future losses. This was the first time that FHA had ever needed funds from Treasury for its home mortgage insurance program. FHA did not need to draw any additional funds from Treasury in FY2014. A number of bills were introduced in the 113 th Congress that would have made changes to FHA. These bills were generally targeted at improving FHA's financial position, but would have done so in different ways. Many of these bills included certain changes that FHA has requested, such as additional authority for monitoring FHA-approved lenders, which it says would help it to better manage the FHA insurance fund. These bills also included additional measures aimed at stabilizing FHA's finances, such as increasing the amount of capital reserves that it is required to hold or requiring FHA to take certain actions if its capital reserves fall below certain thresholds. Additional, more far-reaching reforms to FHA were also included in the PATH Act, which, as described in the previous section, would have reformed the housing finance system more broadly. Among other things, the PATH Act would have made FHA an independent agency (it is currently part of HUD), would have limited FHA insurance specifically to mortgages for low- and moderate-income households and first-time homebuyers, and would have gradually reduced the share of a mortgage that FHA can insure. Other FHA reform bills, such as the FHA Solvency Act ( S. 1376 ), included changes that were aimed at ensuring that FHA's programs are financially sound, but did not focus on limiting FHA's market role or shifting risk to the private sector to the degree that the PATH Act would have. Another bill that included changes aimed at improving FHA's financial soundness, but not on limiting its market role, was the FHA Emergency Fiscal Solvency Act of 2013 ( H.R. 1145 ), which was similar to bills that passed the House in previous Congresses. The PATH Act was ordered to be reported by the House Committee on Financial Services, while S. 1376 was reported by the Senate Banking Committee. Neither bill was considered by the full House or Senate. H.R. 1145 was not considered by committee. The 113 th Congress also enacted a bill aimed at strengthening FHA's reverse mortgage program. Some of FHA's anticipated losses are attributable to these reverse mortgages that FHA insures, known as Home Equity Conversion Mortgages (HECMs). The 113 th Congress enacted the Reverse Mortgage Stabilization Act of 2013 ( P.L. 113-29 ), which gives FHA greater flexibility to make changes to the HECM program through administrative guidance in order to more quickly implement changes that are intended to reduce the riskiness of these mortgages. For more information on the features of FHA-insured mortgages, see CRS Report RS20530, FHA-Insured Home Loans: An Overview , by [author name scrubbed]. For more information on FHA's financial status, see CRS Report R42875, FHA Single-Family Mortgage Insurance: Financial Status of the Mutual Mortgage Insurance Fund (MMI Fund) , by [author name scrubbed]. For more information on FHA policy changes and proposed legislation related to FHA, see CRS Report R43531, FHA Single-Family Mortgage Insurance: Recent Policy Changes and Proposed Legislation , by [author name scrubbed]. Financial regulators are continuing to implement several mortgage-related rulemakings that were required by the Dodd-Frank Act of 2011. The Consumer Financial Protection Bureau (CFPB) has issued rules related to, among other things, the ability to repay and qualified mortgage (QM) standards, homeownership counseling, escrow requirements, mortgage servicing, loan originator compensation, and mortgage disclosure forms. In addition, six federal agencies issued a final rule for credit risk retention and qualified residential mortgages (QRM). Regulators have issued additional mortgage-market rules besides those mentioned above. While each of the rules is different, there are several policy issues that are common across each of the rules individually as well as of the rules collectively. For example, some lenders are concerned about the compliance costs associated with satisfying the new rules. There are also questions about how the rules will affect credit availability for creditworthy borrowers. The 113 th Congress addressed these and other policy concerns in its oversight of the financial regulators. Congressional action included several legislative proposals that would have repealed or modified some of the mortgage-market rulemakings. For example, the House Committee on Financial Services ordered to report the PATH Act. The PATH Act, in addition to winding down the GSEs and reforming FHA, would have repealed the credit risk retention requirement, modified the definition of a qualified mortgage, and delayed the effective date of certain mortgage reform regulations, among other things. In response to elevated mortgage default and foreclosure rates in recent years, the federal government has established a number of temporary programs and policies intended to help certain households avoid foreclosure. These have included programs to encourage lenders to modify mortgages in ways that lower borrowers' monthly payments (such as the Home Affordable Modification Program, or HAMP) and programs to make it easier to help certain borrowers with little or no equity in their homes to refinance their mortgages and thus lower their interest rates (such as the Home Affordable Refinance Program, or HARP, which is limited to mortgages backed by Fannie Mae or Freddie Mac where borrowers are current on their payments). The expiration date for many of these programs has been administratively extended; HARP and HAMP are currently scheduled to remain in existence through 2015 and 2016, respectively. Several bills were introduced in the 113 th Congress that would have attempted to further assist households who are in danger of foreclosure or otherwise struggling with payments that are deemed to be unaffordable. Many of these bills focused on expanding the ability of certain households to refinance their mortgages, even if they have negative equity or are otherwise unable to refinance their mortgages through traditional channels. For example, several bills (including H.R. 736 , H.R. 1712 , and S. 249 ) would have made changes to HARP with the intention of expanding the number of people who would be eligible for the program. These bills would have continued to limit HARP eligibility to borrowers whose mortgages are backed by Fannie Mae or Freddie Mac. Another bill, S. 1373 , would have expanded HARP-like refinancing to mortgages that were not backed by Fannie Mae or Freddie Mac or insured by a government agency. None of these bills were enacted prior to the end of the 113 th Congress. For more information on foreclosure prevention programs, see CRS Report R40210, Preserving Homeownership: Foreclosure Prevention Initiatives , by [author name scrubbed]. Another temporary measure that was enacted in a prior year in response to high mortgage foreclosure rates was the Protecting Tenants at Foreclosure Act, which was enacted as part of the Helping Families Save Their Homes Act of 2009 ( P.L. 111-22 ). The law provided certain protections for renters who are living in properties that go through foreclosure. These protections included requiring the new property owner to comply with certain notice requirements before a tenant can be evicted and, in some cases, allowing tenants to remain in the property for the term of an existing lease. The provisions of the Protecting Tenants at Foreclosure Act expired on December 31, 2014. During the 113 th Congress, legislation ( H.R. 3543 and S. 1761 ) was introduced to make the provisions of the Protecting Tenants at Foreclosure Act permanent. However, no legislation to either extend the provisions or make them permanent was enacted. Legal wrangling stemming from the mortgage crisis has affected virtually every type of player involved in the mortgage market during the run-up to the housing market crash. The resulting federal and state investigations, enforcement actions, and legal settlements, as well as private litigation have led to the transfer of tens of billions of dollars among market participants and governmental regulators. For example, in the fall of 2010, the sworn statements of employees from several large mortgage servicers and other evidence that surfaced in various foreclosure-related litigation raised concerns that the companies were systematically engaged in mortgage documentation and procedural improprieties, especially when handling mortgages in default. These concerns provoked a number of state and federal regulators to initiate multiple investigations, enforcement actions, lawsuits, and legal settlement negotiations. Although the alleged servicer misconduct is a common thread in these regulatory actions, the legal authorities at the disposal of the regulators differ considerably, which has resulted in varied remedies. Beginning in the fourth quarter of 2010, the federal banking regulators began on-site examinations of the foreclosure processes and governance protocols of more than a dozen servicers. As a result of its findings, the banking regulators entered into binding consent orders in April 2011 with these mortgage servicers and several of the third-party service providers that the servicers used in various ways during foreclosure processes. The consent orders require servicers to redress homeowners potentially harmed in the past, as well as to improve behavior going forward. Additionally, on February 8, 2012, 49 state attorneys general, the Conference of State Bank Supervisors, the U.S. Department of Housing and Urban Development (HUD), the U.S. Department of the Treasury (Treasury), and the U.S. Department of Justice (DOJ) announced a "National Mortgage Settlement" covering certain legal claims against the top five mortgage servicers. The settlement provides mortgage servicers some certainty regarding their legal liability, while securing approximately $25 billion in monetary relief for individuals who lost homes through foreclosure in recent years and current homeowners who are struggling to maintain monthly payments. Other litigation, enforcement actions, and legal settlements have involved mortgage-related activities outside of the context of mortgage servicing. For example, on October 19, 2013, the Justice Department, acting through the Obama Administration's Financial Fraud Enforcement Task Force's RMBS Working Group, announced that federal and state regulators and JPMorgan Chase & Co. had reached a legal settlement stemming from the company's "packaging, marketing, sale and issuance of residential mortgage-backed securities (RMBS)." As part of the agreement, JPMorgan is required to pay approximately $13 billion, which will take various forms including civil penalties, restitution, and consumer relief. Similar agreements were entered into with Citigroup and Bank of America, among others. Furthermore, through negotiated settlements and private lawsuits, entities that purchased mortgages in the secondary market are seeking indemnification from sellers for the losses suffered from mortgages that allegedly failed to meet the underwriting standards that were promised pursuant to sales contracts. For instance, the Federal Housing Finance Agency (FHFA), acting as conservator of Fannie Mae and Freddie Mac, has sued or entered into settlement negotiations with around 20 mortgage companies for violations of state and federal securities laws primarily stemming from Fannie Mae and Freddie Mac's purchases of mortgage-backed securities in the mid-2000s. The FHFA has settled with most of these companies for a combined total of more than $15 billion. Additionally, mortgage brokers have been charged with money laundering and other fraudulent activity in violation of federal law; mortgage originators have been charged with violating fair lending laws for discriminating against protected classes in marketing and originating mortgages; and federal regulators have levied mortgage-related fraud charges against bank directors and officers. The 113 th Congress expressed ongoing interest in the oversight of these mortgage-related legal settlements. Certain Members of Congress also called on regulators to provide additional information related to some of these settlement actions, including information related to changes to the April 2011 consent orders that the OCC and the Federal Reserve entered into with over a dozen mortgage servicers. For more information on some of the foreclosure procedural issues that initially prompted investigation, see CRS Report R41491, "Robo-Signing" and Other Alleged Documentation Problems in Judicial and Nonjudicial Foreclosure Processes , by [author name scrubbed]. For more information on the National Mortgage Settlement, see CRS Report R42919, Oversight and Legal Enforcement of the National Mortgage Settlement , by [author name scrubbed]. More than five years after the bursting of the housing bubble, cities across the country continue to contend with significant numbers of underwater mortgages that fuel foreclosures and hamper economic recovery. To combat these problems, several city councils across the country, including those of Richmond, CA and North Las Vegas, NV, have entered discussions with a private company, Mortgage Resolution Partners (MRP), to implement eminent domain programs. Although no U.S. city has actually exercised its condemnation powers to effectuate such a plan, the proposals would entail the cities exercising their eminent domain powers to purchase underwater mortgages and selling them to MRP, which would issue new mortgages to the same homeowners for more than their condemnation prices but less than the outstanding principals on the original mortgages. The proposals reportedly would focus on purchasing performing mortgages that are held by private-label (i.e., issued by private companies, not by Fannie Mae, Freddie Mac, or Ginnie Mae), residential mortgage-backed securitized trusts (RMBS trusts). The cities and MRP reportedly would also target homeowners whose newly issued mortgages could qualify for Federal Housing Administration (FHA) insurance. The Takings Clause of the Fifth Amendment of the U.S. Constitution, which is applicable to states and localities through the Due Process Clause of the Fourteenth Amendment, limits the government's sovereign power to seize private property by eminent domain. States and municipalities also must adhere to their respective state constitutions, almost all of which have analogous provisions. The constitutionally valid exercise of eminent domain requires that two basic principles be met: the private property must be acquired for a "public use"; and the property owner must be paid "just compensation." Although legal challenges against these plans would be very fact specific, the condemnation of underwater mortgages to bolster economic development arguably could raise constitutional questions under both the public use and just compensation principles of state and federal takings clauses. In addition to potential questions regarding their constitutionality, some Members of Congress and other policymakers have expressed policy concerns about plans to acquire underwater mortgages through eminent domain. Critics argue that these proposals would be unfair to mortgage holders, would undermine private contracts, and could be detrimental to future mortgage lending because lenders may be hesitant to offer mortgages in areas that had used eminent domain in the past or may charge higher interest rates to compensate for the perceived increase in risk. In an effort to discourage the condemnation plans, a provision of the Consolidated and Further Continuing Appropriations Act, 2015, P.L. 113-235 , prohibits FHA, Ginnie Mae, and HUD from using funds appropriated in the act "to insure, securitize, or establish a Federal guarantee of any mortgage or [MBS] that refinances or otherwise replaces a mortgage that has been subject to eminent domain condemnation or seizure, by a state, municipality, or any other political subdivision of a state." Policymakers also have called on government agencies, such as FHA, to explain what kind of policies they might adopt if a local jurisdiction proceeded with such a program. Furthermore, legislation was introduced to prohibit Fannie Mae, Freddie Mac, FHA, and the U.S. Department of Agriculture from backing mortgages on properties located in any area that had used eminent domain to acquire mortgages in the previous 10 years. For more information on the constitutional issues that may be raised by eminent domain, see CRS Legal Sidebar WSLG187, Legal Questions Abound Proposals to Use Eminent Domain to Acquire Underwater Mortgages , by [author name scrubbed] and CRS Legal Sidebar WSLG620, Constitutional Challenges of Cities' Plans to Acquire Underwater Mortgage by Eminent Domain , by [author name scrubbed]. Congress did not enact any legislation to eliminate or in any way modify the mortgage interest deduction during the 113 th Congress. Changes to the deduction, which is a permanent feature of the tax code, had been up for consideration during tax reform discussions held in the 113 th Congress. For example, in 2013, members of the House Committee on Ways and Means were assigned to one of 11 bipartisan groups that were to focus on reforming particular parts of the tax code. One of those groups was tasked with examining reform options for the tax treatment of real estate, including the mortgage interest deduction. Comments solicited from interested parties varied and included support of retaining the deduction as is, permanently expanding the deduction to include private mortgage insurance, converting the deduction to a credit, and reducing the size of mortgage eligible for the deduction, among others. For an analysis of the rationales for subsidizing homeownership, and an analysis of the effect of current tax incentives on the homeownership rate, see CRS Report R41596, The Mortgage Interest and Property Tax Deductions: Analysis and Options , by [author name scrubbed]. For information on how modifications to the deduction could affect taxpayers in particular geographic locations, see CRS Report R43385, An Analysis of the Geographic Distribution of the Mortgage Interest Deduction , by [author name scrubbed]. Traditionally, homeowners have been able to deduct the interest paid on their mortgage, as well as any property taxes they pay as long as they itemize their tax deductions. Beginning in 2007, homeowners could also deduct qualifying mortgage insurance premiums as a result of the Tax Relief and Health Care Act of 2006 ( P.L. 109-432 ). Specifically, homeowners could effectively treat qualifying mortgage insurance premiums as mortgage interest, thus making the premiums deductible if the homeowner itemized, and if the homeowner's adjusted gross income was below a certain threshold ($55,000 for single, and $110,000 for married filing jointly). Originally, the deduction was to only be available for 2007, but it was extended through 2010 by the Mortgage Forgiveness Debt Relief Act of 2007 ( P.L. 110-142 ). The deduction was extended again through 2011 by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act ( P.L. 111-312 ) and through the end of 2013 by the American Taxpayer Relief Act of 2012 ( P.L. 112-240 ). The 113 th Congress acted to extend the deduction through the end of 2014 in P.L. 113-295 , which was passed by Congress on December 16, 2014. A home foreclosure, mortgage default, or mortgage modification can have important tax consequences. As lenders and borrowers work to resolve indebtedness issues, some transactions are resulting in cancellation of debt. Mortgage debt cancellation can occur when lenders restructure loans, reducing principal balances; or sell properties, either in advance, or as a result, of foreclosure proceedings. Historically, if a lender forgives or cancels such debt, tax law has treated it as cancellation of debt (COD) income subject to tax. Exceptions have been available for taxpayers who are insolvent or in bankruptcy, among others—these taxpayers may exclude canceled mortgage debt income under existing law. The Mortgage Forgiveness Debt Relief Act of 2007 ( P.L. 110-142 ) signed into law on December 20, 2007, temporarily excluded qualified COD income. Thus, the act allowed taxpayers who did not qualify for the existing exceptions to exclude COD income. The provision was effective for debt discharged before January 1, 2010. The Emergency Economic Stabilization Act of 2008 ( P.L. 110-343 ) extended the exclusion of COD income to debt discharged before January 1, 2013, and the American Taxpayer Relief Act of 2012 ( P.L. 112-240 ) extended the exclusion through the end of 2013. The 113 th Congress acted to extend the exclusion through the end of 2014 in P.L. 113-295 , which was passed by Congress on December 16, 2014. The 113 th Congress also deliberated on a number of issues related to housing assistance programs and policies. In general, housing assistance programs are targeted to lower-income households or special populations who have difficulty finding affordable housing. Several issues that were considered by Congress were related to funding for housing assistance programs and possible reforms to certain programs. Concern in Congress about reducing federal budget deficits has led to increased interest in reducing the amount of discretionary funding provided each year through the annual appropriations process. Reflecting this interest, the Budget Control Act of 2011 ( P.L. 112-25 ), as amended, implemented discretionary spending caps for FY2012-FY2021, which are designed to reduce growth in discretionary spending. The desire to limit discretionary spending has implications for the Department of Housing and Urban Development's (HUD's) budget, since it is made up almost entirely of discretionary appropriations. More than three-quarters of HUD's appropriations are devoted to three programs: Section 8 Housing Choice Voucher program rental assistance vouchers, Section 8 project-based rental assistance subsidies, and the public housing program. Funding for Section 8 vouchers makes up the largest share of HUD's budget, accounting for nearly half. The cost of the Section 8 voucher program has been growing in recent years since Congress has created more vouchers each year over the past several years (largely to replace units lost to the affordable housing stock in other assisted housing programs), and since the cost of renewing individual vouchers has been growing as gaps between low-income tenants' incomes and rents in the market have been growing. The cost of the project-based Section 8 program has also been growing in recent years as more and more long-term rental assistance contracts on older properties expire and are renewed, requiring new appropriations. Public housing, the third-largest expense in HUD's budget, has, arguably, been underfunded (based on studies undertaken by HUD of what it should cost to operate and maintain public housing) for many years, which means there is regular pressure from low-income housing advocates and others to increase funding for public housing. In a budget environment featuring limits on discretionary spending, the pressure to provide more funding for HUD's largest programs must be balanced against the pressure from states, localities, and advocates to maintain or increase funding for other HUD programs, such as the Community Development Block Grant (CDBG) program, grants for homelessness assistance, and funding for Native American housing. Further, HUD's funding needs must be considered in the context of those for the Department of Transportation. Funding levels for HUD, along with those of the Department of Transportation (DOT), are determined by the Transportation, HUD, and Related Agencies (T-HUD) appropriations subcommittee, generally in a bill by the same name. While the DOT's overall budget is generally larger than HUD's, because the majority of DOT's budget is made up of mandatory funding, HUD's budget makes up the largest share of the discretionary T-HUD appropriations bill each year. All of these considerations influenced the 113 th Congress's consideration of HUD appropriations. For more information about HUD appropriations, see the CRS Issue Before Congress website, "Transportation, HUD, and Relate d Agencies' Appropriations. " For more information about the Budget Control Act, see CRS Report R41965, The Budget Control Act of 2011 , by [author name scrubbed], [author name scrubbed], and [author name scrubbed], and for more information about trends in funding for HUD, see CRS Report R42542, Department of Housing and Urban Development (HUD): Funding Trends Since FY2002 , by [author name scrubbed]. Over most of the past decade, Congress has considered reforms to the nation's two largest direct housing assistance programs: the Section 8 Housing Choice Voucher and public housing programs. The majority of these reforms are aimed at streamlining the programs' administration, although some have been farther reaching than others. Recent reform proposals, including those considered in the 111 th and 112 th Congresses, have included a number of fairly uncontroversial administrative provisions, along with others that have proved more controversial. The Section 8 Housing Choice Voucher program is HUD's largest direct housing assistance program for low-income families, both in terms of the number of families it serves (over 2 million) and the amount of money it costs (over $18 billion in FY2013, about half of HUD's total appropriation). The program is administered at the local level, by public housing authorities (PHAs), and provides vouchers—portable rental subsidies—to very low-income families, which they can use to reduce their rents in the private market units of their choice (subject to certain cost limits). The program has been criticized for, among other issues, its administrative complexity and growing cost. The public housing program has existed longer than the Section 8 voucher program and is now smaller in size, with over 1 million units of low-rent public housing available to eligible low-income tenants. Public housing is owned by the same local PHAs that administer the Section 8 voucher program and those PHAs receive annual operating and capital funding from Congress through HUD. Much of the public housing stock is old and in need of capital repairs. According to the most recent study conducted by HUD, addressing the outstanding physical needs of the public housing stock would cost nearly $26 billion. The amount Congress typically provides in annual appropriations for capital needs has not been sufficient to address that backlog. In response, PHAs have increasingly relied on other sources of financing, particularly private market loans, to meet the capital needs of their housing stock. However, there are limits on the extent to which PHAs can borrow funds; most notably, they are generally restricted by federal rules from mortgaging their public housing properties. Further, the public housing program has, like the voucher program, been criticized for being overly complex and burdensome to administer, especially in light of recent funding reductions. Recent reform proposals have included changes to the income eligibility and rent determination process for both programs, designed to make it less complicated, and changes to the physical inspection process in the voucher program to give PHAs more options for reducing the frequency of inspections and increasing sanctions for failed inspections. Proposed legislation has also included changes to the formula by which voucher funding is allocated to PHAs. In recent years, annual appropriations laws have specified different formulas for allocating voucher funding; voucher reform legislation has sought to codify a permanent formula (although, even if enacted it could still be overridden in the appropriations acts). Finally, recent reform proposals have included modifications to and expansions of the Moving to Work (MTW) demonstration, which permits a selected group of PHAs to seek waivers of most federal rules and regulations governing the Section 8 voucher program and the public housing program. No reform legislation was considered in the 113 th Congress. However, the President requested in several budget submissions that Congress enact several of the less controversial administrative reforms (for example, those related to income calculation and verification) as a part of the annual appropriations acts. The FY2014 Omnibus funding measure ( P.L. 113-76 ) included several of the requested administrative reforms. For more information, see CRS Report RL34002, Section 8 Housing Choice Voucher Program: Issues and Reform Proposals , by [author name scrubbed]. The Native American Housing Assistance and Self-Determination Act of 1996 (NAHASDA) reorganized the system of federal housing assistance for Native Americans living in tribal areas. NAHASDA terminated the ability of tribes to receive assistance under several existing HUD programs, and consolidated most housing funding for tribes into a single block grant program, the Native American Housing Block Grant (NAHBG). Federally recognized tribes and Alaska Native villages are eligible to receive formula funding under the NAHBG to use for a variety of housing activities that benefit low-income households living in the tribe's formula area. In addition to the block grant program, NAHASDA also authorized a loan guarantee program under which HUD provides a guarantee on certain eligible loans made to tribes for housing-related purposes (the Title VI Loan Guarantee Program), as well as funding for training and technical assistance. A block grant program similar to the NAHBG, the Native Hawaiian Housing Block Grant (NHHBG), provides funds for affordable housing for low-income Native Hawaiians who are eligible to live on the Hawaiian home lands and is also authorized under NAHASDA, as amended. NAHASDA's authorization expired at the end of FY2013. No reauthorization bill was enacted before the end of the 113 th Congress. Two reauthorization bills were introduced in the House ( H.R. 4277 and H.R. 4329 ), and H.R. 4329 was passed by the House in December 2014. A different reauthorization bill in the Senate ( S. 1352 ) was reported out of the Senate Committee on Indian Affairs in January 2014, but was never considered by the full Senate. For more information on NAHASDA, see CRS Report R43307, The Native American Housing Assistance and Self-Determination Act of 1996 (NAHASDA): Background and Funding , by [author name scrubbed]. The U.S. Department of Agriculture (USDA) administers a number of housing assistance programs for low and moderate income residents of rural areas. They include rental housing development and rent subsidy programs, as well as single-family direct loan and mortgage insurance programs. These programs are only available in "rural" areas, as defined by the authorizing statute for the programs. That definition is complicated, and involves maximum population thresholds, and in some cases a determination by USDA that the area is "rural in character" and lacks access to mortgage credit. Further, in past years, Congress has modified the definition to allow certain areas to continue to be considered rural, despite exceeding population thresholds based on updated decennial Census data. With the release of Census 2010 population figures, the USDA updated the list of areas to be designated as rural, reflecting the new Census data. According to preliminary estimates released by USDA in 2012, over 900 communities that were identified as "rural" would have no longer met the criteria and would thus have lost eligibility to participate in rural housing programs. USDA was initially planning to begin using the updated list of eligible communities at the start of FY2013. However, Congress included in the FY2013 appropriations law language maintaining eligibility for rural housing programs in any communities that were considered eligible for participation at the end of FY2012. This "grandfathering" of existing eligible communities was extended through the end of FY2014 under the terms of the final FY2014 Omnibus appropriations law ( P.L. 113-76 ). Following enactment of P.L. 113-76 , the Agricultural Act of 2014, also known as the 2014 "Farm Bill" ( P.L. 113-79 ), amended the statutory definition of rural. The amendment (1) extended the existing provisions disregarding 1990 and 2000 decennial Census data in determining certain communities' rural status to also disregard 2010 decennial Census data; and (2) expanded the population threshold for the purposes of retaining eligibility for certain communities from 25,000 to 35,000. For more information about USDA rural housing programs, see CRS Report RL31837, An Overview of USDA Rural Development Programs , by [author name scrubbed]. The low-income housing tax credit (LIHTC) program is one of the federal government's primary policy tools for encouraging the development and rehabilitation of affordable rental housing. These non-refundable federal housing tax credits are awarded to developers of qualified rental projects via a competitive application process administered by state housing finance agencies. Developers typically sell their tax credits to outside investors in exchange for equity. Selling the tax credits reduces the debt developers would otherwise have to incur and the equity they would otherwise have to contribute. With lower financing costs, tax credit properties can potentially offer lower, more affordable rents. Two temporary changes to the LIHTC program that were made during the financial crisis were extended in the 113 th Congress. The Housing and Economic Recovery Act of 2008 ( P.L. 110-289 ) temporarily changed the formula used to determine how many LIHTCs new rental construction is awarded. The act increased the potential number of credits a LIHTC property could receive by ensuring that new construction receives LIHTCs of no less than 9% multiplied by a property's eligible basis (eligible costs). The American Taxpayer Relief Act of 2012 ( P.L. 112-240 ) extended the 9% floor for credit allocations made before January 1, 2014. The 113 th Congress acted to extend the floor through the end of 2014 in P.L. 113-295 , which was passed by Congress on December 16, 2014. The Housing and Economic Recovery Act of 2008 ( P.L. 110-289 ) also temporarily excluded military housing allowances from the LIHTC income calculations for properties near rapidly growing military bases. In general, LIHTC tenants must have an income below a particular threshold to live in a LIHTC unit. Specifically, a tenant must have an income of either 50% or less of the area's median income, or 60% or less of the area's median income. Which threshold applies depends on an election made by the developer that determines the targeted low-income population. Civilians as well as servicemembers are potentially eligible to live in LIHTC units. However, when calculating a servicemember's income for purposes of determining their eligibility, their annual pay and basic allowance for housing (BAH) must be included. The BAH is a tax-exempt form of compensation that is based on a servicemember's pay grade, location, and number of dependents. The temporary exclusion provided by HERA likely allowed more servicemembers to qualify to live in LIHTC housing. The exclusion applied to LIHTC properties in a county with a military base that experienced military personnel growth of 20% or more between December 31, 2005, and June 1, 2008, or that are located in an adjacent county. The HERA change was originally set to expire on December 31, 2011, but was extended through the end of 2013 by the American Taxpayer Relief Act of 2012 ( P.L. 112-240 ). It was most recently extended through the end of 2014 by P.L. 113-295 on December 16, 2014. For many years, affordable housing advocates, led by the National Low-Income Housing Coalition (NLIHC), had argued for the creation of a national housing trust fund to provide a dedicated source of funding outside of the annual appropriations process that could be used for the production of rental housing for the lowest-income households. In 2008, Congress established the Housing Trust Fund and another new affordable housing fund, the Capital Magnet Fund, in the Housing and Economic Recovery Act of 2008 ( P.L. 110-289 ). Through the Housing Trust Fund, HUD would provide formula-based grants to states to use primarily for rental housing for very low- and extremely low-income households. The dedicated funding source for the Housing Trust Fund was to be contributions from Fannie Mae and Freddie Mac, which would be shared with the Capital Magnet Fund. However, before the Housing Trust Fund had ever received any funding, the contributions were suspended by the Federal Housing Finance Agency (FHFA) after Fannie Mae and Freddie Mac were placed into conservatorship. Affordable housing advocates have continued to seek a source of funding for the Housing Trust Fund and have suggested a number of possible funding sources. Most recently, as Fannie Mae and Freddie Mac have once again become profitable, advocates argued that their contributions to the Housing Trust Fund should be reinstated and initiated legal action to attempt to require Fannie Mae and Freddie Mac to begin making contributions. That lawsuit was dismissed due to lack of standing in September 2014. Furthermore, the Common Sense Housing Investment Act of 2013 ( H.R. 1213 ) would have made changes to the mortgage interest deduction and diverted some of the revenue generated by the changes to the Housing Trust Fund. Some policymakers, however, have opposed the Housing Trust Fund since its creation, arguing that it is duplicative of other housing programs or that its funds could be misused. There were legislative proposals in the 113 th Congress, as well as in previous Congresses, to eliminate the Housing Trust Fund entirely or to limit the circumstances under which it could receive funding. For example, the PATH Act, discussed earlier in this report, would have repealed the Housing Trust Fund, while the Pay Back the Taxpayers Act of 2014 ( H.R. 3901 ) would have prohibited Fannie Mae or Freddie Mac from making any contributions to the housing funds while in conservatorship or receivership. As of the end of the 113 th Congress, the Housing Trust Fund had never received any funding. However, in December 2014, FHFA Director Mel Watt directed Fannie Mae and Freddie Mac to begin setting aside contributions for the Housing Trust Fund and the Capital Magnet Fund during 2015, with the first contributions scheduled to be transferred to the housing funds in early 2016. Affordable housing advocates and some lawmakers praised the decision, citing a need for affordable housing in many communities. Other lawmakers, however, criticized the decision on the basis of Fannie Mae's and Freddie Mac's ongoing conservatorship and concerns about the Housing Trust Fund itself. For more information on the Housing Trust Fund, see CRS Report R40781, The Housing Trust Fund: Background and Issues , by [author name scrubbed]. | The 113th Congress was active in considering a number of housing-related issues. In general, these issues can be divided into two broad categories: (1) issues related to homeownership and financing home purchases, and (2) issues related to housing assistance programs for low-income households. Housing assistance for low-income households tends to be primarily, but not exclusively, related to rental housing. During the 113th Congress, housing and mortgage markets showed some signs of recovering after several years of distress. Nevertheless, several issues that Congress considered were related to addressing problems that arose from the turmoil in housing and mortgage markets in recent years. Congress also considered policy changes designed to address problems that were perceived to have contributed to the housing downturn in an attempt to avoid a similar situation in the future. One major issue that was on Congress's agenda was reform of the housing finance system. Specifically, Congress considered measures to wind down and possibly replace Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs) that purchase mortgages and package them into guaranteed mortgage-backed securities. Congress also considered reforms to the Federal Housing Administration (FHA), both as part of larger housing finance reform proposals and as stand-alone measures, in light of concerns about FHA's finances. However, no housing finance reform legislation or broad FHA reform legislation was enacted during the 113th Congress. Additionally, Congress was interested in overseeing the implementation of several mortgage-related rulemakings that were enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203) in the 111th Congress, and deliberated on other issues related to housing finance. Congress also considered a number of issues related to housing assistance for low-income individuals and families. In recent years, housing affordability issues have become more prevalent, partly due to the effects of the economic recession. At the same time, in response to growing concerns about the long-term budget outlook, less funding has been provided for many of the housing assistance programs administered by the Department of Housing and Urban Development (HUD). Therefore, an issue before the 113th Congress was how to prioritize funding for housing programs. Congress also considered additional issues related to housing for low-income families, including extensions of certain provisions related to the low-income housing tax credit (LIHTC) program and efforts to reauthorize the major federal program that provides federal housing assistance to low-income Native Americans living in tribal areas. Congress also weighed whether to extend certain housing-related tax provisions that expired at the end of 2013, such as the tax exclusion for canceled mortgage debt income. |
F ollowing a lengthy debate over raising the debt limit, the Budget Control Act of 2011 (BCA; P.L. 112-25 ) was signed into law by President Obama on August 2, 2011. In addition to including a mechanism to increase the debt limit, the BCA contained measures intended to reduce the budget deficit through spending restrictions. Combined, these measures were projected to reduce the deficit by roughly $2 trillion over the FY2012-FY2021 period. The spending reductions in the BCA are achieved mainly through two mechanisms: (1) statutory discretionary spending caps covering 10 years that came into effect in 2012 and (2) a $1.2 trillion automatic spending reduction process (sometimes referred to as the "sequester") covering nine years that was initially scheduled to come into effect on January 2, 2013. Three subsequent pieces of legislation have modified the BCA as enacted. The American Taxpayer Relief Act (ATRA; P.L. 112-240 ) postponed the start of the FY2013 spending reductions, commonly known as the sequester, until March 1, 2013, and canceled the first two months of spending cuts. The Bipartisan Budget Act (BBA 2013; P.L. 113-67 ) raised the caps under the BCA on defense and non-defense discretionary spending in FY2014 and FY2015, and extended BCA mandatory sequestration through FY2023. Finally, the Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-74 ) raised the discretionary spending caps in FY2016 and FY2017, and further extended mandatory sequestration. This report discusses the effects of the BCA on spending and the deficit, assuming that the automatic spending reductions proceed as scheduled from FY2016 to FY2021 and the discretionary spending caps remain in place. Other CRS reports provide additional analysis of the BCA. The BCA was enacted in response to congressional concern about rapid growth in the federal debt and deficit. The federal budget has been in deficit (spending exceeding revenue) since FY2002, and incurred particularly large deficits from FY2009 to FY2013. Increases in spending on defense, lower tax receipts, and responses to the recent economic downturn all contributed to deficit increases in that time period. In FY2010, spending reached its highest level as a share of GDP since FY1946, while revenues reached their lowest level as a share of GDP since FY1950. As the effects of the recession wane, higher tax revenue and lower levels of spending as a percentage of GDP relative to those fiscal years have resulted in lower budget deficits. In FY2015, the deficit totaled 2.4% of GDP, or 7.4 percentage points below its peak in 2009. The BCA reduces projected spending through two primary mechanisms, discretionary spending caps that began in FY2012 and an automatic spending reduction process that began in FY2013. The BCA placed statutory caps on most discretionary spending from FY2012 through FY2021. The caps essentially limit the amount of spending through the annual appropriations process for that time period, with adjustments permitted for certain purposes. The limits could be adjusted to accommodate (1) changes in concepts and definitions; (2) appropriations designated as emergency requirements; (3) appropriations for Overseas Contingency Operations/Global War on Terrorism (OCO; e.g., for military activities in Afghanistan); (4) appropriations for continuing disability reviews and redeterminations; (5) appropriations for controlling health care fraud and abuse; and (6) appropriations for disaster relief. The last five of the listed adjustments effectively exempt those types of discretionary spending from the statutory caps, reducing the ability of the caps to limit total discretionary spending. The BCA limits adjustments for spending on disability reviews and controlling health care fraud abuse to relatively small amounts and limits adjustments for disaster relief by a formula based on historical levels. Funds classified by Congress and the President as OCO and emergency spending are not limited by the BCA. Cap levels are enforced through a sequestration process (spending cuts that are automatically triggered if cap levels are breached). The sequestration process has not been used to date, as Congress has enacted budgets with spending amounts consistent with the cap levels. The adjustable caps are not placed on specific accounts or even on each of the appropriations bills; instead, they are broad caps on the total amount of discretionary spending. In FY2012 and FY2013, the BCA placed separate caps exist on security and non-security spending. The largest amounts of spending in the non-security category are tied to the Departments of Health and Human Services, Education, and Housing and Urban Development. For FY2014 to FY2021, the BCA institutes separate caps for defense and non-defense spending. Decisions about how these caps will affect specific agencies or programs are made by Congress and the President through the regular appropriations process. Table 1 displays BCA discretionary cap levels, before and after the automatic spending reductions discussed in the next section, as amended by ATRA, BBA 2013, and BBA 2015. Title IV of the BCA established a Joint Select Committee on Deficit Reduction (hereinafter Joint Committee), composed of an equal number of Senators and Representatives, and instructed it to develop a proposal that would reduce the deficit by at least $1.5 trillion over FY2012 to FY2021. To ensure deficit reduction occurred if a Joint Committee bill was not enacted, Section 302 of the BCA established an automatic process to reduce spending. On November 21, 2011, the co-chairs of the Joint Committee announced that they were unable to reach a deficit-reduction agreement before the committee's deadline. As a result, a $1.2 trillion automatic spending reduction process was triggered, beginning in January 2013. Of the $1.2 trillion in deficit reduction, the BCA specified that 18% of the total ($216 billion) be credited to debt service savings that would result from the spending reduction. Therefore, the amount of the reduction in budget authority would equal the remaining 82% of the required deficit reduction total. The amount of the automatic spending reduction under the BCA was spread evenly over the nine years from FY2013 to FY2021 and split evenly between defense (defined as budget function 050) and non-defense spending categories and applied proportionally to discretionary and mandatory programs within each of these categories. The automatic spending restriction would amount to a reduction in budget authority of $109.3 billion each year for nine years, with $54.7 billion of the reduction to be applied to defense and $54.7 billion applied to non-defense programs. ATRA, BBA 2013 and BBA 2015 modified this process, lowering the required reductions in defense and non-defense spending from FY2013 through FY2017. Within the defense and non-defense categories, some programs are exempted from an automatic spending reduction and the cuts to other programs are limited by statute. For example, an automatic spending reduction to Medicare is limited to 2% of total program spending. Although the BCA as enacted made no revisions to the total automatic spending reductions in subsequent years, the amount applied to any given budget account could be recalculated, if the relative size of budget accounts changes or the exempt/nonexempt status of an account changes. For purposes of the automatic reductions, the BCA created new discretionary cap levels for defense and non-defense for the 10-year budget window. The amount of the automatic reduction is then subtracted from the new defense and non-defense cap levels. In FY2013, the automatic spending reduction was carried out through an across-the-board sequester (cancellation) of previously authorized budgetary resources. From FY2014 forward, the automatic spending reduction has been carried out through a sequester for mandatory spending and through reductions in the overall discretionary caps, rather than a sequester, for discretionary spending. The sequester is applied proportionately to all non-exempt accounts, while it is left to future Congresses to determine how to apply the reductions to discretionary accounts within the caps. Cuts to discretionary programs as a result of the automatic spending reduction process would be in addition to the projected savings resulting from the initial discretionary caps in the BCA. The FY2013 sequester reduced non-exempt defense discretionary spending by 7.8% relative to the cap levels, non-defense discretionary spending by 5.0% relative to the cap levels, Medicare by 2% relative to baseline levels (per the statutory limit), and other mandatory spending by 5.1% relative to the baseline levels. For FY2014, a sequester order was issued which reduced mandatory defense spending by 9.8% and mandatory non-defense spending by 7.2%. The sequester order issued in FY2015 reduced mandatory defense and non-defense spending totals by 9.5% and 7.3% respectively. Reductions to Medicare remained capped at 2% in each year, per the statutory limit. To gauge how these reductions compare with overall spending, Figure 1 compares the projected percentage of budgetary resources tied to each major programmatic area to the percentage of budget cuts that that spending category absorbs in FY2015. Total gross budgetary resources for FY2015 are shown in the pie chart on the left side of Figure 1 . Mandatory programs account for roughly two-thirds of FY2015 outlays (excluding net interest payments). The majority of mandatory outlays are attributable to non-defense programs (47% of all non-interest spending). Nearly all of the remaining mandatory expenditures in FY2015 are devoted to Medicare (18% of non-interest spending), with the remaining portion allotted to defense programs (1% of total spending). The remaining 34% percent of total spending is discretionary, and is split almost evenly between defense and non-defense expenditures (17% of total spending each). The pie chart on the right side of Figure 1 shows the percentage share of the spending cuts in FY2015 for each category under the sequester. As most of the spending exempt from reduction falls within the mandatory category, the automatic spending cuts fall most heavily on discretionary programs. In FY2015, discretionary spending is projected to account for 34% of budgetary resources, but receives 84% of the automatic spending reductions. Defense discretionary spending is particularly affected, as the defense spending category would receive 49% of all automatic cuts but accounts for 17% of total gross budgetary resources. In contrast, mandatory programs account for 66% of budgetary resources in FY2013, but would bear 16% of the spending reduction (10% on Medicare and 6% on other mandatory programs). Mandatory spending received disproportionately fewer cuts because much of that spending is exempt from reductions under the BCA. Of the mandatory spending that is eligible for reductions, a significant portion is attributable to Medicare, which is limited to a 2% cut under the BCA. The automatic spending reduction process does not guarantee that a specific deficit or spending level is realized in the future, or protect the deficit saving accomplished through the automatic spending reduction from future legislation. Moreover, the amount of automatic spending reduction does not change if future budget deficits turn out to be larger or smaller than projected at the time the automatic spending reduction is determined, which could occur because of subsequent legislative changes or forecasting errors. Since the enactment of the BCA, its spending reductions have been modified by three pieces of legislation, the American Taxpayer Relief Act of 2012 (ATRA), the Bipartisan Budget Act of 2013 (BBA 2013), and the Bipartisan Budget Act of 2015 (BBA 2015). This legislation lowered the spending reductions required in FY2013 through FY2017. None of these actions modified the provisions of the BCA that affect discretionary spending beyond FY2017, though BBA 2013 and BBA 2015 extended the BCA's mandatory spending sequester through FY2025. The enactment of ATRA postponed the start of the FY2013 spending reductions until March 1, 2013. This reduced the FY2013 spending reductions implemented via this process by $24 billion, to roughly $85.3 billion, equally divided between defense and non-defense ($42.7 billion for each category). Several other minor modifications were also made to the process by which these spending cuts would be calculated. Although ATRA reduced the total spending cuts achieved by the automatic process, the cost of these provisions was offset by other spending reductions and revenue increases. ATRA reduced the BCA's discretionary spending caps by $4 billion in FY2013 and $8 billion in FY2014, which offset roughly half of the total cost. In addition, ATRA contained a provision which raised revenue during the budget window by permitting certain retirement accounts to be transferred to designated Roth accounts without distribution. This was used to offset the remaining cost of the legislation. Passage of the BBA 2013 further amended the budgetary changes under the BCA. BBA 2013 eased the discretionary spending restrictions imposed by the BCA in FY2014 and FY2015 through equivalent increases to the defense and non-defense spending authority in those years. The defense and non-defense discretionary spending caps were each increased by roughly $22 billion in FY2014 and $9 billion in FY2015. As with ATRA, the short-term reduction in spending cuts imposed by BBA was offset by other budgetary changes. Those changes included an extension of the mandatory sequestration process applied by the BCA to FY2022 and FY2023, which was projected to reduce the deficit by a total of $28 billion, and a number of other modifications that produced budgetary savings and did not interfere with the process established by the BCA. The budgetary changes instituted by the BCA were again modified with the passage of BBA 2015. That legislation increased the defense and non-defense discretionary spending caps as enacted by the BCA by $25 billion each in FY2016 and $15 billion each in FY2017. BBA 2015 also extended the automatic direct spending reductions from FY2024 through FY2025, and altered the limits to budget authority adjustment for certain integrity programs from FY2017 to FY2021. Finally, it established nonbinding targets for OCO/GWOT services in FY2016 and FY2017. As with BBA 2013, BBA 2015 also included a number of actions with an effect on the budget, but did not affect BCA restrictions. The BCA as enacted contained over $2 trillion in deficit reduction over 10 years, affecting primarily the discretionary side of the budget. This section evaluates the effect of the Budget Control Act's discretionary caps and automatic spending reduction process (as amended by ATRA and BBA) on total spending levels, and decomposes those changes into their effects on outlays or budget authority, depending on the context. The BCA as amended sets new levels of budget authority, which eventually leads to changes in outlays. The difference between budget authority and outlays is discussed in the following text box. To date, appropriations for four fiscal years, 2012 through 2015, have been provided under the BCA framework (as amended by ATRA and BBA). Table 2 illustrates how discretionary budget authority has been provided within categories subject to the caps and categories that are not limited by the caps. Discretionary budget authority subject to the caps equaled $1,043 billion in FY2012 and FY2013, $1,012 billion in FY2014, and $1,014 billion in FY2015. Total discretionary budget authority has exceeded the caps in all years because, as permitted by the BCA, there has been discretionary budget authority (BA) provided ranging from $87 billion in 2015 to $153 billion in 2013 in categories not subject to the caps. In 2013, a sequester was applied to the adjusted cap level as a result of the BCA's automatic spending cuts, reducing discretionary BA from $1,196 billion to $1,127 billion. Of the spending reductions, $59 billion reduced spending subject to the caps and $9 billion reduced OCO, emergency, and disaster spending. Total discretionary BA was $1,181 billion in 2012, $1,127 billion in 2013, $1,111 billion in 2014, and $1,101 in 2015. For FY2012 to FY2021, discretionary and mandatory spending under the BCA as amended by ATRA, BBA 2013, and BBA2015 is projected to be reduced relative to baseline levels. Relative to a baseline using FY2011 appropriated levels adjusted for inflation, CBO projects that the combination of the BCA's caps and automatic spending reduction process as amended reduced discretionary outlays by $95 billion in FY2013 and $1,459 billion over 10 years, as shown in Table 3 . The dollar amount of reductions to defense discretionary spending are modestly larger than the reductions to non-defense discretionary spending from 2016 to 2021 because of the formula used in the BCA to determine the allocation of the automatic spending reductions. Whether the BCA leads to lower overall discretionary spending than it intended depends on the level of spending outside the caps and which baseline spending level is used for comparison. Spending on disaster relief from 2012 to 2015 was at levels permitted by the BCA and spending on OCO was below 2011 levels. Thus, it could be argued that these categories outside the caps were not used to offset cuts to discretionary spending subject to the caps. By contrast, emergency spending in 2013 and 2015, enacted in the Disaster Relief Appropriations Act of 2013 ( P.L. 113-2 ) and Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ) respectively, can be viewed as allowing overall discretionary spending to be $42 billion higher in 2013 and $5 billion in 2015 than it otherwise would have been. Stated differently, instead of offsetting the supplemental by reducing other discretionary spending under the cap, the supplemental was designated by Congress as emergency to provide spending in addition to the cap amount, in effect through deficit financing. Enacted emergency spending was netted out of the reductions in discretionary spending in Table 3 ; if emergency spending is not netted out, discretionary reductions were $137 billion (the $95 billion reduction plus $42 billion in emergency spending) in FY2013, and $147 billion (the $142 billion reduction plus $5 billion in emergency spending) in FY2015. There was no enacted emergency spending in FY2012 or FY2014. As seen in Table 3 , mandatory spending was cut by $11 billion in FY2013, and is projected to be cut by $182 billion over the FY2013-FY2021 period under the automatic spending reduction process. Subsequent legislation has extended the mandatory spending reduction imposed by the BCA until FY2025, while the discretionary spending restrictions are still scheduled to end in FY2021. Most of the mandatory spending cuts in dollar terms are to Medicare. The amount of the cuts to mandatory spending is lower than those to discretionary spending because much of mandatory spending is exempt from the BCA's automatic cuts and mandatory spending is not subject to caps similar to those implemented for discretionary spending. Separate from the automatic process, the BCA also cuts mandatory spending on student loan programs by $5 billion over 10 years. To understand how the BCA affects spending over time, this section compares the levels and percentage changes in spending under the BCA to historical data. Spending levels over time can be compared using a number of different measures, however (see the text box below). To date, recent policies to reduce the deficit have primarily focused on reducing discretionary spending (spending that is provided and controlled through the appropriations process). This trend pre-dates the BCA. In terms of budget authority, overall discretionary spending declined from $1.264 trillion in FY2010 to $1.221 trillion in FY2011 and to $1.198 trillion in FY2012. These declines are in terms of nominal dollars; the decline would be larger if the figures were adjusted for inflation. In 2011, the decline was mostly the result of a reduction in non-defense discretionary spending, and in 2012 the decline was mostly caused by a reduction in spending on overseas contingency operations (OCO). Table 4 shows the projected levels of discretionary budget authority and annual percentage changes, in real and nominal terms, subject to the BCA caps under the automatic spending reduction process ("trigger"). The levels in the table exclude funding for categories of spending (such as OCO, emergency, and disaster) for which cap adjustments are permitted. Because those categories of spending are effectively exempt from the caps, it is possible that the trend of growth in overall discretionary spending (spending subject to the cap plus exempt spending) could turn out to be higher than growth in discretionary spending subject to the BCA caps in future years, even if there is strict compliance with the caps. Alternatively, future Congresses could decide to appropriate an overall level of discretionary spending below the BCA caps, in which case the growth in actual spending would be lower than the growth in the caps. From FY2011 to FY2015, discretionary budget authority subject to the caps fell in real terms each year. In both nominal and real terms, the largest year-over-year percentage declines in spending over the FY2011 to FY2021 period took place in FY2013, largely as a result of the spending reductions instituted by the BCA. That year, discretionary budget authority subject to the caps fell by 6.5% in nominal terms and 8.0% as a percentage of GDP compared with FY2012 levels. Spending subject to the caps experienced smaller real declines in FY2014 and FY2015, as BBA 2013 increased the caps on discretionary budget authority in those years. Discretionary spending is forecasted to rise by 5.1% on a nominal basis and 3.7% in real terms in FY2016, and fall by 1.4% in real terms (though rise by 0.5% on nominal terms) in FY2017. The spending patterns in these years deviate from the trend largely due to the agreement to raise the caps on discretionary spending made by BBA 2015. BBA 2015 made no changes to FY2018 discretionary spending limits, resulting in a nominal and real decline in discretionary budget authority as the more restrictive limits designed by the BCA take effect. Discretionary spending is then forecasted to undertake modest real increases from FY2019 through FY2021, the last years that discretionary spending is affected by the BCA as amended. Since the BCA caps nominal spending, whether real spending increases or decreases from FY2016 to FY2021 will be highly sensitive to the inflation rate. For example, if inflation turns out to be slightly higher than projected, spending would decrease in real terms from FY2019 to FY2021 instead of the decline shown in Table 4 . Although data on spending subject to the caps is only available since FY1976, overall nominal discretionary budget authority fell in only nine other years from FY1976 through FY2011, and by less than 5% in each of those years except FY2010. The FY2013 decline was larger than in any other year except FY2010. The decline in spending subject to the caps in FY2013 follows a nominal decline in FY2011 and a nominal increase in FY2012 that was less than the rate of inflation (resulting in a decline in real terms). In FY2015 real discretionary spending again declined, and was at its lowest value since FY2007. To compare projections of discretionary spending under the BCA to historical trends, adjustments need to be made for types of discretionary spending not subject to the BCA caps, such as emergency spending, disaster spending, and OCO. Table 5 makes this adjustment by excluding funding for OCO and disaster spending for FY2001 to FY2011. Emergency spending was not removed from spending totals. Table 5 compares growth in discretionary spending (adjusted to remove OCO and disaster spending) before and after the changes made by the BCA, ATRA, and BBA took effect. In real terms, discretionary spending subject to the caps grew at an average annual rate of 2.9% from FY2001 through FY2011. Growth in real defense discretionary spending (3.5% on average) was stronger than that of non-defense discretionary spending (2.3% on average) in that time period. From FY2012 to FY2015, the combined effect of the BCA, ATRA, and BBA cause spending to decline by an average of 2.5% annually, with a fairly evenly split between defense (2.8% average decline) and non-defense (2.2% average decline) discretionary reductions. The difference between the first and third columns of Table 5 demonstrates the potential for overall discretionary spending growth to exceed the growth rate desired under the caps. In the 2001-2011 period, spending primarily related to Hurricane Katrina and operations in Iraq and Afghanistan caused OCO and disaster spending growth to exceed the growth rate of other discretionary spending. From 2012 to 2015, the trend has reversed, with total real discretionary spending declining by an annual average of 4.0%. Discretionary spending subject to the caps and outside of the caps (mainly OCO) both declined in those years. Figure 2 shows levels of total discretionary and mandatory spending as a percentage of GDP between FY1962 and FY2025. The levels between FY2016 and FY2025 are projected and assume that the discretionary caps and automatic spending cuts go into effect as scheduled under current law. As noted above, to compare historical data to projections, adjustments must be made for categories of discretionary spending exempt from the BCA caps. Discretionary spending over the FY1962-FY2011 period averaged 9.1% of GDP. As Figure 2 shows, it rose relative to GDP from 1999 to 2011, but remained below the levels prevalent from FY1962 to FY1987. In 2018, discretionary spending under the baseline would reach its lowest share of GDP since data were first available, at 5.9% of GDP, and would continue to decline thereafter. By FY2025, discretionary spending is projected to reach 5.1% of GDP, or nearly 4 percentage points below the historical average. CBO's baseline projection assumes that defense discretionary spending and non-defense discretionary spending will reach their lowest share of GDP in this time frame in FY2025. Before the enactment of the BCA, there were two periods of sustained decline in discretionary spending as a percentage of GDP since 1962, occurring in FY1969-FY1974 and FY1987-FY1999, respectively. In both cases, the decline was driven mainly by a reduction in defense spending as a percentage of GDP, in the former case because of a wind-down of operations in Vietnam and in the latter case by the "peace dividend" associated with the end of the Cold War. Non-defense discretionary spending fell as a percentage of GDP only in the second half of the latter period. In both cases, the decline in spending began from a higher starting point than today. Mandatory spending under the BCA, by contrast, is projected to continue to grow in nominal terms and relative to GDP over the next 10 years. It is projected to increase from $2.0 trillion (12.9% of GDP) in FY2015 to $3.9 trillion (14.1% of GDP) in FY2021. This growth is primarily due to the projection that elderly entitlement spending (notably, Social Security and Medicare) will grow more quickly than GDP over the next 10 years. The BCA has a minimal effect on this trend—it reduces mandatory spending under the automatic spending reduction process by one-tenth of 1% of GDP annually. Social Security is exempt from the BCA's automatic process, and most Medicare payments are reduced by no more than 2% relative to baseline levels. As can be seen in Figure 2 , the increased level in mandatory spending as a percentage of GDP that began in 2009 persisted through the enactment of the BCA and continues through the current budget window. The cuts to Medicare under the BCA relative to current policy are not projected to prevent Medicare spending from growing in real terms or relative to GDP over the 10-year budget window. Total spending is composed of discretionary spending, mandatory spending, and net interest on the federal debt. From FY2019 to FY2021, the growth in mandatory spending and net interest is greater than the decline in discretionary spending, resulting in a projected rise in total spending as a percentage of GDP. In FY2021, total spending is projected to equal 21.3% of GDP. This is well above the historical average; from FY1947 to FY2011, total outlays averaged 19.7% of GDP. As discussed earlier, the BCA was originally projected to reduce the deficit by roughly $1.9 trillion between FY2012 and FY2021, ignoring subsequent modifications. These figures include both the direct effect of lower spending on deficits and the interest savings stemming from the lower deficits resulting from lower spending. However, since the law has been enacted, various legislative provisions have resulted in increases in the deficit, relative to current law, which "offset" the deficit reduction enacted in the BCA. Table 6 below illustrates the changes to the current law baseline as a result of legislation enacted since August 2011 (the month of enactment for the BCA). The legislation that increased the deficit the most relative to current law was ATRA. ATRA made various changes to the tax code and several spending programs, including modification of the provisions of the BCA as it related to the FY2013 sequester as discussed earlier. As a result of ATRA, CBO projected the deficit would increase by more than $3 trillion between FY2013 and FY2021. (The total increase in the deficit from the legislation was estimated at $4 trillion over the FY2013-FY2022 period. Compared with a current policy baseline that assumes expiring provisions will be extended, however, ATRA reduced the deficit.) Other legislation had much smaller effects on both spending and revenue levels. Relative to CBO's current law baseline, the cumulative effect of legislative action from August 2011 to August 2015 increased the projected deficit over the FY2012-FY2021 (or the period during which all components of the BCA are in place) period by $1.483 trillion. If the deficit reduction provisions of the BCA are not included, the legislative action during this period increased the projected budget deficit by $3.408 trillion. As this discussion illustrates, individual policy changes cannot be taken in isolation. The BCA sought to match deficit reduction provisions with a multi-step increase in the debt limit, although in isolation BCA deficit reductions would not prevent the need for future debt limit increases. In any case, matching deficit reduction with debt limit increases is an intermediate goal, but not an ultimate goal of fiscal policy. Two other potential goals of deficit reduction are to balance the budget or to place the deficit on a sustainable path. Economists believe that the budget will eventually need to be placed on a sustainable path because debt cannot rise faster than income (GDP) indefinitely. Under the most recent CBO baseline, the budget deficit falls from 2.8% of GDP in FY2014 to 2.4% of GDP in FY2015 to a low of 2.1% of GDP in FY2017. After that, it begins to rise once again, reaching 3.7% of GDP by FY2025, though it falls slightly in 2023 and 2024. Over the same period, the debt held by the public is projected to rise from 74.0% of GDP to 76.9% of GDP in FY2025, though as with the deficit the debt does not increase in all years during this period. Beyond the 10-year budget window, projected budget deficits become much larger relative to GDP, primarily due to the assumption that health care costs will continue to grow faster than GDP. Moreover, these deficit and debt projections assume that current law will remain in place. If Congress and the President enact subsequent legislation to decrease revenue levels or increase spending, these projections could change. Congress also has the option of offsetting discretionary spending increases with reductions in mandatory budget authority that were unlikely to be realized as outlays under current law. Such reductions, which are commonly referred to as CHIMPS, may decrease the impact of such legislation on net deficits under the present scorekeeping rules, but have no effect on the actual mandatory spending if such budget authority would not have been exercised. Besides new initiatives, Congress and the President have routinely increased the deficit by temporarily extending over 50 expiring tax provisions in recent years. If these policies continue to be extended, CBO` projects that the deficit will increase by nearly an additional $1 trillion over the FY2016-FY2025 period, with additional deficit increases beyond FY2025. | Following a lengthy debate over raising the debt limit, the Budget Control Act of 2011 (BCA; P.L. 112-25) was signed into law by President Obama on August 2, 2011. In addition to including a mechanism to increase the debt limit, the BCA contained a variety of measures intended to reduce the budget deficit through spending restrictions. There are two main components to the spending reductions in the BCA: (1) discretionary spending caps that came into effect in FY2012 and (2) a $1.2 trillion automatic spending reduction process that was initially scheduled to come into effect on January 2, 2013. Combined, these measures were projected to reduce the deficit by roughly $2 trillion over the FY2012-FY2021 period. The American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240) reduced and postponed the start of the FY2013 spending reductions, commonly known as the sequester, until March 1, 2013. The Bipartisan Budget Act of 2013 (BBA 2013; P.L. 113-67) increased the discretionary spending caps in FY2014 and FY2015 and extended mandatory sequestration through FY2023. The Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-74) raised the discretionary spending caps in FY2016 and FY2017, and further extended mandatory sequestration. Congress has debated whether to maintain scheduled spending cuts in future years. To inform that debate, this report discusses the effects of the BCA as amended on spending and the deficit, assuming that the discretionary spending caps remain in place. From FY2012 to FY2021, the BCA is projected to cut discretionary spending by $1.5 trillion. Discretionary spending subject to the caps was 4.3% lower on a nominal basis and 9.7% lower on a real (inflation-adjusted) basis than in FY2011, the year before BCA discretionary caps were established. Real discretionary spending subject to the caps is projected to remain relatively constant from FY2016 to FY2021, with real growth projected to be 1.0% in that time period. Total discretionary spending (which includes discretionary outlays not subject to the BCA caps) under the BCA was 13.7% lower on a nominal basis and 18.6% lower on a real basis in FY2015 than it was in FY2011. The current budget outlook projects that real spending in FY2021 will be 3.9% lower than that in FY2015. The BCA imposes smaller reductions to mandatory outlays. Mandatory spending under the BCA is cut by less than $0.2 trillion from FY2012 to FY2021, with most non-Medicare mandatory spending exempted from spending cuts. Mandatory spending accounted for 66% of spending in FY2015, but received only 16% of the sequester cuts. Total mandatory spending from FY2011 to FY2015 increased by 13.4% on a nominal basis and 7.0% in real terms. The rise in mandatory spending is projected to accelerate in the latest budget outlook, as mandatory spending in FY2021 is forecasted to be 49.9% higher in FY2021 (67.7% on a real basis) than it was in FY2015. Under the BCA, discretionary spending is projected to average 6.4% of GDP from FY2012 to FY2021, a notable decline from the 9.1% of GDP average from FY1962 to FY2011. From FY2018 on, overall discretionary spending would be below its lowest share of GDP since data were first collected in 1962 (6.0% of GDP), assuming current levels of uncapped discretionary spending. However, because projected growth in mandatory spending, total federal spending from FY2012 to FY2021 is projected to average 21.0% of GDP, which is lower than its peak of 24.4% in FY2012 but above the post-World War II average. Although the BCA reduced projected deficits, its savings has been mitigated by subsequent legislation that has increased current law deficits since the BCA was enacted. Altogether, legislative changes since August 2011 have increased the deficit by $1.5 trillion from FY2012 to FY2021. As a result, the federal debt is projected to continue to increase relative to GDP in future years. |
The U.S. nuclear weapons complex (the Complex) consists of eight government-owned,contractor-operated sites (see Appendix) that study, maintain, and disassemble U.S. nuclearweapons. The National Nuclear Security Agency (NNSA), a semiautonomous part of theDepartment of Energy (DOE), manages it. Some in Congress have expressed concern that the U.S.nuclear stockpile and the Complex are becoming increasingly difficult and costly to maintain, thatsecurity costs are rising sharply, and that the Complex is not sufficiently responsive to the needs ofits "customer," the Department of Defense (DOD). Further, they maintain, it is difficult for Congressto judge the merits of various large expenditures for the Complex, such as for major researchfacilities, without a long-term road map. (In this report, "site" refers to an entire laboratory or plant,or the Nevada Test Site, while "facility" refers to a structure within a site, such as for production ofa specific item or for experiments or computation.) To address these concerns, the House Energy and Water Development AppropriationsSubcommittee asked the Secretary of Energy to conduct a study of the Complex looking out 25years, and to make recommendations on restructuring the Complex. The committee's report stated: During the fiscal year 2005 budget hearings, theCommittee pressed the Secretary on the need for a systematic review of requirements for theweapons complex over the next twenty-five years, and the Secretary committed to conducting sucha review. The Secretary's report should assess the implications of the President's decisions on the sizeand composition of the stockpile, the cost and operational impacts of the new Design Basis Threat,and the personnel, facilities, and budgetary resources required to support the smaller stockpile. Thereport should evaluate opportunities for the consolidation of special nuclear materials, facilities, andoperations across the complex to minimize security requirements and the environmental impact ofcontinuing operations. The Secretary should assemble a team of outside expertsto assist with this review. Prior reviews have largely been conducted by insiders from the weaponscomplex, who produce the predictable but not very credible recommendation that the Departmentshould preserve the status quo and maintain all existing facilities and capabilities. As part of thefive-year integrated budget plan for the entire Department that is directed elsewhere in this report,the Secretary will have to balance NNSA requirements against competing needs for other DOEprograms. This will require an objective review that is only possible with the help of independentexperts who are not, and have not been, part of the NNSA weapons complex. The Committee directs the Secretary to submit a writtenreport on his findings and recommendations on the NNSA complex to the House and SenateCommittees on Appropriations and Armed Services not later than April 30, 2005. (1) In response, the Secretary of Energy in January 2005 had the Secretary of Energy AdvisoryBoard (SEAB) form the Nuclear Weapons Complex Infrastructure Task Force (hereinafter referredto as the "Task Force" or "TF"). It issued a "draft final report" in July 2005. (2) After receiving comments,it transmitted the final report to SEAB on October 4 with no changes from the July version. A letterfrom David Overskei, Chairman of the Task Force, included clarifications on nuclear weapon storageand on production of a key component. Also on October 4, SEAB transmitted the report to theSecretary of Energy. (3) The TF reported that there was no master plan guiding the Complex. Instead, it stated thatthere were redundant facilities within the Complex; excessive competition between the weaponslabs; an imbalance between the labs, with state-of-the-art experimental facilities, and the productionplants, with archaic equipment; and special nuclear material (SNM; see Appendix) at six of the eightComplex sites, increasing vulnerability to terrorist attack and raising security costs. The TF alsofound current warheads to have undesirable characteristics, such as designs offering less safety andless control over unauthorized use than DOD and DOE wanted, designs that approached too closelythe point at which they would fail, components that were difficult to manufacture, excessive use ofexotic or hazardous materials, and maintenance that would probably become ever more costly. These problems resulted in high costs. As a result, the Task Force concluded, "the status quo isneither technically credible, nor financially sustainable." (ix) (Throughout this report, numbers inparentheses refer to pages in the Task Force's report.) The TF had a vision of a different Complex. "The Complex of 2030 should be an integrated,interdependent enterprise. The technical acuity and scientific innovation to meet unforeseenchallenges and threats to the nation's security are sustained by a Complex operating interactively andcontinuously conducting research, nonnuclear testing and weapon modernization, production, anddismantlement." (4) It would be responsive to the needs of its customer, DOD. As a measure of responsiveness, the Complex will bedesigned to respond to any needed design change in less than 18 months, field a prototype [nuclearweapon] in less than 36 months, and go into full production in less than 48 months, and perform anunderground test at the [Nevada Test Site] within 18 months. By 2030 the Complex would be inequilibrium, producing and dismantling at a rate of 125 devices per year.(4) The TF would restructure the Complex, closing some sites, building another, relocating someexperimental facilities, and making other such facilities available for use by Complex personnel. It would dismantle all Cold War-era weapons (the current stockpile) by 2030. The replacementwarheads and restructured Complex would, according to the TF, be safer, more secure, and lesscostly. The TF recommended proceeding briskly to implement this vision. "The Task Force visionis best achieved at the lowest risk to the nation's nuclear deterrent through an aggressive schedulefor achieving the 2030 vision, with near-term budget increases resulting in substantially largeraccumulated long-term budget reductions." (5) To remedy the perceived problems and implement its vision, the TF made two main, relatedrecommendations. First, it created a master plan that would restructure the entire Complex. Theplan has several key elements. A Consolidated Nuclear Production Center (CNPC) would produce allcomponents in the "nuclear explosive package," or NEP (see Appendix), including those made fromuranium, plutonium, and high explosives, and would assemble complete nuclear weapons. WhilePantex would dismantle current warheads by 2030, CNPC would dismantle the next generation ofwarheads. (vii, 4) CNPC would include a facility for fabrication of plutonium components; aseparate facility for fabrication of uranium components; a materials research laboratory; a facilityfor machining and testing all the insensitive high explosive for the Complex, though the explosiveitself might be procured from outside vendors or DOD; a building for weapons assembly anddisassembly; areas to store plutonium and pits; another building to store uranium and secondaries; and several other facilities. (14-16) CNPC would not store deployed warheads. (4) The Y-12 Plant fabricates and stores uranium components, and assembles andstores secondaries. These functions would move to CNPC. It thus appears likely that Y-12 wouldclose. Pantex could close. The TF states, "Upon dismantlement of the last of the Coldwar weapons, Pantex, if not the site of the CNPC, could be decommissioned." (19) While"dismantlement of the last Cold war weapon [is] envisioned to occur by 2030," (4) the TF alsoemphasizes accelerating dismantlement. (E2) Kansas City Plant would not be part of CNPC. It would continue to producenonnuclear components (batteries, fuzes, bomb casings, etc.), but "as many components as practical[would] be procured from commercial vendors." (22) The labs would become smaller. The TF states: Technical staffing levels at the design laboratories can be significantlyreduced as the Complex leverages the years of investment in new,automated test and computational capabilities at the design laboratories.Perhaps greater impact on Complex staffing levels will be the efficiencyrealized by personnel moving into continuous design, plus weaponproduction and manufacturing cycles, which evolve into a family ofmodular nuclear weapons. (23) Some large experimental and scientific facilities mightmove to CNPC or NTS, and duplicative facilities at more than one lab might be closed and theremaining facility of each type made into a user facility, i.e., available to staff of all labs. (viii, J1-J3) The TF raises the prospect that one of the two nuclear weapon physics labs -- Los Alamos NationalLaboratory (LANL) and Lawrence Livermore National Laboratory (LLNL) -- might close: "thelong-term requirement for two physics design laboratories will be determined through overallComplex performance and needs." (4) Some lab facilities under consideration would move toCNPC. For example, the Chemistry and Metallurgy Research Replacement (CMRR) building atLANL for R&D on uranium and plutonium, for which construction began in January 2006, wouldinstead be built at CNPC on grounds that other facilities to be placed in CNPC would have a similarcapability. LANL would instead have a "'CMRR lite,' designed for only laboratory sample levelsof material and amenable to commercial security." (21) One lab would house high-end computing for the entire Complex, andComplex staff at other sites could use that site's resources by remote connection(20). The Nevada Test Site might gain several experimental facilities (J1-J3), andis a possible site for CNPC. Governance would be made more effective, in the TF's view, so as to "enablethe transformations needed for the Complex and the Stockpile." (25). DOD/NNSA Project Officers'Groups, which "are key elements in managing integration of a warhead with the weapon systemthroughout the entire life cycle," would have representation from the plants, (25) as is being donewith the Reliable Replacement Warhead program described below; NNSA would have moreindependence within DOE (26); NNSA offices at Complex sites would report to the DeputyAdministrator for Defense Programs rather than to the NNSA Administrator (27); business practiceswould change (27-32); and an Office of Transformation would be the "change agent" (viii) thatwould conduct risk-benefit and other analyses to support transformation of the Complex(33). The problems that the TF found with the Complex are intertwined with the products theComplex supports. Accordingly, the second main recommendation of the Task Force is to proceedpromptly with a "family" of warheads designed to meet a different set of requirements andconstraints than current warheads. (For a detailed discussion of Reliable Replacement Warhead(RRW) program and the Life Extension Program (LEP), discussed in the balance of this section, see CRS Report RL32929 , Nuclear Weapons: The Reliable Replacement Warhead Program , byJonathan Medalia.) Current warheads were designed and manufactured during the Cold War to meet Cold Warrequirements within the constraints of the time. DOD needed warheads with high explosive yieldand that had high yield to weight, that is, they achieved their yield in the lightest package. They werealso tightly constrained as to size and shape. To meet those goals, nuclear weapon designers usedsophisticated design features, exotic and hazardous materials, and hard-to-produce components, andpushed designs close to points where they would fail. While these weapons are complex, nucleartesting gave designers confidence in their performance. However, the last U.S. nuclear test was held in September 1992; the United States hasobserved a test moratorium since then. To maintain Cold War-era weapons without testing, theComplex undertakes LEPs. When certain key weapon components deteriorate or otherwise needreplacement, an LEP seeks to remanufacture these components as closely as possible to the originalspecifications. The reason is that nuclear testing confirmed the safety and reliability of the designs;now, without testing, NNSA chooses to minimize loss of confidence in warheads that useremanufactured components by minimizing changes so as to keep the components as close to theiroriginal test-proven "pedigree" as possible. There is considerable debate about whether LEPs will be able to maintain existing warheadsindefinitely. Supporters argue that for nine years the Secretaries of Energy and Defense have beenable to certify that the stockpile remains safe and reliable without resorting to nuclear testing. Theyhave been able to do this because of the existing Stockpile Stewardship Program (SSP) and key partsof it, surveillance of warheads to monitor for defects and Life Extension Programs. These variousprograms have greatly increased knowledge of weapons performance and potential problems, andknowledge of specific weapon types has likewise increased with experience. Supporters thereforebelieve that LEP should enable the United States to maintain warheads indefinitely without testing. NNSA questions the long-term viability of LEP. According to Ambassador Linton Brooks,Administrator of NNSA, "it is becoming more difficult and costly to certify warhead remanufacture. The evolution away from tested designs resulting from the inevitable accumulations of small changesover the extended lifetimes of these systems means that we can count on increasing uncertainty inthe long-term certification of warheads in the stockpile." (5) LEP also, it is argued, imposes high costs on the Complex. The TFstates, "To support this unique stockpile, the Complex must maintain parts, materials, processes, andeven tools that are no longer in common use to ensure a capability to respond to any stockpileproblems. Thus, our current stockpile is extraordinarily expensive to monitor and to maintain." (11) Because of the costs and potential uncertainties associated with the types of warheads beingmaintained, Representative David Hobson, Chairman of the House Energy and Water DevelopmentAppropriations Subcommittee, proposed a new approach, the Reliable Replacement Warhead(RRW) program. The FY2005 budget request had included no funds for RRW, and other committeereports for FY2005 had not referenced it. Instead, RRW made its first legislative appearance in theFY2005 Consolidated Appropriations Act, P.L. 108-447 , which provided $9.0 million for thepurpose. For FY2006, NNSA requested $9.4 million for RRW and Congress appropriated $25.0million. The RRW program would design warheads taking into account the great changes inrequirements and missions affecting warheads since the end of the Cold War. There is less need forhigh yield or for a high yield-to-weight ratio. Accepting reductions in yield and yield-to-weight, itis argued, would enable weapon designers to move away from the complicated designs,hard-to-manufacture components, and exotic materials that characterized Cold War weapons. Instead, the TF recommends setting a number of design parameters, including "certification without[underground nuclear testing] ... inexpensive manufacture and disassembly ... ease of maintenance... maximizing component reuse and minimizing life-cycle costs." (8) The TF views "[i]mmediatedesign of a Reliable Replacement Warhead" as "the most important element for transforming theStockpile." (13) RRW advocates believe that these characteristics would benefit the Complex. In their view,simpler, easier-to-manufacture designs could be made with simpler equipment, would use less floorspace, and would have higher throughput. Reduction in hazardous and exotic materials wouldreduce the threat to worker and environmental safety, permitting a reduction in equipment and floorspace. Designing nuclear explosive packages to incorporate use control and use denial featureswould reduce the amount of physical security required. (6) These factors would also be expected to reduce cost. In the Task Force scenario, construction of a modernized Complex would be simpler and lesscostly with several facilities built at a single site. The TF anticipates that operating costs would belower for a single new CNPC than for several facilities dating back a half-century or more. Withsecurity designed into warheads and facilities alike, rather than retrofitted, the TF projects thatphysical security costs would be lower. It holds that new equipment should be more efficient thana combination of new and old equipment, and that removing most fissile material from Los Alamosand Livermore should reduce their security costs. Making many experimental facilities into userfacilities, to the extent that that differs from current practice, might reduce costs. Further, in thisview, the shift to RRW could offer savings and increased confidence in design, production,maintenance, and certification. Yet some observers maintain that some TF recommendations mayprove difficult or impossible to implement. The balance of this report discusses some of the TaskForce recommendations. Reliable Replacement Warhead programrecommendations. The TF makes a recommendation that it believes "is the mostimportant element for transforming the Stockpile": The Task Force endorses the immediate initiation of themodernization of the stockpile through the design of the Reliable Replacement Warhead. This shouldlead to a family of modern nuclear weapons, designed with greater margin to meet militaryrequirements while incorporating state-of-the-art surety requirements. ... The Task Forcerecommends that a new version of the RRW, incorporating new design concepts and surety features,[be] initiated on planned five-year cycles. This family of weapons will form the basis of thesustainable stockpile of the future. (13) Congressional language calling for the TF report stated that the report "should assess theimplications of the President's decisions on the size and composition of the stockpile ..." (7) These decisions were to beinputs for the TF, which would then determine how to restructure the Complex to implement them. Similarly, the Secretary of Energy, in a letter to the TF chair, wanted the TF to provide "options andrecommendations by the end of April 2005 to modernize, consolidate, and where possible, reducecosts of the infrastructure and facilities across the NWC [nuclear weapons complex] based on recentstockpile reductions and new security Design Basis Threat requirements." (8) While the TF made numerousrecommendations on the Complex, key recommendations concerned the stockpile itself -- thatNNSA proceed with RRW and that DOD change the characteristics it required of warheads in orderto facilitate manufacture: "The DOD should work to relax the military characteristics of its nuclearweapons, in order to generate the design space necessary for NNSA to develop high-margin,manufacturable designs for the future stockpile." (34) Some feel the TF may have exceeded itsmandate by recommending how to redesign nuclear weapons. For example, SEAB noted concernsabout the TF's work on RRW: "A number of SEAB members believe that the issue of a ReliableReplacement Warhead (RRW) will need further study by the Department of Energy and theAdministration." (9) On the other hand, Complex and warheads are linked. The goal of the Complex is to designand manufacture a product, and characteristics of the product will necessarily shape the Complex. A Complex intended to produce reliable replacement warheads would be expected to differ from oneintended to conduct life extension programs. There is a case to be made for shaping the Complexto support RRWs. The TF finds "the status quo is neither technically credible, nor financiallysustainable." (ix) Further, Ambassador Linton Brooks, Administrator of NNSA, said that the currentstockpile is the wrong one for today's needs technically, militarily, and politically, and from thestandpoints of longevity, cost, and physical security. (10) If current warheads are as problematic as claimed -- thoughothers disagree, as noted earlier -- perhaps it makes sense to design a Complex to support analternative warhead type. Yet it may well have been appropriate for the TF to have shaped a Complex to support LEPsas well as RRWs, perhaps with a path for the Complex to transition to supporting only RRWs ifCongress and the Administration later decide to proceed exclusively with that warhead type. WhileCongress and the Administration support RRW at this early stage, that is not the same as acommitment to deploy even one RRW type, let alone an all-RRW stockpile. It may turn out that thefuture stockpile will be all-RRW, but no final decision on whether to manufacture and deploy eventhe first RRW can be made for several years or more. Indeed, no choice among RRW design optionsis expected until November 2006. (11) If for some reason the Administration decides not to proceedwith RRW, a likely fallback position would be to continue maintaining existing warheads using LEP. In any event, the Complex will probably conduct LEPs of current warheads for many years. It thuscan be argued that it is premature to design a Complex based on the assumption that RRW willproceed. The five-year cycle plan that the TF suggests could offer significant benefits for DOD andNNSA. Continuous design, certification, production, and deployment of nuclear weapons wouldexercise the Complex, provide real-world training to scientific and production staff, minimizeage-related defects in weapons, and permit the introduction of new design features into the stockpile. Developing and maintaining skills would increase DOD's confidence in the Complex. Confidencethat the Complex could produce warheads in time to respond to adversary efforts to develop threatsto the United States -- the responsive infrastructure that the December 2001 Nuclear Posture Reviewcalled for -- would permit DOD to reduce the number of reserve warheads it maintains as a hedgeto augment the force if needed. Confidence in the reliability of the new warheads would permitDOD to reduce the number of warheads it maintains as reliability backups in case problems emergewith deployed warheads. Reducing warhead numbers and incorporating new use-control featurescould reduce DOD's security costs, saving large sums. In other ways, however, continuous design and production might impose high costs. (a) RRWs are supposed to be easier to maintain than current warheads. Replacing one generation ofRRWs with another, as the TF suggests (7), rather than maintaining the first would appear to forgothe maintenance advantage while incurring large costs for designing and producing new warheadsand dismantling those being replaced. (b) Some claim that RRW might permit a stockpile of fewerdesigns. While at least two warhead types are currently available for each type of delivery system,one RRW design might be used on more than one type of delivery system. That approach could savemoney by reducing the number of designs and spare units in the stockpile, simplifying productionand maintenance, and permitting a smaller Complex. That advantage could be lost if a steady streamof RRW designs entered and left the stockpile. (c) First-generation RRWs would presumablyincorporate large gains in technology made since the last warhead was designed two decades ago. If those RRWs meet the high standards required to be certified for the stockpile, though, technicalgains from subsequent generations might be modest. (d) An ongoing production and replacementprogram would require a larger and more costly Complex than that needed to producefirst-generation RRWs and maintain them for decades through LEPs. (e) Such a program might raiseproliferation concerns, as discussed below. The TF introduces a new element into the RRW program, a block transition. A transition strategy emerging from the DOD wouldput the nation on a new path toward the sustainable stockpile. This strategy, already endorsed by theNuclear Weapons Council[ (12) ], is based on the RRW concept. An RRW weapon design isresponsive to an existing weapon mission, but moves the stockpile toward the sustainable stockpileof the future. Its introduction is made possible by segmenting the current LEPs into discrete "blocks."Block 1 would incorporate the current LEP design but would be truncated much sooner thannormally planned and transitioned to the block 2 design (RRW-1), which would include some, butprobably not all, attributes of the future stockpile. As soon as practical, block 2 would be transitionedto block 3 (RRW-2), which would incorporate all the attributes of the future stockpile.Implementation of this RRW block change strategy, system by system, would ensure a smoothtransition to a sustainable nuclear stockpile, and eventually to a stockpile designed for moderndeterrence. (12-13) Block 2 could provide a faster route to upgrading the stockpile than a move directly to Block3. It would presumably incorporate features that were easier to design and manufacture, leavingmore difficult ones for Block 3. As a steppingstone to Block 3, Block 2 would in effect function asa pilot project that would reveal potential difficulties in design and manufacture, thus facilitatingdesign and manufacture of subsequent RRWs and lowering their costs. Block 2 would also beconsistent with the TF's proposal for an ongoing cycle of design and manufacture, with Block 2warheads done in the first cycle and Block 3 warheads in the next. It is, however, hard to know if these advantages would materialize because the TF does notprovide a clear definition of Block 2. Even though Block 2 could involve billions of dollars for newwarheads, the only references to it in the entire report are in the paragraph quoted above (along witha brief mention on page 34). Block 2 warheads would apparently include some features of currentdesigns and some features of RRW designs, but it is not clear which changes would render a warhead"Block 2." Warheads using components outside the nuclear explosive package, such asradars, that have been modified from the original design would probably not be considered as Block2. Such components are tested extensively in the laboratory as part of existingLEPs. Warheads designed around newly-made pits of selected old designs might becounted as Block 2. Because the state of the art in design and manufacture has advancedconsiderably over the years, pit designs from several decades ago might be simpler to manufacturethan current designs that press the state of the art. The fact that they have been tested wouldfacilitate certification. On the other hand, they would not have some key RRW features and woulddivert resources from Block 3 RRWs. Warheads designed around old pits might be considered as Block 2, but inaddition to the drawbacks noted above the warheads would have a short service life if the pits usedwere near the end of their service lives. The most certain approaches to certifying a replacement warhead without nuclear testing are,at one extreme, to replicate the original design as closely as possible or, at the other, to create a newdesign that is simple enough to permit high confidence. In order to maximize yield to weight andachieve other design goals, all components of Cold War-era warheads are designed to work togetherwith little performance margin to spare. With such tight design, small changes in materials ormanufacturing processes can reduce confidence in performance. That is why the Complex goes togreat lengths to minimize differences from original specifications when designing and producingreplacement components. Despite the absence of nuclear testing, the labs have been certifying, forcontinued use in the stockpile, current warhead designs that incorporate replacement componentsthat are not exact replications. At the same time, the labs believe that they will be able to certifyRRWs without testing by designing in greater performance margins. In contrast, the labs have saidnothing to indicate that they could certify anything between these extremes, such as Block 2warheads. As a result, any potential advantages from a Block 2 replacement warhead might be lostowing to difficulty in certification or in acceptability to DOD. It might be argued that a surer pathto confidence in replacement warheads would be to skip Block 2 and move to Block 3 directly. Even if the three-block approach could be done successfully, it would apparently result inthree distinct designs -- one LEP, one RRW, and one in between -- for each warhead type, forexample, W76 Block 1, 2, and 3. Block 2 would be neither the original weapon, with which theComplex has extensive experience, nor the final RRW, which would be in the stockpile for years tocome, but a transient, interim design. Sustaining, producing, and maintaining the three designswould appear to require far more Complex resources than would be required for one design perwarhead type. Steve Henry, Deputy Assistant to the Secretary of Defense for Nuclear Matters, in the Officeof the Secretary of Defense, stated that the Nuclear Weapons Council voted to study the feasibilityof a Reliable Replacement Warhead and, if the study proved successful, to endorse a transitiondirectly from LEPs of current-design warheads to the RRW program. A Council study groupconsidered other options, including Block 2, but did not recommend them to the Council becausethose options could not achieve critical RRW program goals such as enhancements to safety and usecontrol. In addition, the study group was concerned that pursuing a Block 2 option would be costlyand could delay the RRW program beyond the time when nuclear weapon designers withunderground test experience would retire, raising certification difficulties. (13) Therefore, Block 2 is onlya recommendation of the Task Force, not of the Nuclear Weapons Council. Cost issues. To analyze costs of itsrecommendations, the TF set forth three cases. A baseline case with a flat budget in FY2005 dollars for the period 2006-2030. If the baseline budget is the FY2006 request for the Complex, the TF finds that the total cost for2006-2030 would be some $170 billion. The TF rejects this case because it would not lead to theTF's vision for the future Complex, "thereby representing a very high risk option for maintaining thenation's nuclear deterrent." (E1) A "Complex Transformation in Place" case involving minor changes to theComplex and the stockpile. There would be no consolidation of SNM, and no CNPC. Existingproduction facilities would continue in place. RRW begins, but most LEPs continue. Like thebaseline, this case would not lead to the TF vision for the future Complex because "the physicalplant, especially the production facilities, will not be transformed into the 21st Century." The TFstates that this option involves risks, especially beyond 2020 when pit lifetime, warhead reliability,and dismantlement become issues. The TF calculates that this case would cost about $5 billion morethan the baseline case in 2005 dollars. (E1) A "Revolutionary Complex Transformation" case involving consolidation ofSNM, maximum acceleration of CNPC, and implementation of the other TF recommendations. TheTF finds this case would cost $10 billion total above the baseline case for the period 2006-2015, butwould save $25 billion for 2016-2030, saving $15 billion over the 25-year period. About half theextra $10 billion is to accelerate dismantlement, and half to accelerate CNPC. The case wouldmanage risk by having RRW proceed "on a responsive schedule." The results are sensitive toassumptions on the extent of LEPs, CNPC operating efficiencies, reductions in physical securitycosts, and efficiencies from improved business practices. Costs could be reduced by delaying thestart of CNPC operations, closing some facilities, and reductions in force at the labs, etc., but the TFfinds that such steps would increase risk. (E2-E3) In its analysis, the TF judges that the baseline case involves high risks, that minor tweaks tothe Complex in the Transformation in Place case increase cost and risk, that a large upfrontinvestment would yield large savings some years from now, and that the calculated costs and savingsdepend heavily on various assumptions. Its Revolutionary Transformation case shows thatproceeding with Complex modernization and RRW in tandem would reduce both cost and risk. Thelatter case makes a $5 billion investment to accelerate dismantlement of warheads. The TFconcludes that so doing "reduces the significant security and storage cost burden on the Complex."(24) Further, the TF would have Pantex dismantle existing weapons, and "Upon dismantlement ofthe last of the Cold war weapons, Pantex, if not the site of the CNPC, could be decommissioned."(19) Finding that savings from accelerating dismantlement would exceed the $5 billion that the TFallocates to that purpose would be significant. These cost and schedule estimates, however, could prove optimistic for a number of reasons. Because the TF plan would represent a major change to Complex sites, theiroperation, and their facilities, under current law DOE would have to prepare a programmaticenvironmental impact statement (EIS). Because the plan would affect facilities and missions ofseveral sites, DOE would have to prepare site-wide EISs for sites with new facilities. DOE wouldalso have to prepare site-specific EISs for individual facilities. Meeting the various requirementsof the National Environmental Policy Act (NEPA) is time-consuming. DOE would also be requiredto comply with environmental laws of states in which facilities would be built, (14) which could lead to furtherdelays. Lawsuits have been used to challenge EISs dealing with nuclear matters. Alawsuit over an EIS led to a preliminary injunction that halted construction of a major experimentalfacility at LANL (the Dual-Axis Radiographic Hydrotest Facility) from January 1995 to April 1996,for example. (15) Anylawsuits would add to the cost of the TF alternative, and would cause delays. The TF states, "Historically, DOE projects are either 'under-estimated' or have'scope creep' that drive the projects above their budgeted estimates. Historical DOE completedconstruction costs are in the range of $13,900 to $33,000 per square foot of construction. This widerange calls into question the accuracy of estimates of CNPC cost, and thus of savings. The TFprojects MPF [Modern Pit Facility; see "Pit Production Issues," below] to cost in the range of$14,400 to $19,400 per square foot." (H2) Estimating MPF cost at the bottom of the historical rangeof DOE construction costs seems highly optimistic given that it is probably the facility within CNPCthat would have the highest requirements for safety and security, and produces one of the mostdifficult-to-manufacture components of a nuclear weapon. A combination of delays and cost growth would increase investment costs andshorten the period through 2030 in which operational savings could accrue, tipping the balancebetween investment costs and operational savings toward the former. The TF proposes reducing the footprint of MPF as one option to reduce cost.(H5) Much of the cost of a Complex facility is for planning, proceeding through the NEPA process,selecting a site, obtaining the needed permits, designing the facility, and (especially for SNMfacilities) providing the requisite security. If NNSA later needed to add capacity at MPF, it wouldbe much more costly and time-consuming to secure any needed permits, perhaps repeat the NEPAprocess, redesign the facility, shut it down if construction so required, and finally undertake theconstruction, than it would be to build extra floor space at the outset and install equipment later ifrequired. It is thus arguable that MPF should be built with more floor space than is needed initially,rather than the minimum. According to the report, "[t]he Task Force used budget details from the FY2006 NNSA Congressional budget submission (Appendix D) to form the basis of financialcomparisons and estimates made within this report." (xi) The FY2006 NNSA budget submissiongoes through FY2010; it seems an insufficient basis for estimating costs and savings going out aquarter-century. That document also appears to have limited value for estimating RRW expenseseven for the period it covers. The projected RRW budget for FY2006-FY2010 in the FY2006 requestsimply uses the amounts that would have been allocated to the Advanced Concepts Initiative, anuclear weapons research and study program that Congress terminated in the FY2005 ConsolidatedAppropriations Act ( P.L. 108-447 ), because NNSA did not have sufficient time between the signingof that act in early December 2004, which contained initial funds for RRW, and the submission ofthe budget request in early February 2005 to prepare a detailed program and budget forRRW. Forgoing the value of sunk costs. The Complexhas developed over more than 60 years. During that time, it has accumulated many buildings andmuch equipment and infrastructure. Given that history, the Complex is probably far less efficientthan a Complex of new design and construction would be. The Complex that the TF recommendswould incorporate new facilities, eliminate redundant ones, and probably close some sites. Thesesteps are predicted to reduce operational costs, including security. The TF anticipates thatconducting manufacturing using modern processes, in new buildings, making easier-to-manufacturecomponents for RRWs, would save large sums. On the other hand, the United States has invested many billions of dollars in the Complexover the years. It could be argued that abandoning some of this investment -- which has been builtand is now operating -- on the basis of an analysis showing reduced operating costs over the long runwould be taking a budgetary risk. By closing some major facilities, and perhaps some sites, sunkcosts would certainly be lost; whether reduced operating costs would exceed the costs of closingexisting facilities and building new ones is less certain and, as the TF notes, depends heavily on theassumptions used. Following are examples of sites and facilities whose sunk costs might be lostunder the TF plan. LANL has spent more than a decade to restore pit production operations at itsTechnical Area 55 (TA-55) facility. LANL delivered a certifiable pit in 2003 and expects to delivera certified pit for the W88 warhead in 2007. The TF estimates that TA-55 is operating at about 5percent efficiency. (H1) It states, "Modern manufacturing techniques ... if applied rigorously couldyield unprecedented reductions in TA-55 pit manufacturing costs and cycle time." (H1) While thebase rate is unclear, if TA-55 could produce pits at a 20-fold higher rate, should MPF be built? TheTF would upgrade TA-55 for production, no doubt at considerable expense. Yet it appears that theTF would not use TA-55 for pit production once CNPC is operational. The SNM manufacturingfacility at CNPC "will be ... the sole SNM production and manufacturing facility for the Complex"(15); "NNSA should contract for the management of pit production at the new CNPC that alsocovers interim pit production at TA-55"; "NNSA should focus TA-55 on pit production until CNPCis fully operational ..." (35); and "NNSA should commit to producing 50 production pits per yearthat go into the stockpile from TA-55 beginning in 2012 and continuing until a replacement pitproduction facility can meet the needs of the stockpile." (34) Bringing in a separate contractor tomanage pit production at TA-55 (and CNPC), as the TF recommends (35), might disrupt ongoingpit operations. Once NNSA halted pit production at TA-55, more expense would presumably beincurred to convert its production space back to R&D. The TF envisions decommissioning Pantex after it completes dismantlementof Cold War weapons, unless Pantex is the site of CNPC. (19) But Pantex could still performweapons assembly and disassembly. It also stores thousands of pits from dismantled weapons. Would any security and operations savings resulting from building a Pantex-like facility at CNPCoutweigh the investment costs of that new facility, as well as the cost of decontaminating anddecommissioning Pantex and moving pits stored at Pantex to CNPC? One type of experiment that LANL and LLNL perform is hydrodynamictesting, in which a pit using surrogate material instead of plutonium is imploded and measurementsare taken using powerful high-speed x-rays and other types of diagnostic equipment. Theseexperiments are conducted at two large, costly facilities: the Dual Axis Radiographic HydrodynamicTest (DARHT) Facility at LANL and at the Contained Firing Facility (CFF) at LLNL's Site 300,some 15 miles from the lab. (16) These sites conduct many smaller-scale experiments as well. "The Task Force believes that the NTS should become the only Complex site for combined HE andCategory I and II SNM testing. Consolidation of both facilities [DARHT and Site 300] into oneHydrodynamic Testing User Facility at the NTS, incorporating containment and radiography ...,could save significant costs." (17) (21) Having one facility instead of two would presumably yieldsavings in operations and security. Further, it could prove difficult to secure the permitting neededto conduct tests using plutonium at DARHT or CFF, should such tests be desired. On the otherhand, the two facilities are integrated into the work of the labs, and have ample work conductingtests without plutonium. Moving a large, delicate experimental facility to NTS could prove difficultand costly. The sunk costs of the two facilities would be lost. The NEPA process and any attendantlawsuits could delay construction. The purpose of the two axes in DARHT, each of which wouldtake x-ray photos of an imploding surrogate pit, is to have a time sequence of the implosion or athree-dimensional radiograph. This information would be of value for LEP or RRW. DARHT'ssecond axis is to be completed in 2008. (18) Halting work on DARHT and moving it to NTS threatens todelay pit experiments for years. A possible alternative, many years out, would be to build successorfacilities to DARHT and CFF at NTS; even then, removing the existing facilities from their labswould make it harder for hydrodynamic experiments to draw on lab resources. Workforce issues. Throughout the report, the TFrecognizes the importance of a strong workforce for the Complex. It finds that the Complex is"rapidly losing experienced nuclear design experts." (1) It "was delighted to find a generation ofyoung people entering the Complex." (3) It notes, "The enduring key to maintaining a safe, reliablestockpile of nuclear weapons is the quality of people ..." (22) Some of its recommendations aremade with a goal of strengthening expertise. It stresses "the absolute necessity of resuming designactivities now, such that those who still have the benefit of real testing experience can mentor thenext-generation designers in the Complex." (23) Several of its recommendations, however, might undercut this workforce, or seem to rely ona workforce that may not exist. The TF states that "as the Complex is transformed, it will need to develop atalent pool of personnel experienced in modern production technologies and processes. ... The TaskForce believes that these personnel should come from a commercial high-tech background, not fromwithin the Complex." (23) The plants have modern equipment -- and workers trained to operate it-- as well as old equipment, yet the recommendation could be viewed as downplaying the value ofthe workers' skills, many of which are unique to the Complex. Suggesting that workers' skills maynot meet current needs, and implying that existing workers will not be trained in the skills needed,could be seen as showing a lack of confidence in the workforce that could harm morale. Even RRWwill require a workforce experienced in handling and machining SNM. It is also not clear thatpersonnel with "a commercial high-tech background" would have the expertise to work on nuclearweapons production, or that they would want to do so, as the specialized skills required might bedifficult to market in the civilian economy, narrowing their career options. The TF would locate CNPC in a sparsely-populated area in order to reduce theeffect that a terrorist attack on the facility would have on nearby communities. It considers LLNL,LANL, Y-12, and Pantex "sufficiently close to residential and commercial structures such that anypartially successful terrorist attack on these sites may cause collateral damage to the surroundingcivilian population and associated ... assets." (19) If LANL, Y-12, and Pantex are considered toodensely populated for safety, CNPC would have to be located in an even more rural area. Yet itcould prove difficult to hire thousands of people in a rural area who "come from a commercialhigh-tech background," and could take years to provide the requisite security clearances and training. The problem would be eased somewhat by the length of time needed to buildCNPC. The TF envisions the Complex producing and dismantling 125 warheads peryear, and states, "[a] second shift would provide surge capacity in pit production or weapon assemblyshould it be required." (5) It does not indicate the source of workers to constitute the projectedsecond shift, a potential problem in rural areas. Would the Complex train a second cadre of peoplewith these skills, and then provide them with work sufficient to maintain these skills, so they wouldbe available if needed? Manufacturing typically requires some depth of personnel to back up workerswho are ill, on vacation, in training, etc., but it is unclear if these added personnel would suffice tooperate an entire shift, especially for an extended time. The director of LANL suggests that establishing CNPC would likely encounterhigh costs, major technical risks, and delays, all of which "would severely disrupt skilled personnelacross the complex and could sharply curtail the ability of the complex to recruit and retain the nextgeneration workforce." (19) Implications for the nuclear weapons laboratories. The role of the nuclear weapons laboratories and the resources they require have been perenniallycontentious issues. Some have argued for raising or lowering the amount spent on experimentalfacilities, for reducing funds for independent research, for limiting nonweapons work, and the like. Some are concerned that having two physics design labs, Los Alamos and Lawrence Livermore,results in excessive redundancy, cost, and competitiveness. In this regard, the TF shows an ambivalence concerning competition and cooperation at thelabs. Regarding competition: "the current Complex needs to initiate a design competitionimmediately for a family of modern replacement weapons," (4) and "Each weapon designincorporated into a block change should be the result of a formal competition between LANL andLLNL, each supported by SNL [Sandia National Laboratories]." (34) Regarding cooperation:"Within the Complex, the physics design laboratories [LANL and LLNL] aggressively seekindependence rather than cooperative interdependence, resulting in redundant programs andfacilities, increasing costs and reducing productivity; and the production sites are under funded." (vi)Regarding both: "The challenges to the Complex will require competition for the best designconcepts, followed by cooperation in implementing the winning design and cooperation in thecertification." (19) Of particular concern, The three design laboratories ... routinely compete witheach other and set their own requirements as justification for new facilities and redundant researchfunding in the fear that one laboratory may become superior. The net result is that the Complex sitesare competing for programmatic funds and priorities rather than relying upon their divergent andcomplementary strengths and thereby operating as a truly interdependent team, with shared successand rewards. (2) The TF recommends a number of changes to the labs that seek to reduce redundancy, savemoney, and foster cooperation. It would eliminate many research facilities and capabilities from the labs inorder to consolidate them. It would store all Category I and II quantities of SNM at CNPC (4), moveR&D on Category I and II quantities of SNM to CNPC (15), close TA-55 as a pit production plant(15), move R&D on all but small quantities of explosives to CNPC or NTS (15), and considerconsolidating the type of experiments done by DARHT and Site 300 at NTS. (21,J3) The TF proposes that "there be only one capability [i.e., high-end] [computing]machine location in the Complex. A single location would more effectively leverage staff andinfrastructure. Users would be, and should be, highly distributed. This would tend to enhanceexpertise and substantially reduce operating costs. ..." (20) The TF favors making some large facilities at a single lab into user facilities-- that is, shared-use facilities -- that would be run by the host lab but available to users from otherlabs. It proposes that "NNSA can reduce operating costs and promote teamwork by designatingmany of its facilities as User Facilities. Examples of such facilities are the high-energy densitydevices (e.g., the NIF [LLNL's National Ignition Facility], the Z-Machine [at Sandia], Omega [a laserfacility at the University of Rochester]), as well as the facilities involved in such activities ashydrotesting (Site 300 and the DARHT facility), HE [high explosives] testing, SNM testing, andtritium research." (28) Further, "over the last 12 years, the science-based Stockpile StewardshipProgram has made an enormous investment in new capability and test facilities in the three designlaboratories. The Task Force believes that these are valuable Complex assets and should be operatedas assets for the benefit of the Complex, not the host site." (20) The TF calls for "elimination of redundant non-weapons relevant research andtesting." (33) The TF accepts the prospect of smaller labs: "The weapons laboratories of thefuture will likely have smaller nuclear weapons program staff than they have today."(19) Critics of the TF report are likely to raise a number of issues concerning theserecommendations. Regarding user facilities, some current laboratory facilities have been operatedin this manner for many years. The labs treat major facilities such as NIF, Sandia's Z Machine, andthe Los Alamos Neutron Science Center as national assets. Because it would be too costly toreplicate, maintain, and staff them at two or three labs, they are instead made available for use byComplex staff, and in some cases by academic and industrial researchers. The TF would have lab scientists travel to CNPC or NTS to do some work. This would result in additional effort, expenditure of time, and costs, and would separate work atthose sites from other relevant equipment and expertise at the labs. It is also uncertain if these sitescould provide the needed support. The TF states that CNPC would include a center for research onSNM as a user facility for laboratory staff, and "CNPC staff would provide all requisite equipmentand technical support staff to support the design laboratories' science and engineering users." (15)But the existing facilities at the labs for SNM R&D have been developed over many years throughscientific, administrative, budgetary, and political reviews and are integrated into the work of thelabs. Critics believe it would be difficult to bring the required support into being at CNPC, a newsite whose prime mission would be production rather than R&D. As noted, the Chemistry and Metallurgy Research Replacement Building atLANL would conduct research on plutonium and uranium. LANL's director has expressed concernthat limiting this building to Categories III and IV quantities of SNM, as the TF recommends, "will(1) eliminate the capability to do the necessary suite of actinide chemistry required to meet pitproduction mission requirements, (2) would not allow secure access to and storage of necessaryquantities of SNM critical for interim pit manufacturing capacity, and therefore, (3) undermine thedevelopment and deployment of RRW." (20) LANL's director is also concerned about changes affecting key experimentalfacilities. "RRW design certification will push the limits of current predictive tools. The SEABrecommends that these critically important tools be consolidated, transferred or eliminated -- puttingRRW at risk." (21) The TF approach raises more general issues as well. Regarding the labs'cooperation/competition relationship, LANL and LLNL cooperate in many ways, such as peer reviewof weapon designs, joint use of computational and experimental facilities, and collaboration onscientific research. At the same time, they are, by design and evolution, competitive in their mostimportant strength, nuclear weapon design. During the Cold War, they created competing designsin response to military requirements for new weapons. In these competitions, Sandia's Albuquerquebranch teamed with LANL, and Sandia's Livermore branch teamed with LLNL. This competitioncontinues with the design for RRW. Many analysts believe that design competition is especiallyimportant now that nuclear testing is not available to check warhead performance. In this view,competitions require competitors; nuclear weapon design competitions require rival labs in order toexplore differing approaches and to challenge competing design teams. Redundant facilities at thetwo labs help make competition possible by providing each lab with a similar base of resources. Some supporting the current laboratory system hold that if the TF wants competition, there must beredundancy because it would be difficult to have one without the other. Even more than research facilities, the core strength of the labs is arguably their ability tobring many disciplines to bear on weapon problems. Each lab is a community with each memberdrawing on the skills of many others, and each contributing to the research needs of many others. Because of the complexity of nuclear weapons, solving a typical weapon problem draws on manyskills resident at a lab, including physics, chemistry, metallurgy, computer operation, computermodeling, engineering (mechanical, chemical, electrical), instrumentation, and experimentation. Designing a weapon also draws on many skills. Similarly, research facilities support multiple areasof expertise. Only a few laboratory staff may operate an experimental facility, computer center,research laboratory building, and the like, but a single experiment may draw on many skills and maycontribute data valuable to staff in many areas of the weapons program. Accordingly, some areconcerned that removing one major scientific resource would be likely to disrupt work in a numberof areas. The TF would shift resources in a number of crucial areas of weapons science. It wouldremove a high-end computation facility from most labs, and would move much work on SNM andHE from the labs to CNPC and NTS. SNM, high explosives, experimentation, and computation arecritical to nuclear weapon labs, and are often interdependent. A nuclear explosion requires HE andSNM. Experimentation provides data on the behavior of nuclear weapons. Computer modelingintegrates data from experiments, scientific theory, and past nuclear tests to improve understandingof weapons performance and of the relevant theory. The TF would move Category I and II SNM toCNPC and NTS. Yet LLNL and LANL are currently conducting so-called accelerated agingexperiments on plutonium to provide a better estimate of pit life, which is crucial for determiningfuture pit production requirements. These experiments use more than Category II amounts ofplutonium, so the TF plan would seem to bar that work from the labs. Both labs dismantle pits,which have a Category I quantity of SNM, to inspect them for age-related changes. The TF wouldapparently move pit production from TA-55 to CNPC, yet TA-55 could arguably be used toexperiment with production methods and as a pilot plant, in addition to serving as a backup to MPF. Some believe that removing major scientific facilities from the labs could impair recruiting;laboratory staff have stated for many years that outstanding scientific facilities attract outstandingrecruits. For example, a goal of the Laser Science-Based Stockpile Stewardship program at LosAlamos is to "[e]xploit excellent high-quality science in recruiting." (22) While the TF envisions the prospect of a smaller weapons program staff, critics of the TFreport maintain that a nuclear weapons laboratory requires a certain set of skills regardless ofstockpile size. They point out that staffing assumptions based on the more limited range of skillsthat the TF seems to believe may be required by the RRW concept implicitly rest on otherassumptions: that the RRW concept will appear, after study, able to meet its goals; that theAdministration and Congress will choose to replace many current warheads with RRWs; and thatdesigning and engineering such new warheads will require a smaller skill set than is needed tomaintain existing designs. They question whether such far-reaching assumptions should be a presentbasis for planning future lab needs. Regarding the possible impact of improvements in computing on reducing numbers oflaboratory staff, the TF states, "Technical staffing levels at the design laboratories can besignificantly reduced as the Complex leverages the years of investment in new, automated test andcomputational capabilities at the design laboratories." (23) Improved computing has greatlyincreased the capability of lab staff so they are able to do better work, and presumably more workper hour. This does not necessarily mean that fewer people are needed. Laboratory staff state thata chemist cannot do the work of a weapon designer, a designer who specializes in a weapon'sprimary stage cannot design a secondary stage, and computers cannot mentor new staff. They alsoquestion whether automated test equipment and enhanced computational capabilities would permitsignificant reductions in technical staff at the labs. Having a high-end computer at each lab offers important benefits. It helps each lab recruitand retain talented computer specialists, who are attracted by the opportunity to work on suchmachines. Having top computation talent at each lab makes computer specialists more easilyaccessible to specialists in the many (if not all) disciplines who depend on high-end computing. Itcan be argued that providing high-end machines for all the labs permits them to try differentapproaches to computer and software design, and aids competition between the labs. A Complexrelying on one high-end computer center could face the risk that connectivity to the labs would failor become overloaded. Because it takes several years to design, program, and install high-endcomputers and make them operational, managers of a single high-end computer center serving theentire Complex might be unwilling or unable to introduce new machines very often. In contrast,supporters of the current laboratory system maintain that with each lab having its own high-endcomputers, which may phase in at different times, a high-capability computer is likely to beintroduced into the Complex more often than would be the case with a single Complex-widecomputation site. Clearly, supporting one location instead of four would save on procurement,operation, and maintenance; at issue is whether the savings outweigh the benefits of the currentapproach. Laboratory staff have stated over the years that sharply curtailing non-weapons work, as theTF proposes, would harm the labs. The labs conduct much non-weapons research. Some is relatedto security, such as nonproliferation, conventional defense technology, and homeland security. Forexample, weapons scientists help interpret intelligence data relevant to nuclear proliferation andstudy how to disarm potential terrorist nuclear weapons. (23) The labs perform other work in areas such as energy, globalclimate modeling, the human genome, traffic flow modeling, and basic research. Such work aidsrecruiting. Interviews with laboratory staff suggest that few graduate students start out intending todo nuclear weapons work, but as postdoctoral fellows some come to the labs to work onnon-weapons-relevant projects and then move to classified weapons work. (24) Permitting staff to dosome work that they and their laboratory deem as having high potential value aids morale, skilldevelopment, and retention, as well as leading to useful new technologies. Critics maintain thatremoving non-weapons work could harm weapons work because the two often benefit from eachother's resources and efforts. Implications for the plants. The TF, many ofwhose members have over the course of their careers done some work in industry, (25) was sensitive to perceivedproblems at the plants. It "found the production side of the Complex operating from World War IIera facilities, lacking in modern-day production technology and striving to optimize performancewith antiquated equipment and facilities." (1) Congress and NNSA recognize these problems as welland have begun to address them by, among other things, directing part of the budget to the plants forspecific purposes and including a Facilities and Infrastructure Recapitalization Program, for which$150.9 million was appropriated for FY2006. CNPC proposes a more comprehensive solution, withCNPC for nuclear components and more contracting out for nonnuclear ones. The industrial model that the TF applies to the plants, however, may have some deficienciesin dealing with nuclear weapons production. For one, as an organizing principle, cost has beenaccorded a lower ranking in the design and production of nuclear weapons than in other areas ofindustry. The TF states, "Strong leaders and healthy organizations must have a commitment tosuccess, not perfection. Successful businesses know when products and services are good enough,and recognize that cost is one of the metrics for excellent performance." (25) And, "aggressive costgoals are achievable on new weapon component designs, and a cost goal adds a healthy degree ofdiscipline to the design process." (9) Many would maintain that, when designing and manufacturingnuclear weapons, in contrast to many commercial products, only something close to perfection isgood enough. During the Cold War, cost was much less important than warhead safety andreliability. While cost is a more salient consideration now, nuclear weapon experts hold that safetyand reliability are, and will remain, of greater importance. The TF also suggests a design-to-costmodel, which may not be appropriate to the Complex. "Upon DOD and NNSA acceptance oflife-cycle cost estimates, 'design/produce-to-cost' metrics can be established for the Complex." (14)Yet there is no design-to-cost equation for the Complex. CNPC is to perform specific tasks, manyof which are at the state of the art and unique to the Complex, at the lowest price; if that price isgreater than the targeted design cost, what happens? The TF recommends outsourcing of nonnuclear components. "[T]he Complex is stronglyencouraged to purchase these components and assemblies from commercial industrial vendors to thedegree practical given classification and security requirements." (14) While this has been done foryears to a limited extent, expanding the scope of outsourcing could encounter many problems. Qualifying vendors -- such as by assuring compliance with quality assurance standards, obtainingsecurity clearances for workers, and installing security apparatus for facilities -- would beburdensome to companies even if NNSA bore the monetary costs. Some nonnuclear componentswould be procured in small lots that would be economically unattractive to vendors. Some wouldbe of old design, or would use nonstandard manufacturing techniques, so would not provide skillsor equipment of value to the vendor in commercial work. Removing a substantial amount of workon nonnuclear components from the Kansas City Plant (KCP) could harm the operations of thatplant. KCP contracts out for some nonnuclear components, but is set up to produce the full rangeof them. If KCP's workload drops significantly, it would have difficulty maintaining a diverse setof skills. These problems could become significant: a large shrinkage of the plant could putproduction of certain nuclear weapon components at risk if a key vendor went out of business orchose not to continue its work. One TF recommendation on outsourcing might be seen as a potential conflict of interest. Inkeeping with its approach to outsourcing nonnuclear components, the TF recommends outsourcingproduction of beryllium and beryllium oxide components "immediately if services can be obtainedfrom quality commercial vendors" (22). A TF member is Director of Technology at Brush Wellman(iii); that company bills itself as "the only fully integrated producer of beryllium and beryllium oxidein the world." (26) The TF would also outsource storage of components to save money on security. "For securitycost savings, most of these [nonnuclear] components would be stored at the commercial vendor'slocation or another Complex facility but consistent with just-in-time commercial practices." (16)However, total security cost could arguably be higher if components were made at dozens ofindustrial plants, each of which would seemingly have to be secured, rather than at KCP, which hassecurity in place. And elaborate procedures for accounting for these components as they work theirway through the transportation system might hamper just-in-time deliveries. The recommendations could affect Pantex. "Upon dismantlement of the last of the Cold warweapons, Pantex, if not the site of the CNPC, could be decommissioned. For the sustainablestockpile, the ongoing dismantlement of all future RRW based weapons would be conducted at theCNPC." (19) CNPC would contain facilities for the main operations now at Pantex: weaponsassembly and disassembly, explosive component fabrication, and storage of pits. (15-16) The TF would consolidate most if not all of Y-12's weapons work at CNPC, including afoundry for highly enriched uranium (HEU; see Appendix), a Uranium Production Facility, assemblyof secondaries, storage of HEU and secondaries, and HEU R&D. (15-16) The TF would also moveberyllium work from Y-12 and LANL to CNPC or would contract it out. (J1-J3) This consolidationwould eliminate many if not all of Y-12's critical weapon functions, calling into question therationale for retaining Y-12. Potential consequences of closing existing plants and building a new CNPC could includepolitical pressure from constituents on NIMBY (not in my back yard) and KIMBY (keep it in myback yard) grounds. CNPC would provide construction and operating jobs for the region chosen,but fear of many new nuclear facilities, even at an existing site, might lead to public protests. WhenNNSA sought public comments on siting MPF as part of the environmental impact process, theOffice of the Governor of Nevada strongly opposed siting MPF at NTS. (27) Conversely, closingexisting sites could arouse public opposition. Sites for the Complex were built in the 1940s and1950s and are major employers. Pit production issues. The "pit" is the fissile coreof a nuclear weapon's primary stage (see Appendix). The United States has been unable to producepits certified for use in deployed nuclear weapons since 1989, when the only large-scale pitproduction site in the Complex, Rocky Flats Plant (CO), closed. (28) NNSA argues that pitsdeteriorate over time and must eventually be replaced. Critics believe that NNSA may beunderestimating pit life, but do not dispute the need for eventual pit replacement. (29) Accordingly, NNSA seeksa way to produce pits on a scale sufficient to sustain the stockpile. At present, LANL is building afew pits at TA-55, which was designed for plutonium R&D. These pits have not yet been certifiedfor use in the stockpile because development of the procedures needed to have high confidence incertification has not yet been completed. NNSA does not view TA-55 as having sufficient capacityfor the long term; instead, NNSA has planned for a Modern Pit Facility, or MPF, with a capacity of125 pits per year. The TF would locate all of MPF's functions at CNPC. (15) As discussed below, congressional actions have raised questions about the future of MPF. That facility might proceed; on the other hand, a decision not to proceed with it would call intoquestion the future of CNPC because MPF would arguably be CNPC's most important facility. TheTF analysis of MPF and TA-55 is discussed here to cast light on the role of TA-55 andconsiderations involved in establishing a pit production program. The schedule and capacity required for pit production hinge on several factors. Pit life: The TF states that the pits in the stockpile were made between 1978and 1990 (actually 1989), and that the best current estimate of pit life from the weapons labs is aminimum of 45 to 60 years. (12) "Thus the entire stockpile may need to be 'turned-over' by 2035 to2050 depending on the acceptable level of uncertainty in pit lifetime." (12) Stockpile size: The TF analyzes the CNPC schedule needed to support astockpile of 2,200 active and 1,000 inactive warheads. (17) It finds that to support that stockpilewith a pit life of 45 years and a production rate of 125 pits per year, CNPC must be "functional" by2014; with a pit life of 60 years, that date shifts to 2034. (17). Either case assumes that TA-55produces 50 pits per year (17) from 2012 until a replacement pit facility came on line. (34) A largerstockpile would require that MPF have more capacity or (in theory) an earlier operationaldate. TA-55 capacity. NNSA plans to have TA-55 reach a capacity of 10 pits peryear by the end of FY2007. (30) The TF envisions boosting that capacity to 50 pits per year byFY2012. (34) A higher capacity at TA-55 would permit a lower capacity at MPF or a delay inreaching a given capacity at MPF. Alternatively, it appears that the TF would close production atTA-55 when CNPC opens, as noted earlier; if TA-55 were kept open, then it and MPF could meetstockpile requirements more easily than MPF alone. Without MPF, TA-55 would require a verylarge increase in capacity to maintain a stockpile of 3,200 warheads. Ability to reuse pits. The TF states that "reuse of 'young' plutonium pits (lessthan 45 years old) and of canned secondary assemblies should be evaluated ..." (9) Reusing "young"pits would reduce the number of pits that would have to be made before then, perhaps permitting adelay in MPF until pit life and future weapon requirements became clearer. In contrast, if TA-55 isto be the sole U.S. pit facility, its capacity would have to be increased sharply even if "young" pitsare used. Much more capacity is needed than simply enough to provide pits for directstockpile use. Under the Moscow Treaty, the United States and Russia will each have 1,700 to 2,200operationally deployed strategic nuclear warheads by the end of 2012; other warheads would beneeded for tactical missions and for nondeployed reserves. The TF assumes a stockpile of 3,200warheads NNSA notes that additional pits must be manufactured because some units will bescrapped because of manufacturing defects, while others will be needed to meet requirements for (a)replacements for pits destroyed in the course of evaluating the condition of pits in the stockpile overmany years, (b) pits reserved for later evaluation, (c) pits to prove manufacturing processes at thestart of production of each type of pit, and (d) "pits built and destructively tested during steady-stateproduction to assure product quality." (31) In the TF plan, NNSA would select a site for CNPC "expeditiously" starting in FY2006, (23)and the entire CNPC would need to be "functional" by 2014 under assumptions noted above. (17)This plan, however, has several problematic elements. First, it is not known whether Congress would support MPF or, by extension, CNPC. In theFY2004 conference report on the Energy and Water Development Appropriations Act, P.L. 108-137 ,conferees reduced the request for MPF by $12.0 million, to $10.8 million, on grounds that "until theCongress reviews the revised future Stockpile plan it is premature to pursue further decisionsregarding the Modern Pit Facility." (32) The conferees' statement on P.L. 108-447 , the FY2005Consolidated Appropriations Act, included the following: "The conferees agree that funding forModern Pit Facility cannot be used to select a construction site in fiscal year 2005." (33) The House AppropriationsCommittee report on FY2006 energy and water appropriations stated, "The Committee continues tooppose the Department [of Energy]'s accelerated efforts to site and begin construction activities ona modern pit facility ... The Committee will consider a modern pit facility site and design only whenthe detailed analysis of the pit aging experiments and the concomitant capacity requirements tied tothe long-term stockpile size are determined." (34) The Senate Appropriations Committee report on FY2006 energyand water appropriations stated, the Committee disagrees with the purported [TaskForce] proposal to consolidate all of the nuclear material and the entire weapons manufacturingcapability, including the construction of a Modern Pit Facility, at a single location. There are verystrong opinions in Congress regarding the siting of a new pit facility or changing the militarycapability of the existing weapons. As such, the Committee believes it is unlikely that Congresswould support such comprehensive reforms as currently proposed by the NNSA Complex studypanel. (35) The FY2006 Energy and Water Development Appropriations Act conference report stated, "Theconference agreement provides no funding for the modern pit facility. The conferees direct theAdministrator of the NNSA to undertake a review of the pit program to focus on improving themanufacturing capability at TA-55." (36) On the other hand, Representative Hobson, who as Chairmanof the House Energy and Water Development Appropriations Subcommittee has taken the lead onseveral issues on nuclear weapons and the Complex, said in an address of December 2005 that hefocused on the need to define MPF rather than opposing that facility per se : We'll probably build a modern pit facility, but we needto know what size we're going to build first and how many we're going to build. ... I'm not opposedto building a new modern pit facility, but this numbers thing drove me nuts and until we get there,we're just not going to do it. (37) Consequently, the TF recommendation to greatly accelerate the current pit production scheduledespite congressional opposition to MPF, unresolved concerns over MPF characteristics, and sharpconstraints on capacity at TA-55 would appear problematic. Second, it may be difficult to find a site for CNPC; for example, as noted earlier, the Officeof the Governor of Nevada opposed siting MPF at NTS. Even if a site is found, it would take yearsto complete the NEPA process, obtain the needed permits, design and build the facility, and prepareit for operation. Lawsuits by national nongovernmental organizations or local groups could furtherdelay site selection. Third, the TF's estimates of capacity and schedule for MPF and TA-55 are at odds with thoseof NNSA. The TF states, A classified Supplement 2 analyzes the issue of timingfor the CNPC for a stockpile of 2200 active and 1000 reserve and the expected pit manufacturingcapacity of the future Complex. The conclusion is that if the NNSA is required to: 1) protect a pitlifetime of 45 years, 2) support the above stockpile numbers, and 3) demonstrate production ratesof 125 production pits to the stockpile per year, the CNPC must be functional by 2014. If one acceptsthe uncertainty of pit lifetime of 60 years, the CNPC can be delayed to 2034. In either case TA-55is assumed to be producing 50 production pits to the stockpile per year. (17) [footnote 2 in text:] Classified Supplement to the NWCITF Report Recommendationsfor the Nuclear Weapons Complex of the Future . In contrast, NNSA states, "A minimum production capacity of about 125 pits per year startingin 2021 ... is required to support a reduced stockpile as reflected in the June 2004 Stockpile Planassuming a 60-year pit lifetime," and "The current NNSA planning approach for an MPF of 125 pitsper year with production starting in 2021 is not sufficient for pit lifetimes of 40 or 50 years, or forlarger long-term stockpiles." (38) NNSA would start construction in 2012. (39) NNSA notes that morepits must be produced than the number headed for the stockpile, as discussed earlier. Some wouldbe spares, or withheld to examine later for aging problems, or destined to replace pits that a detailedevaluation renders unusable. Others would be rejected because of manufacturing defects. The TFenvisions an annual MPF production rate of 125 pits to the stockpile, (40) while NNSA envisionsMPF producing 125 total pits per year. Thus the capacity of the TF's MPF would be substantiallylarger than that of NNSA's MPF. NNSA's plan for MPF is to start construction in 2012 andfull-scale production in 2021; the TF calls for an operational MPF with a capacity well beyond 125pits per year 7 years ahead of NNSA's schedule. At the same time, the TF envisions modifying TA-55 to produce 50 pits per year by 2012. It is not clear that that is feasible. NNSA's goal is to have TA-55 produce 10 pits per year by the endof FY2007, (41) and isplanning to increase that figure to 30-40 per year "sometime after 2010," according to a report of aninterview with Ambassador Brooks. (42) Modifying TA-55 to produce 50 pits per year starting in 2012would require a larger investment, and the schedule might prove difficult to meet. As discussed under "Forgoing the value of sunk costs," the TF would shut production atTA-55 when MPF opens at CNPC, which could (in the TF plan) be as early as 2014. If MPFproceeds, the logic of spending large sums to turn TA-55 into a production facility and then closingit for production after only 2 years is open to question on several grounds. Most of the potentialvalue of the investment would be lost. After converting TA-55 so that its main mission wasproduction, it might be desirable, at added cost, to reconvert it back to a research facility onceproduction halted because plutonium facilities are extremely costly and TA-55 is the largest suchfacility in the Complex. If MPF were to open, TA-55's production capacity would appear to be ofpotential value in many ways: as an engineering facility to test new production techniques, as a pilotplant to test and improve the producibility of new pits, as a surge producer in case the internationalsituation called for added capacity, as a source of extra production to fix unanticipated warheadproblems without disrupting MPF's production schedule, as a "boutique" producer of small lots ofpits for new or modified nuclear weapons, and as a backup production facility in case MPF must shutdown so as to avoid a total halt to weapons production as occurred when Rocky Flats pit productionended. Finally, the TF raises the prospect that newer pits could be reused. If this is the case, thenfewer new pits would be needed. As a result, the capacity required by a pit facility could be reducedor the pit production schedule extended. Security. In the TF plan, CNPC would be theonly site in the Complex for Category I and II SNM. (14, 15) This material would be moved fromPantex and Y-12 (assuming CNPC is not located at either site), and from LANL and LLNL. Partof the rationale is to reduce security costs. CNPC would probably achieve that objective. Whetherit would "reduce the overall threat to the Complex" (vii) is less clear. It would reduce the numberof sites and communities "that could be targets of terrorist attacks," (24) but reducing the numberof potential terrorist targets would seem to increase security only if there is concern about thepossibility of an attack on multiple Complex sites at the same time. If terrorists could attack onlyone site, having more sites with fewer assets at each would make each site a lower-value target,which could reduce the risk of attack on any one site. Conversely, locating many facilities at a singlesite would seem to make that site a more attractive terrorist target. It is far from certain that anyComplex site would rise to the top of a terrorist target list given that these sites are well defendedand large in area. A related TF goal is that "consolidation would result in reduction of risk to adjacent civilianpopulations. Currently, the LLNL, LANL, Y-12, and Pantex sites are sufficiently close to residentialand commercial structures such that any partially successful terrorist attack on these sites may causecollateral damage to the surrounding civilian population and associated public and private assets."(19) Of these four sites, only LLNL is located in a densely-populated area, yet the TF's considerationof relocating plutonium R&D to LLNL (35) would require increasing the inventory of plutonium atthat laboratory. For the threat of SNM release to occur as a result of terrorist attack on a Complexsite, several steps would be required. Terrorists would have to attack the site, which would bedifficult given site security. They would have to gain access to SNM, which additional securityfeatures would render very difficult. They would then have to seize and detonate a bomb, althoughthere are few complete weapons in the Complex other than at Pantex and complete weapons are wellprotected. Alternatively, they might try to seize and disperse SNM as a dirty bomb, but SNM is apoor choice for a dirty bomb because it is very much less radioactive or accessible than suchradioactive materials as cobalt-60 or cesium-137. Reducing risk to adjacent population thus seemsa questionable rationale for CNPC. Nonproliferation. Critics hold that the TF reportmight adversely affect U.S. nuclear nonproliferation efforts. The lead sentence of the report statesthat the goal of the nuclear weapons program has "shifted to sustaining existing warheads for theindefinite future," (v) even though states party to the Nuclear Nonproliferation Treaty, including theUnited States, agreed in Article VI to "pursue negotiations in good faith on effective measuresrelating to cessation of the nuclear arms race at an early date and to nuclear disarmament." The TFrecommends continuous design and production on "a family of modular nuclear weapons." (23) Thismight likewise be interpreted as inconsistent with the NPT. The TF says it is "confident that theComplex can now design a nuclear weapon that is certifiable without the need for undergroundtesting." (vi) This has been true since 1945; designers were so confident in the Hiroshima bomb thatit was dropped without a test of its design. At the same time, some who hope to reduce the numberof U.S. nuclear weapons fear that the Stockpile Stewardship Program is intended to enable theUnited States to design weapons without testing; (43) the TF statement might be taken as support of this point. TheTF recommends considering placing key SNM facilities underground (17), even though the UnitedStates has expressed concern about Iran's and North Korea's practice of hiding their nuclear facilitiesunderground and has conducted research on a nuclear earth penetrator weapon to destroy buriedfacilities. Assessment of nuclear weapon issues. Criticsmight call into question several TF statements on nuclear weapons, the nuclear weapons program,and the Complex. The report states, "As weapon designs move away from the UGT [underground nuclear test]experience base toward high-margin, conservative designs, the issue of final stockpile certificationbecomes increasingly important." (10) Nuclear weapon experts maintain that "final" stockpilecertification may become more or less difficult, but never more or less important, asserting that ithas always been of the utmost importance. "The TA-55 facility is not being run as a production unit, but rather as a research andcompliance driven facility. Productivity is about 5% of what would be required and achievable ofan industrial operation in the same facility with the same task." (H1) A high production rate,however, was not the goal of TA-55's pit production program. After Rocky Flats closed, DOE couldhave converted part of TA-55 to more efficient production by taking out existing equipment andinstalling new production lines, but that could have taken years and been expensive. Instead, DOEchose to utilize existing equipment and space at a loss of efficiency but with less expense andquicker time to begin limited production. TA-55 is a pilot plant installed in an R&D building toprove out the processes to make a certifiable pit. Until the processes can be shown to work, and pitscan be certified, and a decision on MPF can be taken, and a decision reached on where to conductplutonium R&D, and the type of pits to be produced (current or RRW designs) is decided, criticsargue, there is little point in incurring the expense of redoing TA-55 for a 20-fold increase inproduction. In trying to arrive at industrial benchmarks for production of plutonium components at MPF,the TF stated: Since there is little commercial experience withplutonium, the Study Group [a TF subgroup] looked at beryllium manufacturing. Berylliumcomponents are used in current primary designs and have very similar machining requirements andtolerances to the plutonium parts. A number of the casting techniques are different, but notsufficiently different that the physical nature of the building is altered. Rather, the hazardous natureof Be and Pu make handling specifications and restrictions similar, thus a lot of the buildingrequirements are similar, and other than the forging and casting equipment, the machining andmetrology equipment is virtually identical. (H1) However, beryllium and plutonium are very different. Beryllium is light and stable, whileplutonium is heavy and radioactive. Weapon scientists note other differences. Concerns overcriticality (the possibility that too much plutonium in a small volume could lead to a small nuclearchain reaction) and security drive every aspect of planning a plutonium facility. Radioactivitydictates spacing between plutonium processing stations to limit worker exposure to radiation. Plutonium hemispheres must be joined together to form a pit; a LANL metallurgist stated thatwelding processes used to join beryllium components are very different than those used to joinplutonium components. Equipment for forging and casting differs for the two metals, as the TFnotes. (H1) Applications for commercial beryllium parts are not at all like those for plutoniumcomponents. Plutonium has different metallurgical characteristics at different temperatures andpressures; for example, like ice, plutonium increases in volume when it solidifies. Since plutoniumis radioactive, leaks during handling can be detected constantly in real time, unlike beryllium, so thatprocesses for handling the two metals are very different. Industrial methods for handling berylliumare not necessarily an ideal model. The Toledo Blade reported health and safety problems resultingfrom beryllium exposure at a plant in Elmore, Ohio, and elsewhere. (44) The TF states, "The current lack of teamwork and trust is manifested in unnecessaryredundancy of missions and facilities at various sites and an inability to harness the talent of theComplex to solve critical problems." (28) Concern with these stated problems underlies many TFrecommendations. Supporters of the current Complex, however, would raise questions about theTF's statement. They would maintain that: LANL and LLNL have for decades competed on nuclear weapon design, asnoted earlier. This institutionalized competition should not be characterized as a failure ofteamwork. Despite this competition, there are many examples of teamwork between thelabs. LANL and LLNL conduct peer review as part of the annual assessment process in support ofweapon certification; this peer review will arguably be critical as the laboratories proceed with workon RRW. LANL teams with SNL/New Mexico, and LLNL with SNL/California, in developingwarheads. Staff from the labs use each other's experimental facilities, and cooperate in many aspectsof weapons and non-weapons science. The labs partner much more with the plants than they did during the Cold War. Lab and plant staff frequently said that during the Cold War, the labs would design components withlittle regard for ease of manufacture and "throw the designs over the fence" to the plants, leaving thelatter to make the components despite difficulties. Now, labs and plants exhibit much more concernabout ease of manufacture. For example, the two design teams routinely consult with the plants onthis topic, ease of manufacture is a goal of RRW, and plant representatives participate in the RRWProject Officers' Group, the focal point of RRW activity. Redundancy has value in certain instances. For example, Rocky Flats Plantwas the only site in the Complex that made pits for the stockpile. When production at Rocky FlatsPlant halted in 1989, the Complex could no longer produce nuclear weapons. As a result, "Today,the United States is the only nuclear weapons power without a production-level capability tomanufacture plutonium pits for the nuclear arsenal." (45) Supporters of the current Complex maintain that there are many examples tocounter the TF statement that the Complex is unable to solve problems: the ability of the Complexto create scores of warhead designs, and to produce many thousands of units, during the Cold War;the ability of the Complex to increase its understanding of nuclear weapon behavior through the SSP;and the ability of the Complex to maintain the nuclear stockpile after the Cold War so that DOE andDOD could certify its safety and reliability annually for nine years so far. Another example is theability of the Complex to recapture the pit manufacturing process despite a long hiatus between1989, when Rocky Flats manufactured the last "certified" pit, 2003, when LANL delivered the first"certifiable" pit, and 2007, when LANL is scheduled to deliver its first "certified" pit. (46) The Task Force "found a Complex of varied strengths and weaknesses, with little evidenceof a master plan." (vi) Task Force critics acknowledge that there is no single, overarching,multi-decade master plan, but maintain that that lack is inevitable. From their perspective, theAdministration's Nuclear Posture Review of December 2001 sought a responsive infrastructure, andin fact the Complex has responded to, and been shaped by, many political and technicaldevelopments over the past six decades: World War II, the start of the Cold War, the prospect ofdeveloping the hydrogen bomb, Sputnik, the massive buildup and subsequent reductions of nuclearforces, the end of the Cold War, the development of modern information technology, and the globalwar on terrorism, to name a few. They note that the Administration and Congress have respondedover the years by funding new programs and facilities at Complex sites to obtain capabilities neededat the time. Just as the foregoing developments did not exhibit a master plan, so too were manyresponses necessarily ad hoc . At the same time, major facilities typically take years to build, so therehas necessarily been some long-term planning as well. According to the TF, "dismantlement ... is a central element in nuclear threat reduction anddeterrence. As the Complex embarks on a continuous production strategy and replaces the Cold warstockpile, the nation needs to dismantle the retired Cold war weapons to demonstrate to its citizens,the Congress, and the world that the deployment of an improved sustainable stockpile is not thebeginning of stockpile growth." (19) Yet there is no link between deterrence and dismantlement. In the long history of U.S. nuclear weapons policies and programs, U.S. arms control and weaponemployment policies have focused on U.S. deployed forces, perceived U.S. will and intent to usethem, and the potential to increase their numbers or capabilities, not on the ability to dismantle them. Similarly, the Nuclear Posture Review of late 2001 links infrastructure (such as the Complex) todeterrence, but this linkage results from the ability of the infrastructure to maintain existing warheadsor make new ones, not from its ability to dismantle them. Warheads are removed from deployed forces as a byproduct of treaties and other agreementsthat reduce deployed forces, as a result of a determination that certain types of warheads or theirdelivery systems are no longer needed, or, during the Cold War, because they were replaced bynewer models. Some of these warheads are kept in an inactive status, available for use; others areretired. Stockpile size has dropped because fewer and fewer warheads are deemed necessary fordeterrence or other military requirements. The end of the Cold War, for example, led to a sharpreduction in the number of potential targets and therefore in the number of weapons needed. By oneanalysis, the size of the U.S. nuclear stockpile has been falling steadily since 1966, and even moresharply since 1989. (47) This trend may continue. President Bush said, "I am committed to achieving a credible deterrentwith the lowest possible number of nuclear weapons consistent with our national security needs,including our obligations to our allies. My goal is to move quickly to reduce nuclear forces." (48) Such reductions indeployed forces might lead to further stockpile reductions, though not necessarily in any precisenumerical relationship. While many retired warheads are dismantled, dismantlement is not required by treaty, but ismore a housekeeping matter to reduce the cost and effort for maintenance, storage, and security. Current methods used at Pantex to dismantle "the Cold war stockpile" provide no physical basis for"demonstrat[ing] to the world that the overall number of nuclear weapons is being reduced, therebyreducing the nuclear threat" (24) because there is no transparency, such as international monitorsobserving dismantlement. If there were continuous production, as the TF suggests, dismantlementwould demonstrate a net reduction "to [U.S.] citizens, the Congress, and the world" only if observerscould monitor both dismantlement and new production and found that the former exceeded the latter. In contrast, the United States has for decades demonstrated "threat reduction" through verifiabledismantlement of delivery vehicles and associated equipment (e.g., bombers, intercontinentalballistic missile silos, and missile submarines). Moreover, there is no link between dismantlement and force reduction. Different stockpilesizes can support the same deployed force, and it is that force that figures in U.S. deterrent policy. Further, most current dismantlement is happening to warhead types totally removed fromdeployment over the last two decades, not to warhead types still deployed. Task Force assumptions. The TF makes a numberof assumptions on LEP and RRW that may prove correct, but further details are required to makethe case convincingly. Accordingly, some would view it as premature to adopt recommendationsbased on them. The Task Force assumes that the current method for repairing problems with existingwarheads, the LEP, will be increasingly costly over the long term. (v) It notes that many warheadscontain toxic materials, that the Complex must maintain materials and equipment no longer incurrent use, and that "[t]he LEP strategy requires that the Complex retain or re-acquire capabilitiesand processes that are necessary to refurbish weapons designed and built many years ago." (11-12) While it would be costly to maintain the stockpile using LEP, the TF does not show why it wouldbe increasingly costly. An alternate possibility is that while the first LEP of a warhead type mightbe costly and difficult, second and subsequent LEPs of that warhead might be easier and cheaper. In that scenario, several thing would occur between the first and second LEPs. SSP would learnmore about weapons science in the intervening decades. The surveillance program would providefurther information on the specific warhead. Details of conducting the LEP on that warhead typewould be recorded, software instructions to production machines would be stored, and keyequipment and materials would be stockpiled. A related point involves the longevity of the stockpile under LEP. The TF argues that LEP"will sustain the viability of the Cold war stockpile for a while, but it will not achieve [a] future,sustainable stockpile ..." (12) Some are concerned that an accumulation of small changes withseveral LEPs could lead to insufficient confidence to certify warheads in the absence of nucleartesting. In this view, the very lack of adequate evidence on the future effectiveness of LEP,combined with the absence of a Complex with adequate capacity, poses a risk that an unexpectedfailure of a warhead type could undermine the deterrent force. On the other hand, if SSP, includingsurveillance and LEP, have been able to sustain the stockpile for about a decade, LEP supporters ask,why should it not be able to do so for longer? Indeed, NNSA's goal for LEP is to extend warheadlife by 20 to 30 years. (49) To that end, it has conducted an LEP of an intercontinental ballistic missile warhead (W87) and isconducting LEPs of a gravity bomb (B61), a submarine-launched ballistic missile warhead (W76),and a cruise missile warhead (W80) (50) -- that is, an LEP for each major type of nuclear delivery system. The Task Force recommends that the United States should proceed immediately with RRW. The recommendation rests on assumptions that the labs can come up with a workable design forRRW, that the weapon can be produced at acceptable cost and on an acceptable schedule, and thatthe design can be certified without nuclear testing. Further, the TF assumes that the cost ofrefurbishing existing weapons through LEP will exceed the cost of designing and certifying RRW,setting up new production lines to manufacture it, and producing thousands of newly-built units. TheTF also assumes that the status quo is not "financially sustainable." (ix) Clearly, the status quo iscostly. It is one thing, though, to estimate that a particular course of action would cost a certainamount; to call it unaffordable appears to be a subjective judgment. This Appendix describes key terms, concepts, sites, and facilities as an aid to readers notfamiliar with them. Current strategic (long-range) and most tactical nuclear weapons are of a two-stagedesign. (51) The firststage, the "primary," is an atomic bomb similar in concept to the bomb dropped on Nagasaki. Itprovides the energy needed to trigger the second stage, or "secondary." The primary has a hollow core, often called a "pit," made of fissile weapons-grade plutonium(with a high content of isotope number 239). It is surrounded by a layer of chemical explosivedesigned to generate a symmetrical inward-moving (implosion) shock front. When the explosiveis detonated, the implosion compresses the plutonium, greatly increasing its density and causing itto become supercritical, so that it creates a runaway nuclear chain reaction. Neutrons drive thisreaction by causing plutonium atoms to fission, releasing more neutrons. To increase the fractionof plutonium that fissions -- boosting the yield of the primary -- a neutron generator injects neutronsdirectly into the fissioning plutonium. In addition, "boost gas," a mixture of deuterium and tritium(isotopes of hydrogen) gases, is injected into the pit; the intense heat and pressure of the implosioncause the gas to undergo fusion, generating a great many neutrons. The chain reaction can last onlya moment before the force of the nuclear explosion drives the plutonium outward so that it can nolonger support a chain reaction. A metal "radiation case" channels the energy of the primary to the secondary stage, whichcontains lithium deuteride and other materials. The energy from the primary implodes the secondary,causing fission and fusion reactions that release most of the energy of a nuclear explosion. The primary, radiation case, and secondary comprise the "nuclear explosive package." Thousands of other "nonnuclear" components, however, are needed to create a weapon. Theseinclude a case for the bomb or warhead, an arming, firing, and fuzing system, and a means of linkingthe weapon to its delivery system. The Hiroshima bomb used a simpler "gun assembly" design, in which one subcritical massof highly enriched uranium (i.e., highly enriched in the fissile isotope 235) was shot down a gunbarrel into another subcritical mass of highly enriched uranium, forming a critical mass and causinga nuclear explosion. Highly enriched uranium and weapons-grade plutonium are referred to asspecial nuclear material, or SNM. Nuclear weapons were designed, tested, and manufactured by the nuclear weapons complex,which is composed of eight government-owned contractor-operated sites: Los Alamos NationalLaboratory (NM) and Lawrence Livermore National Laboratory (CA), which design nuclearexplosive packages; Sandia National Laboratories (NM and CA), which design the nonnuclearcomponents that turn the nuclear explosive package into a weapon; Y-12 Plant (TN), which producesuranium components and secondaries; Kansas City Plant (MO), which produces many of thenonnuclear components; Savannah River Site (SC), which processes tritium from stockpiledweapons to remove decay products; Pantex Plant (TX), which assembles and disassembles nuclearweapons; and the Nevada Test Site, which used to conduct nuclear tests but now conducts otherweapons-related experiments that do not produce a nuclear yield. These sites are now involved inmaintaining existing nuclear weapons. A federal agency, the National Nuclear SecurityAdministration (NNSA), a semiautonomous part of the Department of Energy, manages the nuclearweapons program and the Complex. Pit production is the most controversial aspect of nuclear weapons production, and the onemost closely linked to the Reliable Replacement Warhead program. Rocky Flats Plant (CO) usedto produce pits, but that work was halted in 1989 due to safety concerns. Since then, the UnitedStates has not made any pits that have been certified for use in stockpiled warheads. Once RockyFlats pits were used up, the United States has been unable to make entire new warheads. Los Alamos has established a small-scale pit production plant at its plutonium facility,Technical Area 55 (TA-55). TA-55 has produced several pits, but Los Alamos has not completedthe work needed to certify them for use in the stockpile. NNSA anticipates that that work will becompleted in FY2007, and that TA-55 will achieve a capacity of 10 pits per year beginning inFY2007. NNSA has plans to increase TA-55's capacity to 30-40 pits per year sometime after 2010. NNSA, however, believes that that number is inadequate to support the stockpile, andproposes a new Modern Pit Facility (MPF) to provide more capacity: "A 125 pit per year MPF withfull production starting in 2021 (on-time) is the minimum capacity to support the President's reduced2012 stockpile assuming a 60-year pit lifetime." (52) In NNSA's view, because of the long lead time needed to designand build a pit facility, planning for MPF should continue as a hedge against unexpected problemswith pits in the stockpile. Others challenge that plan, arguing that if pit lifetime proves longer thananticipated, or if the future stockpile declines more than anticipated, an expanded TA-55 wouldsuffice, so that the United States should delay a decision on MPF until future pit requirementsbecome clearer. The FY2006 Energy and Water Development Appropriations Act, P.L. 109-103 ,deleted funds for MPF; conferees on the measure directed NNSA to "focus on improving themanufacturing capability at TA-55." On the other hand, Representative David Hobson, Chairmanof the House Energy and Water Development Appropriations Subcommittee and a key player onnuclear weapons issues, stated in December 2005 that he does not oppose MPF but wants to haveit defined more clearly before proceeding. The future of MPF thus appears uncertain. | Congress annually funds the nuclear weapons complex (the Complex), those sites thatdevelop, maintain, manufacture, and dismantle nuclear weapons. In hearings held in 2004, theHouse Appropriations Committee pressed the Secretary of Energy "for a systematic review ofrequirements for the weapons complex over the next twenty-five years." The committee expressedits concern that the Complex is not well suited to the post-Cold War situation, and should reflectpresidential decisions on the stockpile as well as issues of cost, security, and Complex size. Inresponse, the Nuclear Weapons Complex Infrastructure Task Force of the Secretary of EnergyAdvisory Board prepared a report, released in final form in October 2005. The report indicated that the Complex had redundant facilities, security concerns, high cost,excessive competition between the weapons labs, and inadequate equipment for the productionplants. To redress these problems, the Task Force proposed restructuring the Complex. It wouldshift much production and some R&D to a new nuclear production center, probably close one ormore plants, contract out some nonnuclear work, shrink the labs, consolidate facilities, and take stepsto make governance more effective. It was concerned that current warheads, produced during theCold War, are inappropriate for the current situation because they have more yield and efficiencythan is needed, yet are more vulnerable to terrorist threats than is desirable, are hard to manufacture,are designed close to failure points, and will probably become harder to maintain. It recommendsrestructuring the nuclear arsenal by producing new-design Reliable Replacement Warheads (RRWs)with characteristics deemed more suitable to the current environment. The report links Complex andwarheads: in the Task Force's view, RRWs would be easier to produce and maintain, permitting asmaller, more efficient, and less costly Complex. Observers familiar with the current Complex raise several concerns. From their perspective,closing Complex sites and facilities might meet fatal political opposition. They maintain that thereport seems to downplay the value of investments in Complex facilities over six decades, andprojects large cost savings through 2030 based on questionable assumptions. They fear that shiftingkey tasks that the nuclear weapons labs perform to other sites could disrupt the labs' ability to dotheir work. The recommendation to proceed immediately with RRW deals with restructuringweapons rather than the Complex and, in this view, may go beyond the Task Force's mandate. ADepartment of Defense official stated that a Department of Defense-Department of Energy agencydid not approve the Task Force's proposed 3-step transition to RRW, despite the report's strongimplication to the contrary. While any final decision on deploying RRWs must await completionof studies that might possibly reject RRW, the Task Force assumes RRW will proceed and does notexamine how its restructured Complex would support current warheads. Some express concern thatTask Force recommendations may be at odds with U.S. nuclear nonproliferation policy. This report will not be updated. |
The Islamic State (IS) organization is also referred to by its former name—the Islamic State of Iraq and the Levant (ISIL)/Islamic State of Iraq and Syria (ISIS)—and the Arabic acronym Daesh (pronounced "daash," for Dawlat al-Islamiyah f'al-Iraq wa al-Sham ), which translates to the Islamic State in Iraq and the Levant/Syria. Many observers argue that changes in Iraq's political structure as a result of the U.S.-led overthrow of Saddam Hussein helped give rise to the Islamic State. The fall of Hussein's Sunni Arab-dominated government and the ascension to power of the majority Shiite Arab population fueled deep Sunni resentment that continues today. In Syria, the Islamic State has grown in size and strength in part because of the Asad regime's use of Syria's armed forces and Iranian support to try to suppress rebellion by Syria's Sunni Arab majority. The Islamic State's direct ideological and organizational roots lie in the forces built and led by the late Abu Musab al Zarqawi in Iraq from 2002 through 2006— Tawhid wal Jihad (Monotheism and Jihad) and Al Qaeda in the Land of the Two Rivers (also known as Al Qaeda in Iraq, or AQ-I). Zarqawi took advantage of Sunni animosity toward U.S. forces and feelings of disenfranchisement at the hands of Iraq's Shiites and Kurds to advance a uniquely sectarian agenda that differed from Al Qaeda's in important ways. Some experts attribute Sunni resentment to the use by some Shiites of the democratic political process to monopolize political power in Iraq. Following Zarqawi's death at the hands of U.S. forces in June 2006, AQ-I leaders repackaged the group as a coalition called the Islamic State of Iraq (ISI). ISI lost its two top leaders in 2010 and was weakened, but not eliminated, by the time of the U.S. withdrawal in 2011. In June 2014, Islamic State leaders declared their reestablishment of the caliphate ( khilafa , lit. succession to the prophet Mohammed), dropped references to Iraq and the Levant in their name, demanded the support of believing Muslims, and named Abu Bakr al Baghdadi as caliph and imam (leader of the world's Muslims). IS leaders have highlighted Baghdadi's reported descent from the Quraysh tribe—the same tribe as the Prophet Muhammad—as well as his religious training, as qualifications for his position as caliph. The group cites its implementation of several of the historical requirements of the caliphate/imamate as further grounds for the religious legitimacy of its actions. Its Muslim critics question its legitimacy and actions. See CRS Report R43612, The "Islamic State" and U.S. Policy , by [author name scrubbed] and [author name scrubbed] for more information. Prior to 2015, the majority of terrorist attacks conducted by IS supporters were in Iraq and Syria. However, in 2015 it appears IS strategy evolved to include pursuing terrorist attacks globally. In this regard, transnational IS terrorist attacks outside of Iraq and Syria may be an instrumental tactic in a broader strategic effort to draw adversaries, including the United States, into larger-scale and more direct conflict. An example of the Islamic State's evolving strategy may be demonstrated in the numerous terrorist attacks occurring in places other than Iraq and Syria with civilian deaths rising to nearly 1,000 since January 2015. See CRS Report R43612, The "Islamic State" and U.S. Policy , by [author name scrubbed] and [author name scrubbed], and CRS Insight IN10209, European Security, Islamist Terrorism, and Returning Fighters , by [author name scrubbed] and [author name scrubbed] for more information. Since 2014, some armed groups outside of Iraq and Syria have recognized the Islamic State caliphate and pledged loyalty to Abu Bakr al Baghdadi. As of late 2015, experts consider IS adherents in Yemen, Egypt, Algeria, Saudi Arabia, Libya, Afghanistan, and Nigeria to be the most significant and capable. These groups have used the Arabic word " wilayah " (state/province) to describe themselves as constituent members of a broader IS-led caliphate. The implications of such pledges of loyalty to the Islamic State on groups' objectives, tactics, and leadership structures appear to vary and may evolve. The Obama Administration has stated that groups and individuals that are associated with the Islamic State and that participate in hostilities against the United States or its coalition partners are legitimate military targets pursuant to the 2001 Authorization for the Use of Military Force against Al Qaeda, subject to executive branch discretion. For more information, see " IS Affiliates and Adherents " in CRS Report R43612, The "Islamic State" and U.S. Policy , by [author name scrubbed] and [author name scrubbed]; CRS Insight IN10199, The Islamic State in Egypt: Implications for U.S.-Egyptian Relations , by [author name scrubbed]; " Armed Islamist Groups and Related Terrorism Threats " in CRS Report RL33142, Libya: Transition and U.S. Policy , by [author name scrubbed]; and CRS Insight IN10242, Nigeria's Boko Haram and the Islamic State , by [author name scrubbed] and [author name scrubbed]. While IS funding streams remain fluid, the group's largest revenue sources appear (based on open-source information) to include oil sales, taxation and extortion, and the sale of looted antiquities. Oil sales initially provided the majority of the group's revenue, but gradually declined as a percentage of overall IS profits due to an extensive campaign of airstrikes by the United States and coalition partners against oil and gas facilities used by the group. U.S. officials have noted that the Islamic State's financial strength depends not only on its income but also on its expenses, and the extent to which it is able to devote its resources to military operations. U.S. officials have stated that the Islamic State's decision to hold and govern territory is a financial burden for the group, and thus a vulnerability that the United States could potentially exploit by diminishing the group's ability to generate and utilize revenue. If the Islamic State cannot afford the expenses associated with governing its territory, some argue that the resulting public backlash would undermine its ability to rule. Targeting the Islamic State's finances is one of five core lines of effort to degrade and defeat the terrorist organization. General John Allen, the recently retired U.S. Special Presidential Envoy for the Global Coalition to Counter ISIL, stated in early 2015 that the United States cannot defeat the Islamic State through military efforts alone, and highlighted the need to deprive the group of access to financial resources. At present, U.S. policy focuses on disrupting IS revenue streams, limiting the group's access to formal financial systems, and imposing sanctions on the group's senior leadership and financial facilitators. The United States also has sought to collaborate with international partners, including through cooperation on financial intelligence collection and analysis. See CRS Report R43980, Islamic State Financing and U.S. Policy Approaches , by [author name scrubbed], [author name scrubbed], and [author name scrubbed] for more information. On September 10, 2014, President Obama announced the formation of a global coalition to "degrade and ultimately defeat" IS. Subsequently, some 60 nations and partner organizations agreed to participate, contributing either military forces or resources (or both) to the campaign. In Brussels in December 2014, these 60 partners agreed to organize themselves along five "lines of effort," with at least two countries in the lead for each: Supporting military operations, capacity building, and training (led by the United States and Iraq); Stopping the flow of foreign terrorist fighters (led by The Netherlands and Turkey); Cutting off IS access to financing and funding (led by Italy, the Kingdom of Saudi Arabia, and the United States); Addressing associated humanitarian relief and crises (led by Germany and the United Arab Emirates); and Exposing IS's true nature (led by the United Arab Emirates, the United Kingdom, and the United States). Coalition participation tends to be fluid, with each country contributing capabilities that are commensurate with their own national interests and comparative advantage. Since August 2015, several coalition participants have changed the roles, missions, and capabilities of the military forces they are applying to counter the Islamic State. Along with the United States, France has been at the forefront of the international coalition conducting military operations against IS in Iraq. Until September 2015, France had ruled out conducting operations in Syria—in part because it did not want to inadvertently support the Asad regime—but changed course due to growing concerns about IS. Following the November attacks, President François Hollande vowed to redouble the military campaign to destroy the Islamic State. Within 48 hours of the attacks, France launched its most aggressive air strikes yet, on the IS stronghold of Raqqa, Syria; the number of French fighter jets conducting airstrikes is to increase from 12 to 38. Hollande has also stressed that he will focus on unifying and bolstering the international military coalition fighting IS. This would include greater cooperation with the United States, Russia, and countries in the region. Russia initiated military operations in Syria in September 2015, but it did not begin robustly targeting Islamic State forces until Russian authorities concluded in mid-November that a "self-made" explosive device had brought down a Russian airliner over the Egyptian Sinai Peninsula on October 31, 2015, killing all 224 passengers on board. Statements released by the Islamic State and affiliated groups claimed responsibility for the crash, and depicted the improvised explosive devise allegedly used to carry out the attack. Russia's military operations in Syria to support the Asad regime currently appear to be independent of the global counter-IS coalition's activities. See CRS Report R44135, Coalition Contributions to Countering the Islamic State , by [author name scrubbed]; CRS Insight IN10301, France: Efforts to Counter Islamist Terrorism and The Islamic State , by [author name scrubbed]; and CRS Insight IN10360, Russian Deployments in Syria Complicate U.S. Policy , by [author name scrubbed] et al. for more information. The U.S. government continues to lead a multilateral coalition that seeks to "degrade and ultimately destroy" the Islamic State organization by progressively reducing the geographic and political space, manpower, and financial resources available to it. Stated U.S. strategy to achieve this objective consists of a number of "lines of effort," including, in partnership with several European and Arab states, direct military action, support for Iraqi and Syrian partner ground forces, intelligence gathering and sharing, and efforts to restrict flows of foreign fighters and disrupt the Islamic State's finances. Administration officials have identified areas where they believe progress has been made in implementing U.S. and allied strategy to date, but they continue to state that it may take a considerable amount of time to achieve the full range of U.S. objectives. They also note the potential for delays or setbacks. See CRS Report R43612, The "Islamic State" and U.S. Policy , by [author name scrubbed] and [author name scrubbed] for more information. High-profile terrorist attacks attributed to the Islamic State organization in several countries are altering the terms of U.S. and allied policy debates about the threat posed by the group and current strategic approaches to defeating it. At President Obama's direction, elements of the U.S. government continue to lead a multilateral coalition that seeks to "degrade and ultimately destroy" the Islamic State organization by progressively reducing the geographic and political space, manpower, and financial resources available to it. Stated U.S. strategy to achieve this objective consists of a number of "lines of effort," including, in partnership with several European and Arab states: direct military action, support for Iraqi and Syrian partner ground forces, intelligence gathering and sharing, and efforts to restrict flows of foreign fighters and disrupt the Islamic State's finances. Administration officials have identified areas where they believe progress has been made in implementing U.S. and allied strategy to date, but they continue to state that it may take a considerable amount of time to achieve the full range of U.S. objectives, while noting the potential for delays or setbacks. See CRS Report R43612, The "Islamic State" and U.S. Policy , by [author name scrubbed] and [author name scrubbed] for more information. The President in his August 2014 notifications to Congress of deployments and airstrikes in Iraq indicated his powers as Commander in Chief and Chief Executive under Article II of the Constitution gave him authority to use military force against the Islamic State. Subsequently, however, Obama Administration officials and the President's September 2014 notifications to Congress for airstrikes and other actions in Iraq and Syria stated that two enacted authorizations for use of military force (AUMFs), the Authorization for Use of Military Force (2001 AUMF; P.L. 107-40 ), and the Authorization for Use of Military Force Against Iraq Resolution of 2002 (2002 AUMF; P.L. 107-243 ), provide authorization for certain U.S. military strikes against the Islamic State in Iraq and Syria, as well as the Khorasan Group of Al Qaeda in Syria. Despite these assertions of adequate existing legislative authority, the President indicated on November 5, 2014 that he intended to enter into discussions with congressional leaders to develop a new AUMF specifically targeting the Islamic State, in order to "right-size and update whatever authorization Congress provides to suit the current fight, rather than previous fights" authorized by the 2001 and 2002 AUMFs. The President called on Congress to enact a new AUMF targeting the Islamic State in his January 2015 State of the Union address, and transmitted a draft AUMF to Congress on February 11, 2015. A number of Members of Congress have introduced legislative proposals for a new AUMF in the 113 th and 114 th Congresses, stating that existing legislation authorizing military force is outdated and insufficient when applied to the Islamic State crisis. Some Members of Congress have expressed the opinion that a new authorization is necessary to prevent the President from entering into a large-scale, long-term conflict akin to the recent conflicts in Afghanistan and Iraq. Others argue that the existing 2001 and 2002 AUMFs, authorizing the use of military force against Al Qaeda and the Taliban after the 9/11 terror attacks, and the invasion of Iraq to remove Saddam Hussein from power, respectively, are too limited in their scope and unnecessarily constrain the President's ability to defeat terrorist and extremist threats to U.S. national security and interests. These Members of Congress have in some cases introduced new authorizations that would expand the President's authority to meet growing and evolving threats, possibly applying to groups other than the Islamic State and in places other than Iraq and Syria. In many cases, Members of Congress have stressed the importance of Congress's role in the exercise of the war power in the Constitution, stating that Congress should not abdicate its responsibility to participate in the country's decision to use military force against the Islamic State. These proposals have included several types of authorizing and constraining provisions, including the following: identifying legitimate targets of military force, including the Islamic State, associated forces of the Islamic State, and others; prohibiting long-term, large-scale use of U.S. armed forces; limiting geographic area of military operations; placing time limits on existing and new authority to use military force; repealing existing AUMFs or stating that new authority supersedes older authorities with regard to the Islamic State; and requiring regular reporting, certification of certain conditions, and consultation with Congress regarding the campaign against the Islamic State. See CRS Report R43760, A New Authorization for Use of Military Force Against the Islamic State: Issues and Current Proposals in Brief , by [author name scrubbed] for more information. Al Baghdadi and other IS leaders have threatened to attack the United States since 2012. They routinely describe the United States and its non-Muslim allies as "crusaders," and encourage Islamic State supporters to attack U.S. and allied persons, facilities, and interests by any means possible overseas and at home. The group's propaganda suggests that it welcomes the prospect of direct military confrontation with the United States and U.S. partners, viewing such conflict as a harbinger of apocalyptic battles described in some Islamic religious materials. For example, in November 2014, Al Baghdadi argued that the Islamic State would continue to expand and welcomed the potential introduction of Western ground forces, saying: "soon, the Jews and Crusaders will be forced to come down to the ground and send their ground forces to their deaths and destruction, by Allah's permission." IS leaders frequently challenge the United States and others to "come down and meet us on the ground," and they view such developments as imminent and likely to end in the destruction of their enemies. Statements released by the Islamic State in the wake of the November 2015 Paris attacks contained similarly goading sentiments. In this regard, transnational IS terrorist attacks may be an instrumental tactic in a broader strategic effort to draw adversaries, including the United States, into larger-scale and more direct conflict. While statements released by the Islamic State following the November 2015 Paris attacks identified locations in Washington, DC, and New York City as potential targets for future attacks, officials and observers continue to debate the extent to which the group has the capability to direct and conduct such attacks inside the United States. U.S. officials have suggested that the individuals responsible for deadly 2015 shooting attacks in Texas and Tennessee were inspired by jihadist-Salafist propaganda, but they have not alleged any operational links between the Islamic State organization and the attackers. These U.S. attacks followed a spate of similar so-called lone wolf attacks in Europe and elsewhere, in which the alleged perpetrators appeared to be inspired by the Islamic State and/or Al Qaeda but have not necessarily been operationally linked to them or their affiliates. The Islamic State has praised these and other incidents and continues to urge supporters to conduct such attacks if they are able. In this context, U.S. officials have expressed increasing concern about the IS threat in congressional testimony and other public statements. In November 2014, National Counterterrorism Center (NCTC) Director Nicholas Rasmussen said in testimony before the Senate Select Committee on Intelligence that "the [ISIL] threat beyond the Middle East is real, although thus far limited in sophistication. However, if left unchecked, over time we can expect ISIL's capabilities to mature, and the threat to the United States homeland ultimately to increase." In October 2015, Rasmussen expressed concern about "the group's trajectory" given that it has "the ingredients that we traditionally look at as being critical to the development of an external operations capability." In the wake of the Paris, Beirut, and Sinai attacks of November 2015, and an October 2015 attack in Ankara (Turkey's capital), CIA Director John Brennan said that the Islamic State organization "has developed an external operations agenda that it is now implementing with lethal effect." He argued that the United States and its allies will have to deal with IS threats "for quite some time" and suggested that one potential motivation for the group's embrace of transnational terrorism as a tactic and strategic tool is its desire to signal continuing momentum in the face of limited progress and battlefield setbacks in Iraq and Syria since late 2014. Brennan stated his view that it is "inevitable that ISIL and other terrorist groups are going to continue to try and to attempt to carry out these attacks. That is an inevitability for at least as far as the eye can see. But to me, it's not inevitable that they're going to succeed." Efforts to prevent future attacks and assess future risks to U.S. domestic security are likely to draw from analysis and forensic study of where, how, and by whom the recent attacks were planned, organized, and directed. For more information on U.S. counterterrorism and security management , and related homeland security issues, see CRS Report R44041, Selected Issues in Homeland Security Policy for the 114th Congress , coordinated by [author name scrubbed]. There is no exact, official, and publicly available count of Americans who have been drawn to the Islamic State. The Federal Bureau of Investigation (FBI) has estimated that "upwards of 200 Americans have traveled or attempted to travel to Syria to participate in the conflict." The State Department has suggested that the Islamic State has attracted more than 22,000 foreign fighters from more than 100 countries. In a general sense, it appears that the current challenges posed by the Islamic State largely require U.S. law enforcement to identify individuals who pose a danger as terrorists and preempt their efforts to do harm. All of this draws on resources, strategies, and programs developed in response to 9/11. Analysis of U.S. counterterrorism investigations since September 11, 2001, suggests that the Islamic State (IS) and its acolytes may present broad challenges for domestic law enforcement. These challenges involve understanding and responding to a variety of terrorist actors who arguably can be sorted into five categories: The Departed—Americans, often described as foreign fighters, who plan to leave or have left the United States to fight for the Islamic State. This group includes suspects scheming to travel but who are caught before they arrive in IS territory. The Returned—American foreign fighters who trained with or fought in the ranks of the Islamic State and come back to the United States, where they can potentially plan and execute attacks at home. The Inspired—Americans lured—in part—by IS propaganda to participate in terrorist plots within the United States. The Others—Foreign IS adherents who radicalize in and originate from places outside of the United States or non-American foreign fighters active in the ranks of the Islamic State. These persons could try to enter the United States when done fighting abroad. The Lost—Unknown Americans who fight in the ranks of the Islamic State but do not plot terrorist attacks against the United States. Such individuals may come home after fighting abroad and remain unknown to U.S. law enforcement. Additionally, some American IS fighters will never book a trip back to the United States. (The post-9/11 record of U.S. counterterrorism investigations suggests this prospect. None of the Americans who have fought for al-Shabaab, a terrorist group based in Somalia, have come home to plot attacks.) Finally, some American IS supporters will perish abroad. See CRS Report R44110, The Islamic State's Acolytes and the Challenges They Pose to U.S. Law Enforcement: In Brief , by [author name scrubbed] for more information. Because modern-day terrorists and criminals are constantly developing new tools and techniques to facilitate their illicit activities, law enforcement is challenged with leveraging its tools and authorities to keep pace. For instance, interconnectivity and technological innovation have not only fostered international business and communication, they have also helped criminals carry out their operations. At times, these same technological advances have presented unique hurdles for law enforcement and officials charged with combating malicious actors. Enhanced data encryption, in part a response to privacy concerns following Edward Snowden's revelations of mass government surveillance, has opened the discussion on how this encryption could impact law enforcement investigations. Law enforcement officials have likened the new encryption to "a house that can't be searched, or a car trunk that could never be opened." There have been concerns that malicious actors, from savvy criminals to terrorists to nation states, may rely on this very encryption to help conceal their illicit activities. There is also concern that law enforcement may not be able to bypass the encryption, their investigations may be stymied, and criminals will operate above the law. Critics of these concerns contend that law enforcement maintains adequate tools and capabilities needed for their investigations. See CRS Report R44187, Encryption and Evolving Technology: Implications for U.S. Law Enforcement Investigations , by [author name scrubbed], and CRS Insight IN10400, Paris Attacks and "Going Dark": Intelligence-Related Issues to Consider , by [author name scrubbed] for more information. The layers of the Internet go far beyond the surface content that many can easily access in their daily searches. The other content is that of the Deep Web, content that has not been indexed by traditional search engines such as Google. The furthest corners of the Deep Web, segments known as the Dark Web, contain content that has been intentionally concealed. The Dark Web may be used for legitimate purposes as well as to conceal terrorism-related, criminal, or otherwise malicious activities. It is the exploitation of the Dark Web for illegal practices that has garnered the interest of officials and policymakers. Just as terrorists and criminals can rely upon the anonymity of the Dark Web, so too can the law enforcement, military, and intelligence communities. They may, for example, use it to conduct online surveillance and sting operations and to maintain anonymous tip lines. Anonymity in the Dark Web can be used to shield officials from identification and hacking by adversaries. It can also be used to conduct a clandestine or covert computer network operation such as taking down a website or a denial of service attack, or to intercept communications. Reportedly, officials are continuously working on expanding techniques to deanonymize activity on the Dark Web and identify malicious actors online. See CRS Report R44101, Dark Web , by [author name scrubbed] for more information. Iraq's sectarian and ethnic divisions—muted toward the end of the 2003-2011 U.S. military intervention in Iraq—have reemerged to fuel a major challenge to Iraq's stability and to U.S. policy in Iraq and the broader Middle East region. The resentment of Iraq's Sunni Arabs toward the Shiite-dominated central government facilitated the capture in 2014 of nearly one-third of Iraqi territory by the Sunni Islamist extremist group called the Islamic State (also known as the Islamic State of Iraq and the Levant, or ISIL). Iraq's Kurds have been separately embroiled in political and territorial disputes with Baghdad, although those differences have been subordinated to the common struggle against the Islamic State. See CRS Report RS21968, Iraq: Politics and Governance , by [author name scrubbed] and [author name scrubbed] for more information. The rise of IS and Russia's military intervention on behalf of the Syrian government have reshaped debates over U.S. policy toward the ongoing civil conflict in Syria, now in its fifth year. The Islamic State controls large areas of northeastern and central Syria, from which it continues to launch assaults on forces opposed to and aligned with the government of President Bashar al Asad. Meanwhile, fighting elsewhere pits government forces and their foreign allies against a range of anti-government insurgents, some of whom have received limited U.S. assistance. Russian military intervention in support of Asad poses a direct challenge to U.S. goals in Syria, and is raising new questions about the future of the conflict and U.S. strategy. See CRS Report RL33487, Armed Conflict in Syria: Overview and U.S. Response , coordinated by [author name scrubbed] for more information. On November 13, 2015, coordinated terrorist attacks in Paris left at least 129 people dead and over 350 injured at 6 locations throughout the city. French President François Hollande attributed the attacks to the Islamic State terrorist organization (which subsequently claimed responsibility), and asserted that France's response would be "merciless." The attacks were the worst-ever terrorist incident on French soil, and the latest in a number of examples of Islamist terrorism in France and Europe over the past year and a half. These attacks have reinforced European concerns about European citizens training and fighting with extremist groups in foreign conflicts (especially in Syria and Iraq) and heightened fears that terrorists could slip into Europe, including as part of an ongoing influx of migrants and refugees. News reports indicate that one of the assailants killed during the attacks may have entered Europe through Greece in early October with a Syrian passport as part of the refugee flows (authorities have not conclusively made this link); at least two suspects—both French nationals—may have traveled to Syria. While evidence suggests that the Islamic State was directly involved in planning and carrying out these attacks, worries also persist about "homegrown" extremists inspired by Islamist propaganda to commit violence at home without ever traveling abroad. Other recent terrorist incidents in Europe include The May 2014 killing of four people at the Jewish Museum in Brussels, Belgium; the suspect is a French Muslim who reportedly spent a year with Islamist fighters in Syria. The January 2015 attacks in Paris in which gunmen killed 17 people in three related incidents that targeted the satirical magazine Charlie Hebdo , police officers, and a kosher supermarket. The perpetrators of the attacks were French-born Muslims, with possible ties to Al Qaeda in Yemen or the Islamic State. The February 2015 shootings in Copenhagen, Denmark, in which a self-radicalized Danish-born citizen of Palestinian descent murdered two individuals—one at a cafe that had been hosting a free speech debate, another at a synagogue—and wounded five police officers. The attempted August 2015 attack on a train traveling from Amsterdam to Paris that was thwarted by six passengers, including three Americans; the suspect is a Moroccan man who may have traveled to Syria. See CRS Insight IN10209, European Security, Islamist Terrorism, and Returning Fighters , by [author name scrubbed] and [author name scrubbed]; CRS Report R44003, European Fighters in Syria and Iraq: Assessments, Responses, and Issues for the United States , coordinated by [author name scrubbed]; and CRS Insight IN10301, France: Efforts to Counter Islamist Terrorism and The Islamic State , by [author name scrubbed] for more information. The rising number of U.S. and European citizens traveling to fight with rebel and terrorist groups in Syria and Iraq has emerged as a growing concern for U.S. and European leaders, including Members of Congress. Several deadly terrorist attacks in Europe over the past year—including the killing of 17 people in Paris in January 2015—have heightened the perception that these individuals could pose a serious security threat. Increasingly, terrorist suspects in Europe appear to have spent time with groups fighting in the Middle East, especially with the Islamic State organization. Others, like the gunman who murdered two individuals in Copenhagen in February 2015, seem to have been inspired by Islamist extremist propaganda. U.S. intelligence suggests that more than 20,000 foreign fighters have traveled to the Syria-Iraq region, including at least 3,400 Westerners, since 2011. The vast majority of Western fighters are thought to be from Europe, although roughly 150 Americans have traveled or attempted to travel to Syria. U.S. authorities estimate that a handful of Americans have died in the conflict; they also assert that military operations against the Islamic State group since August 2014 have killed thousands of fighters, including an unknown number of foreigners. U.S. officials and analysts contend that the potential foreign fighter threat underscores the importance of close law enforcement ties with key European allies and existing U.S.-EU information-sharing arrangements, including those related to tracking terrorist financing and sharing airline passenger data. Some U.S. policymakers, including several Members of Congress, have expressed particular worries about European fighters in Syria and Iraq because the U.S. Visa Waiver Program (VWP) permits short-term visa-free travel to the United States for citizens of most European countries. At the same time, many point out that the VWP's existing security controls require VWP travelers to provide advanced biographic information to U.S. authorities and may help limit travel by known violent extremists. See CRS Report R44003, European Fighters in Syria and Iraq: Assessments, Responses, and Issues for the United States , coordinated by [author name scrubbed] for more information. Europe is experiencing what many consider to be its worst migration and refugee crisis since World War II, as people flee conflict and poverty in bordering regions. With the war in Syria in its fifth year, and with 4.1 million refugees in neighboring countries, more Syrians have been leaving for Europe. Other migrants and refugees originate from elsewhere in the Middle East, as well as Afghanistan, Africa, and some Western Balkans countries. Experts characterize the influxes as mixed migration, defined as flows of different groups of people—such as economic migrants, refugees, asylum-seekers, stateless persons, trafficked persons, and unaccompanied children—who travel the same routes and use the same modes of transportation (see text box). Sometimes also termed irregular migrants, these individuals do not have the required documentation, such as passports and visas, and may use smugglers and unauthorized border crossings. The surge of migrants and refugees has significantly challenged European governments and the 28-member European Union (EU), which has come under criticism for lacking coherent and effective policies. The lines of distinction between groups in the mixed migration flows have raised questions about determination of status and protection required. A key policy consideration is whether the movement is voluntary or forced. The United Nations High Commissioner for Refugees (UNHCR) asserts that 85% of those arriving in Europe by sea in 2015 are from refugee-producing countries. European governments maintain that at least some individuals seeking to enter Europe are economic migrants. See CRS In Focus IF10259, Europe's Migration and Refugee Crisis , by [author name scrubbed] and [author name scrubbed] for more information. With some European countries pledging to accept increased numbers of Syrian and other asylum seekers in the face of a refugee crisis, attention is focused on the United States and its plans to admit Syrian and other refugees in FY2016 and beyond. The Obama Administration initially proposed an overall refugee ceiling of 75,000 for FY2016 and held consultations with Congress on that proposal, as required by law. On September 20, 2015, however, Secretary of State John Kerry announced that the refugee ceiling for FY2016 would instead be 85,000. Previously the Administration had announced that the United States would admit at least 10,000 Syrian refugees in FY2016. The FY2015 worldwide refugee ceiling is 70,000 and the allocation for the Near East/South Asia region, which includes Syria, is 31,000. The FY2015 refugee admissions proposal included a discussion of U.S. plans to resettle Syrian refugees. From October 1, 2010, through August 31, 2015, the United States has admitted a total of 1,494 Syrian refugees, almost 1,300 of that total since October 1, 2014. See CRS Insight IN10355, Syrian Refugee Admissions to the United States , by [author name scrubbed], and CRS Report R44277, Syrian Refugee Admissions and Resettlement in the United States: In Brief , by [author name scrubbed] for more information. A refugee is a person fleeing his or her country because of persecution or a well-founded fear of persecution on account of race, religion, nationality, membership in a particular social group, or political opinion. Typically, the annual number of refugees that can be admitted into the United States, known as the refugee ceiling, and the allocation of these numbers by region are set by the President after consultation with Congress at the start of each fiscal year. For FY2015, the worldwide refugee ceiling is 70,000, with 68,000 admissions numbers allocated among the regions of the world and 2,000 numbers comprising an unallocated reserve. An unallocated reserve is to be used if, and where, a need develops for refugee slots in excess of the allocated numbers. The FY2015 regional allocations are as follows: Africa (17,000), East Asia (13,000), Europe and Central Asia (1,000), Latin America/Caribbean (4,000), and Near East/South Asia (33,000). Overseas processing of refugees is conducted through a system of three priorities for admission. Priority 1 comprises cases involving persons facing compelling security concerns. Priority 2 comprises cases involving persons from specific groups of special humanitarian concern to the United States (e.g., Iranian religious minorities). Priority 3 comprises family reunification cases involving close relatives of persons admitted as refugees or granted asylum. For more information on U.S. immigration inspections, the visa waiver program, and related border security issues, see CRS Report R44041, Selected Issues in Homeland Security Policy for the 114th Congress , coordinated by [author name scrubbed], and CRS Report RL31269, Refugee Admissions and Resettlement Policy , by [author name scrubbed]. The terrorist attacks in Paris last week, for which the Islamic State has claimed responsibility, have renewed concerns about terrorist travel. Following reports that at least one of the perpetrators of the attacks was carrying a Syrian passport, there has been heightened scrutiny and debate concerning the resettlement of refugees from war-torn Syria to Europe and the United States. Some of the tools the federal government employs to prevent individuals from traveling to, from, or within the United States to commit acts of terrorism include Terrorist Databases and Screening, No-Fly List and Selectee List, Criminal Sanctions, Passport Restrictions on Travel to Specific Countries, and Immigration restrictions. In some cases, the application of these tools may depend on different factors, including whether the suspected terrorist is a U.S. or foreign national. See CRS Legal Sidebar WSLG1438, Legal Tools to Deter Travel by Suspected Terrorists: A Brief Primer , by [author name scrubbed] and [author name scrubbed], and CRS Report R42336, Terrorist Watch List Screening and Background Checks for Firearms , by [author name scrubbed] for more information. In order to protect national security, the government maintains various terrorist watchlists, including the "No Fly" list, which contains the names of individuals to be denied boarding on commercial airline flights. Travelers on the No Fly list are not permitted to board an American airline or any flight on a foreign air carrier that lands or departs from U.S. territory or flies over U.S. airspace. Some persons have claimed that their alleged placement on the list was the result of an erroneous determination by the government that they posed a national security threat. In some cases, it has been reported that persons have been prevented from boarding an aircraft because they were mistakenly believed to be on the No Fly list, sometimes on account of having a name similar to another person who was actually on the list. As a result, various legal challenges to placement on the list have been brought in court. The Due Process Clause provides that no person shall be "deprived of life, liberty, or property, without due process of law." Accordingly, when a person has been deprived of a constitutionally protected liberty interest, the government must follow certain procedures. Several courts have found that placement on the No Fly list may impair constitutionally protected interests, including the right to travel internationally, and the government's redress procedures must therefore satisfy due process. Typically, due process requires that the government provide a person with notice of the deprivation and an opportunity to be heard before a neutral party. However, the requirements of due process are not fixed, and can vary according to relevant factors. When determining the proper procedural protections in a given situation, courts employ the balancing test articulated by the Supreme Court in Matthews v. Eldridge, which weighs the private interests affected against the government's interest. Courts applying this balancing test might consider several factors, including the severity of the deprivation involved in placement on the No Fly list. In addition, courts may examine the risk of an erroneous deprivation under the current procedural framework and the potential value of imposing additional procedures on the process. Finally, courts may inquire into the government's interest in preserving the status quo, including the danger of permitting plaintiffs to access sensitive national security information. See CRS Report R43730, Terrorist Databases and the No Fly List: Procedural Due Process and Hurdles to Litigation , by [author name scrubbed] for more information. Responding to reports that one individual involved in the Paris attacks was carrying a Syrian passport—which subsequent reports indicate may have been fake or stolen—a number of governors have recently expressed an intention to restrict the resettlement of Syrian refugees within their states. These announcements have prompted questions about states' authority in the refugee resettlement process and, particularly, whether a state concerned about the resettlement of Syrian refugees within its jurisdiction may take action to forestall or prevent such resettlement. It is not always clear from a governor's statements what he or she means when saying, for example, that a state "will temporarily suspend accepting new Syrian refugees." However, states would appear to have some discretion as to the terms on which state agencies participate in the federally funded refugee resettlement program, although a state likely could not opt to participate actively in the resettlement of refugees from some countries but not others. In contrast, a state lacks the power to prohibit a Syrian refugee admitted into the United States from physically entering or remaining within the state's jurisdiction. See CRS Legal Sidebar WSLG1440, Can States and Localities Bar the Resettlement of Syrian Refugees Within Their Jurisdictions? , by [author name scrubbed] and [author name scrubbed] for more information. The following table provides names and contact information for selected CRS experts on related foreign policy, defense, legal, U.S. domestic policy, and other associated legislative issues. | In the wake of the deadly November 13, 2015, terrorist attacks in Paris, U.S. policymakers are faced with a wide range of strategy and operational considerations related to the activities of and threats emanating from the Islamic State (IS). A terrorist attack such as this prompts an examination of U.S. domestic security precautions; the role of allies and coalition partners; the appropriate military and diplomatic reactions; the safety and security of infrastructure and that of travelers; and numerous additional discrete issues that require the active involvement of dozens of federal, state, and local government agencies. With the attacks in Beirut, over Egypt, and in Paris, the Islamic State has demonstrated a transnational capability that suggests its strategic objectives and tactics have evolved, gaining strength in some areas and losing capacity in others. The response to these attacks by the United States and other nations continues to evolve as the threat posed by IS changes. This report poses frequently asked questions with answers excerpted from other CRS products. Each section contains references to the full reports in which the material appears. This report will be updated as additional products become available and events warrant. |
Latin America made enormous strides over the past two decades in political development, with all countries but Cuba having regular free and fair elections for head of state. In 2004, free and fairelections for head of government were held in Antigua and Barbuda on March 23; El Salvador onMarch 21; Panama on May 2; the Dominican Republic on May 16; Venezuela on August 15, for aspecial presidential recall referendum; St. Kitts and Nevis on October 25; and Uruguay on October31. Despite this democratic progress, several nations faced considerable challenges that threatenedpolitical stability, including economic decline and rising poverty, violent guerrilla conflicts,autocratic leaders, drug trafficking, and increasing crime. In 2002 and 2003, the region as a whole experienced slower economic growth with 2002 registering a gross domestic product (GDP) decline of 0.6% and a per capita income decline ofalmost 2%, the worst economic performance in almost two decades. Argentina, Uruguay, andVenezuela suffered the deepest recessions, skewing the regional data downward, while most othercountries had slow, but positive, growth rates. For 2003, regional economic growth was estimatedto be 1.5%, with a per capita income increase of 0.2%. By the end of 2004, however, the region had rebounded with an estimated growth rate of 5.5% for the year, surpassing even the most optimistic predictions. Every country in the region, with theexception of Haiti, experienced positive economic growth, and per capita income for the region asa whole increased by an estimated 4% for the year. (1) In South America, the economic downturn in 2002 and 2003 increased political pressure on elected governments and led some in the region to question democracy and the democraticfree-market model of development. The Andean governments of Bolivia and Peru faced violentprotests, which in Bolivia, led to the resignation of President Gonzalo Sanchez de Lozada on October17, 2003, just 15 months after he was elected. Colombia faced challenges from drug traffickingorganizations, as well as from two left-wing guerrilla groups and a rightist paramilitary group, allof which, combined, have been responsible for thousands of deaths each year. Venezuela wasplagued by political polarization between supporters and opponents of President Hugo Chavez,although Chavez's victory in the August 2004 recall referendum has the potential of reducingpolarization. Argentina's democratic political system was under considerable stress after socialprotests over economic conditions led to the resignation of a democratically elected President inDecember 2001. The political and financial situation eventually stabilized, and bold policy movesin the areas of human rights and institutional reform by President Néstor Kirchner, inaugurated inMay 2003, helped restore Argentines' faith in government. In Central America, countries such as El Salvador, Honduras, and Nicaragua emerged from the turbulent 1980s and 1990s with democratic institutions more firmly entrenched, yet violent crimewas rampant. While the 1996 peace accords in Guatemala brought an end to the 36-year civilconflict, the government did not fully implement substantive reforms associated with the peace planand the human rights situation remains poor. A new Guatemalan President, Oscar Berger, waselected in December 2003 and was inaugurated on January 14, 2004. Observers are hoping that hewill improve upon the performance of his predecessor. In the Caribbean, Haitian President Jean-Bertrand Aristide resigned on February 29, 2004, under disputed circumstances after armed opposition groups had taken control of half the country. President Bush deployed U.S. military forces to Haiti to secure key facilities and to help secure thearrival of a Multinational Interim Force, authorized by the U.N. Security Council, which wassucceeded by the United Nations Stabilization Mission in Haiti (MINUSTAH) in June 2004. InCuba, Fidel Castro retained tight control over the Communist government. The human rightssituation deteriorated significantly in 2003, with the arrest and imprisonment of 75 dissidents. Congressional attention to Latin America in the 108th Congress focused on counter-narcotics and counter-terrorism efforts in the Andean region, security cooperation with Latin America, andtrade issues, such as free trade agreements with Chile and Central American countries and theregional Free Trade Area of the Americas (FTAA). Congressional consideration of the annualforeign operations appropriations legislation that funds foreign aid remained an important way forCongress to influence U.S. policy toward the region. Congress maintained an active interest inneighboring Mexico, with a myriad of trade, migration, border and drug trafficking issuesdominating U.S.-Mexico bilateral relations. U.S. counter-narcotics efforts in the region continued to focus on the Administration's Andean Counterdrug Initiative (2) supporting Colombia andits neighbors with foreign assistance in theirstruggle against drug trafficking and drug-financed terrorist groups. Congress expressed repeatedconcerns over the capture and killing of various U.S. citizens by the Revolutionary Armed Forcesof Colombia (FARC) and the National Liberation Army (ELN). Security issues became a higher-profile aspect of U.S. relations with Latin America in the aftermath of the September 11, 2001, terrorists attacks in the United States. Bilateral and regionalcooperation on anti-terrorism issues increased, and the United States expanded its assistance toColombia beyond a strictly counternarcotics focus to also include counterterrorism support. In June2002, the United States and other members of the Organization of American States (OAS) signedan Inter-American Convention Against Terrorism in order to improve regional cooperation. President Bush submitted the convention to the Senate for its advice and consent in November 2002,and the Senate Foreign Relations Committee held a June 17, 2004, hearing on the convention. U.S. officials maintained that the most effective and rapid means to stimulate economic development in Latin America is through trade, and they set the goal of strengthening trade linkageswith the region through the negotiation of numerous free trade agreements (FTAs): On June 6, 2003, the United States and Chile signed a bilateral FTA that had been completed in December 2002. This paved the way for congressional consideration ofimplementing legislation for the Chile FTA, under so-called fast track procedures, with both theHouse and Senate approving the measure in July ( P.L. 108-77 , H.R. 2738 ). In December 2003, the Administration completed negotiations for a U.S.-Central America Free Trade Agreement (CAFTA) with four Central American countries: ElSalvador, Honduras, Guatemala, and Nicaragua; Costa Rica agreed to CAFTA in late January 2004after additional bilateral negotiations with the United States. The United States signed the CAFTAwith the five Central American countries on May 28, 2004. Separately, the United States and theDominican Republic concluded negotiations on a similar FTA on March 15, 2004. On August 5,2004, all seven countries signed the U.S.-Dominican Republic-Central America Free TradeAgreement (DR-CAFTA). In part because of its controversial nature, Congress did not considerimplementing legislation for the agreement before the end of the 108thCongress. The Administration also began FTA negotiations with Panama in late April 2004, and in mid-May 2004 launched FTA negotiations with Colombia, Ecuador, and Peru with thehope that Bolivia will join the U.S.-Andean negotiations in the future. Finally, the Administration continued to negotiate with other hemispheric nations for the establishment of a Free Trade Area of the Americas (FTAA) by January 2005, a goalfirst agreed to at the 1994 Summit of the Americas. Because of differences in the negotiations abouthow to proceed, it became increasingly unlikely that a comprehensive agreement could be achievedby January 2005. In addition to trade policy, the United States supported development in the region through foreign assistance programs largely administered by the U.S. Agency for International Development(USAID). The agency supported such activities as education, poverty reduction, health care,conservation, natural disaster mitigation and reconstruction, counter-narcotics and alternativedevelopment, and HIV/AIDS prevention and education. In addition, the United States provides foodassistance, anti-terrorism assistance, and security assistance. The Peace Corps was active in manyLatin American and Caribbean nations. Overall U.S. foreign aid to the Latin America regionamounted to about $862 million in FY2001, $1.5 billion in FY2002, $1.7 billion in FY2003; and anestimated $1.6 billion in FY2004. For FY2005, the Administration requested about $1.6 billion. (For further information, see CRS Report RL32487 , U.S. Foreign Assistance to Latin America andthe Caribbean.) In the aftermath of several devastating storms in 2004 -- Hurricanes Charley, Frances and Ivan, and Tropical Storm Jeanne -- the United States provided humanitarian assistance to the afflictedcountries, including Haiti, Grenada, Jamaica, the Bahamas, the Dominican Republic, and Cuba. Through October 2004, the United States committed or obligated $22.6 million in such assistance. On October 5, 2004, the House approved H.Con.Res. 496 (Lee) expressing support forthe provision of humanitarian assistance to Caribbean nations devastated by the storms. Subsequently, Congress approved $100 million in emergency supplemental funding for the regionin the aftermath of the storms ( H.R. 4837 , P.L. 108-324 ). (For additional information,see CRS Report RL32160 , Caribbean Region: Issues in U.S. Relations .) The Bush Administration's new foreign aid initiative, the Millennium Challenge Account (MCA), could significantly increase U.S. foreign assistance worldwide including assistance toseveral Latin American nations to countries that have strong records of performance in the areas ofgovernance, economic policy and investment in people. In May 2004, the Millennium ChallengeCorporation (MCC) board deemed three Latin American nations -- Bolivia, Honduras, andNicaragua -- as eligible to apply for FY2004 MCA funding. (For further information, see CRS Report RL31687 , The Millennium Challenge Account: Congressional Consideration of a NewForeign Aid Initiative .) Some Members of Congress wanted to increase U.S. assistance to combat poverty in Latin America. In the 108th Congress, the House Subcommittee on the Western Hemisphere approvedan initiative, H.R. 3447 (Menendez), that would have authorized $500 million annuallyfor five years for a Social Investment and Economic Development Fund for the Americas to provideassistance for poverty reduction and increased economic opportunity in the region. On January 7, 2004, President Bush proposed a new temporary worker program that would allow undocumented persons in the United States, and foreign workers, to work for a period of threeyears (which would be renewable one time) and receive legal temporary status. The proposal wassomewhat similar to legislation proposed by Senator McCain, S. 1461 , andRepresentatives Kolbe and Flake, H.R. 2899 , but no action was taken on thesemeasures. Prospects for action was thwarted by opposition from those who wanted to providebroader amnesty to undocumented workers in the United States as well as from those who believedthat such a proposal constituted a reward to those people living in the United States illegally. President Bush met with other hemispheric leaders at a Special Summit of the Americas held in Monterrey Mexico from January 12-13, 2004. The leaders issued the Declaration of Nuevo León,which set forth reaffirmations and commitments in the three areas of economic growth with equity,social development, and democratic governance. Among the measures agreed upon was acommitment to reduce the cost of sending remittances in the region by at least half by 2008. TheDeclaration also supported a tripling of Inter-American Development Bank lending to micro, small,and medium-sized enterprises. While the Declaration included a commitment "to deny safe havento corrupt officials, to those who corrupt them, and their assets," it did not include a U.S. proposalthat would have barred corrupt officials from taking part in hemispheric meetings. In addition,although the Declaration welcomed progress toward the establishment of a FTAA, it did not includea U.S. proposal to note a January 2005 deadline for the agreement. (3) (For further information, see CRS Report RS21700 , Special Summit of the Americas -- Monterrey, Mexico, January 2004:Background and Objectives .) Some observers, including many from Latin America, maintained that the Bush Administration did not pay enough attention to the region and to the problems of economic and political stability inseveral countries. U.S. policy was criticized for having returned to a policy of benign neglect as theAdministration focused its attention on such pressing problems as the global anti-terrorismcampaign, the war in Iraq, and homeland security. They argued that the United States cannot affordto let the region become unstable politically or economically, because it is an important market forU.S. exports, and an important supplier of U.S. energy needs, and increased instability could leadto increased illegal migration. Others suggest that despite its attention to crises and issues worldwide, the United States maintained an active policy toward Latin America. They point to the momentum for free trade inthe region and to the assistance and support provided to Colombia and its neighbors as they combatdrug trafficking and terrorist groups in the Andean region. They maintained that the new U.S. focuson security issues worldwide will only solidify U.S. ties to the region through increased bilateral andregional cooperation such as the Inter-American Convention Against Terrorism. Congress has expressed concern about the problem of illegal narcotics in the Andean Region and divided over an appropriate policy. For over two decades, U.S. policy towards the AndeanRegion has focused almost exclusively on counternarcotics efforts, that is, curbing the cultivationof coca leaf, its transformation into cocaine, and its subsequent trafficking. Success in controllingcoca and coca base production in Bolivia and Peru seemed to be offset in the mid-to-late 1990s bythe expansion of coca cultivation into uncontrolled areas of Colombia, which previously had servedonly for the refinement of coca base into cocaine. In the last few years, drug traffickers have alsobegun to cultivate opium poppies and transform them into high-grade heroin in Colombia. Eightypercent of the world's cocaine originates in Colombia. In 2000, the 106th Congress approved expanded political, economic, and military assistance to combat drug production and trafficking in Colombia under the Clinton Administration's proposalto support Plan Colombia ( P.L. 106-246 ), an initiative of then President Pastrana of Colombia(1998-2002). In 2002, it approved the Bush Administration's Andean Regional Initiative (ARI), thecontinuation of the Clinton policy in Colombia and a sizable expansion of assistance to six ofColombia's neighbors: Brazil, Bolivia, Ecuador, Panama, Peru, and Venezuela ( P.L. 107-206 and P.L. 107-115 ). ARI funding included antinarcotics assistance, known as the Andean CounterdrugInitiative (ACI), as well as Foreign Military Financing, Development Assistance, Child Survival andHealth funds, and Economic Support Funds. The 107th Congress also approved a major shift in U.S.Andean policy by authorizing the use of U.S. assistance to help Colombia counter threats to itsstability from illegal armed groups of the left and right which substantially finance their operationsthrough the drug trade. The 108th Congress continued to scrutinize indicators of the effectiveness of U.S. assistance to the Andean region. (For FY2004, the Bush Administration budget request did not use the term"Andean Regional Initiative," instead making separate requests for the Andean CounterdrugInitiative, Foreign Military Financing, and the other development assistance programs from theirregular accounts.) According to United States and Colombian officials, coca cultivation dropped15% in Colombia during 2002 and 21% in 2003. This marked the first reduction in acreage devotedto coca cultivation in Colombia. Poppy cultivation was reduced by 24% in 2002. It is believed thatthe Plan Colombia goal of having sprayed 50% of the country's coca crop by the end of 2005 mayhave been accomplished two years ahead of schedule. It should be noted that spraying does notprevent, although it may discourage, the replanting of illicit crops. However, according to theAdministration, during 2002 and 2003, coca cultivation picked up in Bolivia, reversing a decliningtrend there. Peru's coca cultivation in 2003 decreased 15%. Critics of U.S. policy contend that winning the war against drugs is a losing proposition as long as demand continues. They argue that policy should focus on the "demand side" because they viewproviding treatment for the users of illegal narcotics as the only permanent solution. The BushAdministration has, however, recast the debate, arguing that the United States faces not only a threatfrom drug production and trafficking in the Andean region, but also from the increasing instabilitybrought on by insurgent guerrilla organizations that are fueled by the drug trade. To the BushAdministration and its supporters, the assistance to Colombia is necessary to help shore up ademocratic government besieged by drug-supported leftist and rightist armed groups. Substantialassistance to Colombia's neighbors is warranted, they argue, because of an increasing threat fromthe spillover of violence from Colombia, and the possible resurgence of drug cultivation in somecountries and its spread from Colombia to others. Although some critics agree with this assessment, they argue that the Bush plan overemphasizes military and counter-drug assistance and provides inadequate support for protecting human rightsand encouraging a peace process in Colombia. In particular, they express concern that currentmilitary assistance is drawing the United States into Colombia's guerrilla conflict in support ofarmed forces which, they charge, have substantial ties to rightist groups guilty of gross violations ofhuman rights. This concern grew with the August 2002 inauguration of President Alvaro Uribe, whois viewed by some as tolerating the actions of rightist armed groups, despite his statements that hewill neither tolerate violence against nor on behalf of the government. In July 2003, President Uribeannounced that an agreement had been reached with the rightist paramilitary umbrella organization,the United Self Defense Forces of Colombia (AUC), that would result in its disarmament by the endof 2005. Part of the demobilization plan entails a controversial legislative proposal by PresidentUribe to grant conditional amnesties to illegal combatants who disarm and provide some form ofrestitution under court supervision. Critics also voice skepticism that U.S.-funded aerial fumigationand alternative development projects can effectively cut coca and poppy cultivation, and provideadequate livelihoods to induce growers to voluntarily give up illicit crops. ACI and Related Funding Programs. The United States has made a significant commitment of funds and material support to help Colombia and theAndean region fight drug trafficking since the development of Plan Colombia in 1999. Congresspassed legislation providing $1.3 billion in assistance for FY2000 ( P.L. 106-246 ) and has provideda total of $3.7 billion from FY2000 through FY2004 in both State Department and DefenseDepartment counternarcotics accounts. Since 2002, Congress has granted expanded authority to usecounternarcotics funds for a unified campaign to fight both drug trafficking and terroristorganizations in Colombia. The three main guerrilla groups in Colombia participate in drugproduction and trafficking, and have been designated foreign terrorist organizations by the StateDepartment. For FY2004, Congress approved $731 million for the Andean Counterdrug Initiative( P.L. 108-199 ). In November 2004, Congress again approved the Administration's request of $731million for FY2005 ( P.L. 108-447 .) The ACI account funds, among other things, support for the eradication of illegal crops and the destruction of laboratories, as well as economic and social development. Congress also approved$110 million in FY2004 in Foreign Military Financing (FMF) for Colombia. In the past, FMFfunding has been used to train and equip a Colombian Army brigade to protect the Caño-Limón oilpipeline in Colombia. The FMF request for FY2005 is $108 million. Congress has regularlymaintained a number of provisions relating to human rights, aerial fumigation, and prohibiting U.S.military personnel from participating in combat operations. Current law also imposed a cap of 400each on U.S. military and civilian personnel deployed in support of Plan Colombia ( P.L. 106-246 ,Section 3204(b)through(d) as amended by P.L. 107-115 ). In response to an Administration request,Congress approved increasing the cap on military personnel to 800 and contract employees to 600in the FY2005 National Defense Authorization Act ( P.L. 108-375 , H.R. 4200 , H.Rept.108-767 ). The Killing and Capture of U.S. Citizens. Congress has expressed repeated concerns regarding the capture and killing of various U.S. citizensby the Revolutionary Armed Forces of Colombia (FARC), the first case occurred on February 13,2003. On that morning, a Cessna 208 aircraft carrying four American contractors and a Colombiancrash landed in the Colombian province of Caquetá. The pilot and one of the contractors were shot,the other three contractors were captured by the FARC. Subsequently, in March 2003, three moreAmerican contractors were killed in a plane crash as they were searching for the capturedcontractors. Both planes involved in these crashes were Cessna 208s, which some contractemployees have complained are not suitable for use in Colombia because they cannot perform thesteep climbs required by mountainous terrain. A fifth American was killed in April 2003 when hisT-65 air tractor crashed while spraying opium poppies. While these flights were consideredaccidents, fumigation flights have been fired on, and since August 2003, two planes have beendowned by hostile fire. On August 25, 2003, a spray aircraft piloted by a U.S. citizen was shotdown, resulting in injuries to the pilot. An OV Bronco aircraft was downed on September 21, 2003,reportedly by hostile fire, killing its Costa Rican pilot. The ELN claimed responsibility for theshootdown. (4) Kidnappings of Colombians, includingseveral government officials, and foreignerspersist. Air Bridge Denial Program. Following the April 2001 accidental shooting down of an airplane carrying U.S. missionaries in Peru by the Peruvianmilitary working with U.S. assistance, the Air Bridge Denial Program, an effort to intercept drugtrafficking flights, was suspended in both Peru and Colombia. Congress inserted language in theforeign aid funding bills requiring that safety enhancements be instituted before such flights couldresume in Peru. Although discussions are still ongoing with Peru, Secretary of State Powellrecommended to President Bush on August 5, 2003, that flights be resumed in Colombia afteragreement was reached with Colombian authorities on protocols to ensure enhanced safety. Theprogram resumed soon thereafter. The FY2005 request was for $21 million, and Congress approved$11.2 million. Since the North American Free Trade Agreement (NAFTA) took effect in January 1994, its mixed and controversial reviews have led many Members of Congress to adopt a more cautiousattitude toward future trade negotiations. This outlook was reflected in the spirited debate overTrade Promotion Authority (TPA), which continued for eight years before legislation permitting"fast-track" approval of trade agreements was passed in August 2002. It was also seen in the debatethat emerged over the implementing legislation for the U.S.-Chile FTA, among others, that waspassed by Congress in July 2003. In the meantime, the Bush Administration is pursuing, and insome cases has completed, other FTAs with Latin American countries that will require congressionalapproval before they can take effect. U.S.-Chile FTA. On January 1, 2004, the U.S.-Chile free trade agreement (FTA) went into effect. The United States and Chile signed the longanticipated FTA in Miami, Florida on June 6, 2003, concluding a 14-round negotiation process thatbegan on December 6, 2000. Congress held hearings before the House Ways and Means, SenateFinance, and both Judiciary Committees. The House passed the U.S.-Chile Free TradeImplementation Act ( H.R. 2738 ) on July 24, 2003 by a vote of 270 to 156, followed bythe Senate one week later, 66 to 31. President George W. Bush signed the implementing legislationinto law ( P.L. 108-77 ) on September 3, 2003. The FTA allows 85% of all consumer and industrialgoods to be traded duty free immediately, with 75% of tariffs on farm goods and Chile's luxury taxon automobiles to be eliminated within the first four years, and tariffs on sensitive goods tradedbetween the two countries to be phased out over a period of up to 12 years. Chile's rules governinginvestment, services trade, intellectual property rights, labor, environment, dispute resolution, andother issues critical to the United States are also clarified and made more transparent. There are noprovisions on antidumping or countervailing duties, key trade issues for Chile and Latin Americain general. Because multiple FTAs are now being contemplated, some Members of Congressexpressed serious reservations about certain provisions in the U.S.-Chile agreement becoming"templates" for future FTAs. In particular, congressional hearings focused on provisions related tolabor, capital controls, and the temporary entry for business persons. U.S.-Dominican Republic-Central America FTA (DR-CAFTA). On December 17, 2003, the United States concluded negotiationson a U.S.-Central America Free Trade Agreement (CAFTA) with four of the five Central AmericanCommon Market (CACM) countries (Guatemala, Honduras, El Salvador, and Nicaragua). CostaRica agreed to CAFTA on January 25, 2004, following additional bilateral discussions with theUnited States on various sensitive issues. The agreement was signed by all five parties on May 28,2004, at the Organization of American States in Washington, D.C. Separately, the United States andthe Dominican Republic on March 15, 2004, concluded negotiations on a similar FTA. On August5, 2004, all seven countries signed the U.S.-Dominican Republic-Central America Free TradeAgreement (DR-CAFTA). Because of the many controversies surrounding the FTA, noimplementing legislation was introduced in the 108th Congress. The DR-CAFTA negotiations were ground breaking in trying to reconcile the needs of five (and eventually six) different U.S. trading partners within a "bilateral" framework. The DR-CAFTA wasnegotiated in part as a regional agreement in which all parties would be subject to the same basicframework and rules, but each country was also able to define its own market access schedules. Thisflexibility allowed Costa Rica to delay joining the agreement and for the Dominican Republic to beadded as a new partner when it acceded to "the same set of obligations and commitments." It alsoappended a separately negotiated schedule for market access. If the DR-CAFTA is implemented, more than 80% of U.S. consumer and industrial exports would become duty-free immediately, with all tariffs removed within 10 years. Tariffs would go tozero on information technology products, agricultural and construction equipment, paper products,chemicals, and medical/scientific equipment, among others. Over half of current U.S. farm exportsto the region would become duty free immediately, including "high quality" cuts of beef, cotton,wheat, soybeans, certain fruits, and vegetables, processed food products, and wine. For the mostsensitive agricultural products, tariffs and tariff rate quotas would be phased out over 15-20 years,with sugar, white corn, potatoes, and onions escaping full duty-free treatment for some countries. Advances were also made in other areas important to the United States including services trade,intellectual property rights, investment, and government procurement. The DR-CAFTA, however, faces political uncertainty. In the United States, some industry groups oppose liberalizing trade rules for the region's major exports, apparel and agricultural goods,and labor advocates also resist the agreement. For the U.S. Congress, reconciling these diverseinterests is a difficult task given the competing nature of the negotiating goals. Also, support for theagreement has been jeopardized by the Dominican Republic's passage of a revenue bill that includesa 25% tax on beverages containing high fructose corn syrup. The USTR considers the tax "to beinconsistent with the Dominican Republic's obligations under the agreement" and has recommendedto Congress that implementing legislation not include the Dominican Republic, unless the tax isrepealed. As of mid-December 2004, the Dominican Senate had voted to repeal the tax, but furtherlegislative action is needed, leaving the fate of the DR-CAFTA unclear. Panama Trade Agreement. On April 26, 2004, the United States and Panama initiated negotiations for a bilateral FTA. By building on theDR-CAFTA framework, negotiators have been able to move quickly. To date, six rounds have beencompleted, with a seventh round scheduled to begin January 10, 2005. Panama is a services-basedeconomy, which distinguishes it, and the trade negotiations, from those of its Central Americanneighbors. Agriculture and maritime concerns have been the most challenging issues to negotiate. The United States also has sought to loosen Panamanian rules limiting activities of foreignprofessionals and is focused intently on government procurement provisions, given Panama's planto invest some $8 billion to increase the capacity of the Panama Canal. Unlike the DR-CAFTA,there is little textile and apparel trade, and labor issues have not taken on the same importance. Panama is also a beneficiary of the Caribbean Basin Initiative's (CBI) unilateral trade preferencesof the United States and is among the largest recipients of U.S. foreign direct investment in LatinAmerica. Panama seeks to solidify U.S. market access and investment benefits in the FTA. For theUnited States, Panama has long been of strategic commercial and security importance, even as asmall trading partner. Much of the draft agreement has been completed. Sensitive market accessissues, especially agriculture, and government procurement issues related to projects in the PanamaCanal Authority, have yet to be finalized. The agreement is expected to be concluded early in 2005,and implementing legislation may be introduced in the 109th Congress. Free Trade Area of the Americas. The Free Trade Area of the Americas is a regional trade proposal among 34 nations of the Western Hemisphere thatwould promote economic integration by creating, as originally conceived, a comprehensive(presumably WTO-plus) framework for reducing tariff and nontariff barriers to trade and investment. Formal negotiations commenced in 1998 and the process so far has led to three draft texts, the lastreleased at the eighth trade ministerial meeting that took place November 17-21, 2003, in Miami. The negotiating schedule called for a final agreement to be adopted by January 2005, with its entryinto force to occur no later than year end. The first deadline has been missed, and meeting thesecond seems unlikely. The FTAA negotiations are at a crossroads, with Brazil and the United States, the co-chairs of the Trade Negotiations Committee (TNC) that oversees the process, at odds over how to proceed.Brazil has taken strong exception to the U.S. approach to the FTAA, particularly its firm stand ofrefusing to discuss agricultural subsidies, antidumping legislation, and alternatives to its"differentiated market access" proposal. Brazil responded with its own "Three Track Proposal" thatwould eliminate discussion of many issues of importance to the United States. To avoid an impasse,the United States and Brazil jointly authored the Ministerial Declaration of the eighth ministerialmeeting held in Miami on November 20-21, 2003, which defined how the FTAA negotiations wouldproceed. Although it reaffirmed the commitment to complete a "comprehensive and balanced"agreement, it did so in the context of a rather unorthodox compromise. The declaration would allowfor the possibility that countries could assume different levels of commitments, with a common setof rights and obligations applicable to all. The TNC was instructed to define the differences, but sofar has been unable to do so. Negotiations were on hold for much of 2004, but Brazil and the UnitedStates have agreed to restart the FTAA negotiations in January 2005. In the meantime, both countries are courting other Latin American countries to join them in sub-regional trade agreements. Until Brazil and the United States come to some understanding ofhow to proceed, it appears that the region will continue to follow a path of integration based onbilateral and sub-regional trade arrangements, which most economists argue is far inferior to acomprehensive region-wide FTA. In the aftermath of the September 2001 terrorist attacks on New York and Washington D.C., U.S. attention to terrorism in Latin America intensified, with an increase in bilateral and regionalcooperation. Latin American nations strongly condemned the attacks, and took action through theOrganization of American States to strengthen hemispheric cooperation. In June 2002, OASmembers signed an Inter-American Convention Against Terrorism in order to improve regionalcooperation, including a commitment by parties to deny safe haven to suspected terrorists. PresidentBush submitted the convention to the Senate in mid-November 2002 for its advice and consent,which was referred to the Senate Foreign Relations Committee (Treaty Doc. 107-18). Thecommittee held a hearing on the treaty on June 17, 2004, but no action was taken before the end ofthe 108th Congress. In the aftermath of 9/11, the OAS also reinvigorated the Inter-AmericanCommittee on Terrorism (CICTE), which cooperated on border security mechanisms, controls toprevent funding of terrorist organizations, and law enforcement and counterterrorism intelligence. On October 27-28, 2003, the OAS held a Special Conference on Security in Mexico City that focused on identifying new threats, concerns and challenges facing the hemisphere and agreed ona cooperative approach toward addressing them. Among the threats identified in the adoptedDeclaration on Security in the Americas were "terrorism, transnational organized crime, the globaldrug problem, corruption, asset laundering, illicit trafficking in weapons and the connections amongthese activities." (5) The State Department, in its annual report on worldwide terrorism ( Patterns of Global Terrorism, April 2004), highlighted terrorist threats in Colombia, Peru, and the tri-border region ofArgentina, Brazil, and Paraguay, which has been a regional hub for Hizballah and Hamas fundraisingactivities. In the aftermath of 9/11, U.S. attention focused on potential links in the region to the AlQaeda terrorist network, but the Patterns report maintained that reports of an Al Qaeda presence inthe tri-border region remained "uncorroborated by intelligence and law-enforcement officials." TheState Department also designated four terrorist groups (three in Colombia and one in Peru) asForeign Terrorist Organizations, and Cuba has been listed as a state sponsor of terrorism since 1982. There were increased concerns in 2004 about potential Al Qaeda threats in Central America, although U.S. officials maintained that there was no evidence supporting such concerns. Hondurasdeclared a terror alert on August 23, 2004, after receiving information that Al Qaeda reportedly wasattempting to recruit Hondurans to attack U.S. and other embassies. (6) In June, Honduran officialssaid that a suspected terrorist cell leader, Adman G. El Shukrijumah had been spotted at an Internetcafé. In August, El Salvador received threats from an Islamic extremist group to carry out attacksin the country if it did not pull its troops out of Iraq. Some press reports alleged that Al-Qaeda couldattempt to use a Salvadoran criminal gang, the Mara Salvatrucha, to infiltrate the U.S.-Mexicoborder, although Secretary of Homeland Security Tom Ridge maintained on September 27, 2004,that there was no indication of such infiltration along the border. (7) Moreover, the head of Interpol'sregional office in Central America stated in early October 2004 that reports of Al Qaeda links withCentral American gangs were mere speculation, with no firm basis in evidence. (8) Through the State Department, the United States provides Anti-Terrorism Assistance (ATA) training and equipment to Latin American countries to help improve their capabilities in such areasas airport security management, hostage negotiations, bomb detection and deactivation, andcountering terrorism financing. ATA financing is generally provided through the annual foreignoperations appropriations measure. In FY2002, a total of $27.5 million was provided for the region,with $25 million for an anti-kidnapping program in Colombia (appropriated through an FY2002supplemental appropriations measure, P.L. 107-206 ) and $2.5 million for the regular WesternHemisphere program. For FY2003, the Administration's $3.6 million in ATA assistance wasprovided for the region, with $3.3 million of that for Colombia. For FY2004, an estimated $2.6million in ATA assistance was provided for the Western Hemisphere, while the Administrationrequested $5.2 million for FY2005, including $1 million for the tri-border region of Brazil, Paraguay,and Argentina, and $3.9 million for Colombia. In the 108th Congress, the Senate Foreign Relations Committee report ( S.Rept. 108-56 ) to S. 1161 , the Foreign Relations Authorization Act for FY2004, urged the Departmentof State to pay particular attention to training and related equipment for countering terroristfinancing, transitional crime intelligence sharing, and border security in the Tri-border area. Asnoted above, the Senate Foreign Relations Committee held a June 17, 2004, hearing on theInter-American Convention Against Terrorism. The U.S. Congress also expressed concern regarding the continuing investigation into the July 1994 bombing of the Argentine-Israeli Mutual Association (AMIA) in Buenos Aires that killed 86people. (Allegations have linked Hizballah, the radical Lebanon-based Islamic group, to the 1994bombing as well as to the1992 bombing of the Israeli Embassy in Buenos Aires that killed 30people.) Both the House and the Senate approved similar resolutions -- H.Con.Res. 469 (Ros-Lehtinen) and S.Con.Res. 126 (Coleman) -- on July 22, 2004, that, amongother provisions, urged Argentina to provide resources to investigate all areas of the AMIA case,encourage U.S. law enforcement support, and encourage the establishment of an OAS task force toassist in the investigation. The AIDS epidemic in the Caribbean and Central America has begun to have negative consequences for economic and social development, and continued increases in infection ratesthreaten future development prospects. In contrast to other parts of Latin America, the mode oftransmission in several Caribbean and Central American countries has been primarily throughheterosexual contact, making the disease difficult to contain because it affects the general population.The Caribbean countries with the highest prevalence or infection rates are Haiti, with a rate of 5.6%;Trinidad and Tobago, with a rate of 3.2%; the Bahamas, with a rate of 3%; Guyana, with a rate of2.5%; and Belize, with a rate of 2.4%. (Belize and Guyana are considered Caribbean nations becauseof their extensive linkages.) Four other Caribbean countries -- the Dominican Republic, Suriname,Barbados, and Jamaica -- have rates over 1%. In Central America, Honduras has the highestprevalence rate of 1.8%, while Guatemala has a rate over 1%. The response to the AIDS epidemic in the Caribbean and Central America has involved a mix of support by governments in the region, bilateral donors (such as the United States, Canada, andEuropean nations), regional and multilateral organizations, and nongovernmental organizations(NGOs). Many countries in the region have national AIDS programs that are supported throughthese efforts. The U.S. Agency for International Development (USAID) has been the lead U.S. agency fighting the epidemic abroad since 1986. USAID's funding for HIV/AIDS in Central America andthe Caribbean region rose from $11.2 million in FY2000 to $33.8 million in FY2003. Because ofthe inclusion of Guyana and Haiti in the President's Emergency Plan for AIDS Relief (PEPFAR),FY2004 U.S. assistance to the region for HIV/AIDS increased to an estimated $56.6 million inFY2004, and the FY2005 request increased to $86 million. In May 2003, Congress approved the United States Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 2003, H.R. 1298 ( P.L. 108-25 ), which authorized $3billion per year for FY2003 through FY2008 to fight the three diseases worldwide. PEPFAR andthe legislation focus on assisting 12 African countries plus Guyana and Haiti, although the legislationnotes that other countries may be designated by the President. Some Members of Congress wantedto expand the list of Caribbean countries in the legislation. Both the House-passed FY2004-FY2005Foreign Relations Authorization Act, H.R. 1950 (Section 1818), and the Senate ForeignRelations Committee's reported FY2005 Foreign Relations Authorization Act, S. 2144 (Section 2518), had provisions that would have added 14 Caribbean countries to those listed in theMay 2003 legislation, but no final action was taken on these measures. Although Argentina emerged from its 2001-2002 economic and political crisis, the current administration of President Néstor Kirchner faced considerable challenges. These include the abilityto build the political consensus needed in order to ensure sustainable economic growth and financialstability and the ability to negotiate a debt restructuring deal for over $100 billion in defaulted bonddebt. A center-left Peronist (Justicialist Party or PJ), Kirchner emerged from a crowded April 2003 presidential race with 22% of the vote and was inaugurated to a four-year term on May 25, 2003. Hesucceeded another Peronist, Eduardo Duhalde, who had become President in January 2002 in theaftermath of the resignation of President Fernando de la Rua of the Radical Civic Union (UCR) inDecember 2001. Social protests over deteriorating economic conditions had led to De la Rua'sresignation. Although the country was under considerable stress in 2001 and 2002, the democraticpolitical system weathered the crisis and economic growth has resumed from a decline of almost11% in 2002 to an estimated increase of over 7% in 2003. The forecast for 2004 is for economicgrowth of 7%. President Kirchner's bold policy moves in the areas of human rights and institutional reform helped restore Argentines' faith in government. He vowed to prosecute military officials responsiblefor past human rights violations during the last era of military rule (1976-1983). In the economicarena, the Kirchner government reached a three-year stand-by agreement with the InternationalMonetary Fund (IMF) in September 2003, after several months of tough negotiations, that providedcredit line of about $12.5 billion. Although IMF accords are not normally politically popular, theaccord was widely praised in Argentina as an agreement with realistic fiscal targets that wouldenable Argentina to deal with such issues as employment and social equity. On the economic front, Argentina suspended its IMF loan program in mid-August 2004 because of IMF pressure on its debt negotiations with bondholders and on Argentine progress inimplementing key economic reforms. The IMF had delayed its third review of the stand-byagreement because of concerns about these issues; the delay held up disbursement of $778 millionto Argentina under the agreement. Argentina expected to renew talks with the IMF in December orJanuary 2005, after it had made progress in restructuring its $100 billion in defaulted bond debt. Thebondholders had strongly criticized the terms of Argentina's initial restructuring proposal, whichincluded a 75% "haircut" or debt reduction. A new Argentine proposal in early June 2004 includedan agreement to pay billions in unpaid interest, but the proposal again was criticized by manybondholders; a formal launching of the proposal was expected in late November 2004, but has beendelayed until mid-January 2005. Although Argentina's economic recovery has enabled it to achievethe macroeconomic targets set by the IMF, many poor and middle-class Argentines have yet to seemajor improvements in living standards. U.S.-Argentine relations have been strong since the country's return to democracy in 1983 and were especially close during the Menem presidency. The tough U.S. approach toward Argentinaduring its political and financial crisis in 2001-2002 caused some friction in the bilateral relationshipand contributed to an increase of anti-Americanism in Argentina. At present, despite strong bilateralrelations, there have been several irritants in the relationship, such as Argentina's closer relationswith Cuba. U.S. officials also urged both the Argentine government and its private creditors to moveexpeditiously to work out a fair and mutually agreeable debt restructuring agreement, which theybelieve is critical to ensuring Argentina's continued economic recovery. As noted above (section on Terrorism ), Congress has expressed concern regarding the continuing investigation into the July 1994 bombing in Buenos Aires of the Argentine-Israeli MutualAssociation (AMIA) that killed 86 people. Both the House and the Senate approved similarresolutions -- H.Con.Res. 469 (Ros-Lehtinen) and S.Con.Res. 126 (Coleman) -- on July 22, 2004, that urged Argentina to provide resources to investigate all areas ofthe AMIA case, encourage U.S. law enforcement support, and encourage the establishment of anOAS task force to assist in the investigation. Political unrest in Bolivia led to the resignation of President Gonzalo Sanchez de Lozada on October 17, 2003, just fifteen months after he was elected. Succeeding him as President is hisformer Vice President, Carlos Mesa, a popular former television journalist, historian, and politicalindependent. This change in leadership came about after months of protests led by indigenousgroups and workers who carried out strikes and road blockages that resulted in up to 80 deaths inconfrontations with government troops. The focus of the protests was the continued economicmarginalization of the poorer segments of society especially in response to government plans toexport natural gas via a port in Chile, an historic adversary of Bolivia. The new President facesmany difficulties in governing a politically fractured society within a context of a highly mobilizedindigenous community, and the uncertainty of being able to obtain consensus on natural gas exportsas a basis for the country's future economic development. The change in government and the rolethat indigenous groups played in it represents challenges for U.S. policy, which has been seen asfocusing almost exclusively on coca eradication and less on equitable economic developmentpolicies. Luis Inácio Lula da Silva of the leftist Workers' Party (PT) was inaugurated President of Brazil on January 1, 2003, pledging to bring fundamental change to the country while maintaining soundeconomic policies. He won the October 2002 elections decisively, with the support of leftist partiesand a variety of centrist elements. As he sought to fashion support for his programs in Congress, hereached out beyond the parties that supported him in the election to other centrist parties, especiallythe centrist PMDB, but the alliance was strained by the October 2004 municipal elections and splitswithin the PMDB. During his first two years in office, President Lula da Silva has pursued cautious economic policies and met and even surpassed previously established targets for International Monetary Fund(IMF) loans, while stressing that one of his main priorities is the eradication of hunger in the countrythrough programs called Zero Hunger and Family Payments. As a result of his policies, the countryhas experienced lower inflation, a strengthening of the currency, and a dramatic lowering of Brazil'scredit risk rating. Tackling long-standing problems that were not resolved during the presidency ofFernando Henrique Cardoso (1995-2002), President Lula da Silva obtained a reform of the socialsecurity system to make it more self-sustaining and a modification of the tax system to make it moreeffective and fair. While economic growth was only 0.3 % in 2003, most observers expect 3.5-4%growth in 2004, although interest rates and unemployment rates have remained fairly high. Toguarantee against external shocks to the heavily indebted economy, in early November 2003, Brazilagreed to extend the loan with the IMF and to maintain the previous austere fiscal targets. Underthe agreement, Brazil would have available about $20 billion in resources, including a rollover of$8 billion from the past loan, about $6 billion in fresh funds, and postponement of payment of $5.5billion due in 2005. Brazilian Finance Minister Palocci argues that the loan is an insurance packageand notes that Brazil may not draw upon the funds. Relations with the United States have been generally positive, although President Lula da Silva has made relations with the neighboring countries in the Southern Common Market (Mercosur) hisfirst priority, has orchestrated the linking of the Mercosur with the Andean Community of Nations(CAN), and has been seeking to strengthen ties with the European Union and with othernon-traditional partners, including India and China. On June 20, 2003, President Lula da Silva madean official visit to Washington, D.C., and the countries' leaders resolved "to create a closer andqualitatively stronger [bilateral] relationship." Leaders agreed on a framework for regular high-leveldiscussions on a wide range of issues, including agreements to enhance cooperation in science andnuclear energy; to jointly promote HIV/AIDS treatment in the Portuguese-speaking African countriesof Mozambique and Angola; and to establish an energy partnership for cooperation on alternativeenergy sources. On October 4-6, 2004, Secretary of State Colin Powell visited Brazil for high leveldiscussions on international trade, hunger, and security matters, as well as Brazil's leading role inthe U.N.-sanctioned peacekeeping force in Haiti. Lower level U.S. officials have visited Brazil on many occasions, with much of the discussion relating to the Free Trade Area of the Americas (FTAA) since Brazil and the United States areco-chairs of the FTAA Trade Negotiation Committee with responsibility for guiding the talks in thefinal phase of negotiations. Brazil has been taking the position that the FTAA must includemeasures to curtail agricultural subsidies and to reduce the use of anti-dumping and countervailingduties to be acceptable, while the United States has argued that the broader agricultural issues shouldbe resolved in the Doha round of WTO talks. The WTO talks stalled in September 2003 in Cancun, Mexico, when Brazil led a group of developing countries called the G-20 that insisted that developed countries agree to reduceagricultural subsidies as part of any settlement. However, the talks were revived in early 2004, anda series of meetings led to agreement on August 1, 2004, on the framework of a possible agreement. This framework included commitments to make substantial reductions in trade-distorting domesticagricultural support programs, to phase-out all export subsidies under a yet-to-be-determinedschedule, and to significantly improve market access for agricultural products. (9) In the FTAA talks, Brazil and the United States took divergent positions in the November 2003 Eighth Ministerial Meeting in Miami, Florida.. Brazil argued that if the United States insisted ondeferring action on agricultural subsidies and anti-dumping measures to the Doha round of WTOnegotiations, the agreement would be much less attractive for Brazil where agriculture has becomethe primary area for exports and development. In that case, Brazil argued that it would like to deferto the WTO negotiations a number of sensitive issues, including investment, services, governmentprocurement, and intellectual property rights. In a mini-ministerial meeting in Washington, D.C. inearly November 2003, Brazil and the United States agreed to a flexible formula for the FTAA, calledby some an "FTAA light" or an "FTAA ala carte." Under the formula, subsequently adopted by theMinisters, all of the countries would agree to a set of core obligations, while countries which favoreda more ambitious agreement would negotiate plurilateral agreements. When the Trade NegotiationsCommittee (TNC) met in Puebla, Mexico, in early February 2004, the delegates were unable to agreeon the FTAA common obligations, and the TNC was suspended. Despite four separate efforts inMarch, April, and May 2004, the cochairs were unable to agree upon a framework for the FTAAnegotiations, and it became increasingly clear that negotiations would not be completed by thescheduled deadline of January 2005. At the same time, negotiations for a free trade agreement between the European Union and Mercosur that were scheduled to conclude by the end of October 2004, broke down in mid-July2004, with the EU demanding better access to Mercosur's services sector, while Mercosur insistedon greater access to the European market for Mercosur agricultural products. Under thesecircumstances, the two sides called for a meeting of the lead negotiators by the end of the year anda ministerial meeting in the first quarter of 2005. Cuba under Fidel Castro remains a hard-line communist state, with a poor record on human rights that has deteriorated significantly since 2003. With the cutoff of assistance from the formerSoviet Union, Cuba experienced severe economic deterioration from 1989 to 1993. While there hasbeen some improvement since 1994 as Cuba has implemented limited reforms, the economy remainsin poor shape. Since the early 1960s, U.S. policy toward Cuba has consisted largely of isolating the island nation through comprehensive economic sanctions. The Bush Administration has further tightenedrestrictions on travel and remittances to Cuba significantly. Another component of U.S. policyconsists of support measures for the Cuban people, including private humanitarian donations andU.S.-sponsored radio and television broadcasting to Cuba, Radio and TV Marti. While there appearsto be broad agreement on the overall objective of U.S. policy toward Cuba -- to help bringdemocracy and respect for human rights to the island, there are several schools of thought on howto achieve that objective. Some advocate maximum pressure on the Cuban government until reformsare enacted, others argue for lifting some U.S. sanctions that they believe are hurting the Cubanpeople, and still others call for a swift normalization of U.S.-Cuban relations by lifting the U.S.embargo. There was considerable reaction to the Bush Administration's June 2004 tightening ofrestrictions for family visits and other categories of travel. Congress continued its high level of interest in Cuba in the 108th Congress with a variety of legislative initiatives regarding sanctions and human rights. Several FY2005 appropriationsmeasures had provisions that would have eased Cuba sanctions, but ultimately these were notincluded in the FY2005 omnibus appropriations measure ( P.L. 108-447 , H.Rept. 108-792 ). TheHouse-passed version of the FY2005 Commerce, Justice, and State appropriations bill, H.R. 4754 , would have prohibited funds to implement, administer, or enforce recentrestrictions on gift parcels and on baggage for travelers. The House-passed version of the FY2005Transportation/Treasury appropriations bill, H.R. 5025 , had three Cuba provisions thatwould have eased sanctions on family travel, travel for educational activities, and private commercialsales of agricultural and medical products. The Senate committee version of the FY2005Transportation/ Treasury appropriations bill, S. 2806 , had a provision that would haveprohibited funds from administering or enforcing restrictions on Cuba travel. The Senate committeeversion of the FY2005 Agriculture appropriation bill, S. 2803 , would have allowedtravel to Cuba under a "general license" when it was related to the commercial sale of agriculturaland medical products. The Administration had threatened to veto both the Transportation/Treasuryand Agriculture appropriations measures if they had provisions weakening Cuba sanctions. In other action, the 108th Congress demonstrated concern about the poor human rights situation by approving four resolutions: S.Res. 97 , H.Res. 179 , S.Res. 62 , and S.Res. 328 . Numerous other legislative initiatives were introduced that wouldhave ease sanctions on Cuba, but no action was taken on these bills: H.R. 187 , H.R. 188 , H.R. 1698 , H.R. 2071 , H.R. 3422 , H.R. 4678 , S. 403 , S. 950 , and S. 2449 / H.R. 4457 . Two initiatives, H.R. 3470 and H.R. 3670 ,would have tightened sanctions. H.R. 2494 / S. 2002 would have repealeda provision in law that prohibits trademark registration or courts from considering trademark claimsif the trademark was used in connection with confiscated assets in Cuba; in contrast, H.R. 4225 / S. 2373 would have applied a narrow fix to the law so that itconformed with a World Trade Organization ruling. Since a 1995 U.S.-Cuban migration accord, the U.S. Coast Guard has interdicted thousands of Cubans at sea trying to enter the United States and returned them to Cuba, while those deemed at riskfor persecution have been transferred to Guantanamo and then found asylum in a third country. Those Cubans who reach shore usually are allowed to apply for permanent resident status in one yearpursuant to the Cuban Adjustment Act of 1966 (P.L. 89-732). This so-called "wet foot/dry foot"policy has been criticized by some as encouraging Cubans to risk their lives in order to make it tothe United States and as encouraging alien smuggling. Others maintain that U.S. policy shouldwelcome those migrants fleeing Communist Cuba whether or not they are able to make it to land. President Leonel Fernández of the Dominican Liberation Party (PLD), who served as president previously (1996-2000), took office on August 16, 2004. Fernández is charged with helping theDominican Republic recover from a deep economic crisis that occurred primarily as the result ofthree major banking failures and bailouts in 2003. Since then, the country has faced high inflation,double-digit unemployment, currency depreciation, and chronic power shortages. PresidentFernández used his electoral mandate to push the PRD-dominated Congress to pass tax increases aspart of a fiscal reform package necessary to restart a suspended $600 million IMF loan. The package has been controversial, however, as it contains a tax on fructose-sweetened drinks, aimedat U.S.- produced high fructose corn syrup. President Fernández and the Dominican Congress aretrying to negotiate a way to pass a 2005 budget that repeals the tax, complies with IMF fiscal targets,and placates the country's sugar industry. If the tax is not repealed, the Dominican Republic couldbe excluded from the U.S.- Dominican Republic - Central America Free Trade Agreement(DR-CAFTA). In January 2003, Lucio Gutierrez, a former army Colonel who was part of the junta that toppled the government of Jamil Mahuad in January 2000, became the country's sixth president in sevenyears. Upon assuming the presidency, Gutierrez abandoned his populist rhetoric and adoptedeconomic reform and good governance policies in order to secure support from the United States andthe International Monetary Fund (IMF). Despite rapid economic growth driven by high oil prices,President Gutierrez's power has been limited by legislative gridlock, protests organized byindigenous groups that at once formed part of his governing coalition, and allegations of corruptionwithin his administration. Gutierrez's party, the Patriotic Society Party (PSP), won barely 5% of thevote in the regional and municipal elections held on October 17, 2004. Since that time, PresidentGutierrez has formed new alliances with mid-size parties, including that of exiled President AbdaláBucaram, in order to stave off impeachment proceedings and shore up support for his government. Despite some recent disagreements, Ecuador continues to cooperate with the U.S. counter-narcotics program and has mobilized its military and police forces to help control spillovereffects from the conflict in Colombia along its northern border. Ecuador and the United Statespossess a significant trade and investment relationship that has been enhanced since 1992 by theAndean Trade Preference Act. The United States has concluded six rounds of negotiations withEcuador, along with Colombia and Peru, for an Andean Free Trade Agreement. Ecuador was placedon the State Department's 2004 Tier 3 List of countries that had not adequately combated traffickingin persons, but avoided U.S. sanctions by making progress on that issue between June and September2004. On March 21, 2004, businessmen Tony Saca of the conservative National Republican Alliance (ARENA) party soundly defeated his nearest rival, Shafick Handal, a former guerrilla andCommunist Party member, of the Farabundo Marti National Liberation Front (FMLN) to win theSalvadoran presidential elections. Mr. Saca took office on June 1, 2004, alongside Ana Vilma deEscobar, who became the first Salvadoran woman to serve as vice president. The new administrationis facing a divided legislature, in which the FMLN continues to hold 31 of 84 seats. President Sacascored a number of early legislative triumphs, such as the approval of the 2004 budget and toughlegislation to combat gang violence. Although 60% of Salvadoran approve of his overall jobperformance, 73% disprove of his August decision to send a new contingent of 380 Salvadoransoldiers to Iraq. The United States is working with President Saca to combat narco-trafficking, toresolve immigration issues, and to promote free trade, possibly through the proposed UnitedStates-Dominican Republic-Central America Free Trade Agreement (DR-CAFTA). On December17, 2004, despite the opposition of the FMLN, El Salvador became the first country in CentralAmerica to ratify DR-CAFTA. Since taking office on January 14, 2004, for a four-year term, President Oscar Berger has attacked corruption and enacted long-delayed military reforms. Since the 1980s, Guatemala has beenconsolidating its transition from a centuries-long tradition of mostly autocratic rule towardrepresentative government. A democratic constitution was adopted in 1985, and ademocratically-elected government was inaugurated in 1986. Democratic institutions remain fragile. A 36-year civil war ended in 1996 with the signing of the Peace Accords between the governmentand the left-wing guerrilla movement. The accords not only ended the civil conflict but alsoconstituted a blueprint for profound political, economic, and social change to address the conflict'sroot causes. They outline a profound restructuring of state institutions, with the goal of endinggovernment security forces' impunity from prosecution, and consolidating the rule of law; a majorshift of government funding away from the military and into health, education, and other basicservices to reach the rural and indigenous poor; and the full participation of the indigenouspopulation in local and national decision making processes. Berger has promised to make fulfillingthe Peace Accords a central theme of his administration. Berger has pursued corruption charges against his predecessor, Alfonso Portillo, of the Guatemalan Republican Front (FRG), and other former FRG officials. His proposed economicreforms include new income tax rates and a temporary tax to fund programs related to the peaceprocess. He says passing the free-trade agreement signed with the United States is a top priority andthat he plans to stimulate the economy by encouraging private investment. The Financial ActionTask Force, an international organization dedicated to enhancing international cooperation incombating money-laundering, removed Guatemala from its list of non-cooperative countries in July2004. (10) Guatemala had been on the list of ninecountries -- the only one in the Americas -- duringthe Portillo Administration. (11) The Task Forcewelcomed progress made by Guatemala in enactingand implementing anti-money laundering legislation. The United States has prohibited International Military Education and Training (IMET) and Foreign Military Financing (FMF) to Guatemala since 1990 because of human rights concerns. TheBerger Administration has lobbied Washington to ease the military aid prohibition, noting thatwithin its first six months in office it had reduced the size of the military by half and developedproposals for other military reforms. The government says it needs funds to modernize the militaryand provide equipment for border protection and counternarcotics efforts. While applauding thereduction in forces, some human rights groups say that other reforms required by the Peace Accords,such as adopting a military doctrine limiting the military to external defense, have not yet beenenacted. They also express concern about continued human rights abuses, impunity for suchoffenses, and corruption among current and former military officials. Furthermore, the proposed U.N. Commission for the Investigation of Illegal Armed Groups and Clandestine Security Organizations (CICIACS) has still not been formed. CICIACS, which wouldinvestigate and prosecute clandestine groups, through which many military officers allegedly engagein human rights violations, drug trafficking, and organized crime, was approved by the PortilloAdministration and has yet to be approved by the Guatemalan Congress. Some human rights groups argue that the U.S. ban on military aid should not be lifted until these and other reforms are carried out, and others not until reparations are made to civilian victimsof the armed conflict. (12) The Guatemalan Congressauthorized reparations to former paramilitaries(PACs) on August 19, 2004, despite opposition from human rights groups and others saying theCongress should not bow to threats of violence from the PACs if the legislation were not passed. Regarding respect for human rights, Guatemala has made enormous strides, but significant problems remain. The armed conflict is definitively ended, the state policy of human rights abuseshas been ended, and civilian control over military forces has increased . On the other hand, securityforces reportedly continue to commit gross violations of human rights with impunity, and Guatemalamust still overcome a deep ly embedded legacy of racism and social inequality. The U.N., the OAS,and the United States have all expressed concern that human rights violations have increased overthe past several years, and that the Guatemalan government has taken insufficient steps to curb themor to implement the Peace Accords. In August 2004, the U.N. Office of the High Commissioner forHuman Rights opened an office in Guatemala. It succeeds the U.N. Verification Mission inGuatemala, which withdrew in December 2004, after verifying compliance with the Peace Accordsfor ten years. In September 2004, U.N. Secretary General Kofi Annan said that Guatemala's politicalprocess had matured to the point where the country should now be able to deal peacefully with allof its unresolved issues. From1997 through 2003, U.S. assistance to Guatemala focused on support of the peace process. U.S. aid to Guatemala no longer includes a project specifically in support of the peace process andhas been cut by more than a third in the past three years, declining from about $60 million in FY2002to $38 million requested for FY2005. Congress criticized the Administration's strategy of reducingstaffing and funding for Guatemala for FY2004 in its conference report for the FY2004 omnibusappropriations bill ( H.Rept. 108-401 ), saying it would "limit the ability of the United States to beresponsive at this critical juncture in Guatemala's history." The FY2005 consolidated appropriations act ( P.L.108-447 ) continues to limit IMET for Guatemala to expanded- IMET, or training for civilians, military justice reform, and respect forhuman rights. FMF would continue to be prohibited. Up to $3.227 million in prior year "MilitaryAssistance Program" funds available for Guatemala may be used for non-lethal defense items if theSecretary of State certifies that certain military reforms have been enacted. These would include thelimitation both "in doctrine and practice" of military activities to those permitted by the 1996 PeaceAccords and cooperation with civilian authorities in the investigation and prosecution of militarypersonnel implicated in human rights violations and other criminal activities. The Guatemalangovernment would have to carry out other prerequisites for the release of military assistance funds,including working with the U.N. to establish CICIACS; continuing to make the military budgetprocess transparent and accessible to civilian authorities and the public; facilitating the promptestablishment of a U.N. High Commissioner for Human Rights office in Guatemala; and increasingefforts to combat narcotics trafficking and organized crime. The act also earmarks for Guatemala$6 million in Economic Support Funds and $1 million in Andean Counternarcotics Initiative funds. The bill also stipulates that Child Survival and Health, and Development Assistance funding levelsshould not be less than that provided in FY2004, earmarking $22.5 million for Guatemala. Themanagers' statement commended the Guatemalan (and Nicaraguan) anti-corruption office andrecommended $250,000 for the office. Long-term political conflict in Haiti escalated until armed rebellions around the country led to the departure of President Jean-Bertrand Aristide on February 29, 2004. An interim government,headed by Prime Minister Gerard LaTortue, has taken over, but ongoing violent protests by bothsides continue. Security conditions are so tenuous that some observers are expressing concerns thata civil war will break out or that Haiti will become a "criminal state." Aristide went into exile inSouth Africa on May 31, 2004. Some supporters maintain that he is still the democratically electedpresident and that the United States forced him from office, a charge the Bush Administration denies. Former soldiers have demanded restoration of the Haitian army, which had a long history of human rights abuses and was disbanded by Aristide in 1995. They have seized control of towns,assumed security responsibilities alongside local police, or expelled police officers in various partsof the country. Supporters of Aristide, demanding his return to office, began violent protests onSeptember 30, 2004, the anniversary of the coup that removed Aristide from office in 1991. Thesehave left at least 55 dead, including police officers who were decapitated. The Bush Administrationcondemned the violent "systematic campaign to destabilize the interim government and disrupt theefforts of the international community to assist the Haitian people" it says is being carried out bypro-Aristide armed gangs. (13) Both sides areheavily armed. The Haitian National Police areunderstaffed and under-equipped to maintain order. At the end of its initial six-month authorization, the U.N. Stabilization Mission in Haiti had 6,060 personnel, still less than the full 8,000 troops and civilian police it was authorized to have, andis finding it difficult to carry out its mandate to establish law and order. Two U.N. peacekeepers havebeen wounded. In addition, the mission's efforts were diverted by the need to help protect anddeliver emergency assistance following Haiti's natural disasters in spring and fall 2004. Congressional concerns relating to Haiti include support for strengthening the transition to democracy; the cost and effectiveness of U.S. assistance; protection of human rights andimprovement of security conditions; combating narcotics trafficking; limiting illegal Haitianmigration; and addressing humanitarian needs. Beginning in 2000, in response to an unresolved elections dispute, the Clinton Administration redirected U.S. humanitarian assistance through non-governmental organizations, rather than throughthe Haitian government. The Bush Administration continued this policy throughout the Aristideadministration. Aid began to decrease at the end of the Clinton Administration and continued to doso for the first two years of the Bush Administration. The Bush Administration launched aninitiative in 2003 to prevent the transmission of the HIV/AIDS virus from mothers to children; Haitiwas one of 14 countries included in the program. According to USAID, between four and sixthousand Haitian children are born with the virus each year. The Administration is providing aid tothe interim LaTortue government, and will reportedly consider requests from that government forweapons purchases, which would mean lifting the arms embargo against Haiti that has been in placesince a military coup ousted Aristide in 1991. (14) The FY2004 foreign aid appropriations legislation ( P.L. 108-199 , Division D) continues to allow Haiti to purchase defense articles and services for the Haitian Coast Guard, prohibits the useof funds to issue a visa to any alien involved in extrajudicial and political killings in Haiti, allocates$5 million to the OAS Special Mission in Haiti and $19 million in Refugee and Entrant Assistancefunds to communities with large concentrations of Haitian (and Cuban) refugees of varying ages forhealthcare and education. Before the current unrest, Haiti was going to receive an estimated $55million in U.S. foreign aid in FY2004. Additional humanitarian and disaster assistance was madeavailable following floods in February and hurricanes in fall 2004, which left thousands dead orhomeless. More costs were incurred with the U.S. military forces in Haiti. The BushAdministration has requested an additional $120 million in assistance to Haiti, for a total of about$230 million for FY2004-FY2005. According to USAID, the aid will be distributed as follows: $22million for job creation; $45 million for government infrastructure support; $26 million for improvedsecurity through improved administration of justice; $122 million for humanitarian aid, includinghealth care, nutrition, and education; and $15 million for elections support. The FY2005 consolidated appropriations act ( P.L. 108-447 ) contains several provisions regarding Haiti. The law (1) makes International Military Education and Training funds and ForeignMilitary Financing available only through regular notification procedures; (2) appropriates $20million for child survival and health programs, $25 million for development assistance, includingagriculture, environment, and basic education programs; $40 million in ESF for judicial reform,police training, and national elections; "sufficient funds" for the OAS to help Haiti hold electionsin 2005, and $2 million to Zanmi Lasante for maternal and child health activities; (3) allows Haitito purchase defense articles and services for its Coast Guard; (4) notes disappointment on the Haitiangovernment's role in the trial and acquittal of Louis Jodel Chamblain, and the deteriorating securityhuman rights situation; (5) requires a report within 90 days on a multi-year assistance strategy; (6)and encourages the Administration to help Haitian and NGO officials to devise a reforestationstrategy and to provide a report on that strategy within 180 days. The conference report was agreedto in both houses on November 20, 2004. The earlier Senate version had made several findingsregarding improving security in Haiti, concluding that "the failure to establish a secure and stableenvironment and to conduct credible and inclusive elections will likely result in Haiti's completetransition from a failed state to a criminal state." On July 20, 2004, international donors pledged more than $1 billion over the next two years to help Haiti rebuild its infrastructure, strengthen institutions, and improve basic services. The interimgovernment signed an agreement with the U.N. and the OAS on August 23 to hold presidential,parliamentary, and local elections in 2005. The U.N. established a trust fund for the elections,started with $9 million in U.S. funds, which they hope will reach $41 million. Members of formerPresident Aristide's Fanmi Lavalas party have threatened to boycott the elections and claim to facepolitical persecution by the interim government. Several were arrested in October; reportedly thecharges have not been made public. Honduras faced enormous challenges in the areas of crime (especially youth gangs known as maras ) and human rights and improving overall economic and living conditions in one of thehemisphere's poorest countries. Inaugurated to a four-year term in January 2002, current PresidentRicardo Maduro is the 6th elected president since the country's return to civilian rule. The UnitedStates has a close relationship with Honduras, characterized by significant foreign assistance, animportant trade partnership, a military presence in the country, and cooperation on a range oftransnational issues, including anti-narcotics efforts and more recently the fight against terrorism. Negotiations for a U.S.-Central America Free Trade Agreement (CAFTA) with five CentralAmerican countries concluded in December 2003, which was signed on May 28, 2004; subsequentlya combined U.S.-Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) wassigned on August 5, 2004. The Bush Administration views DR-CAFTA as a means of solidifyingdemocracy in Honduras and promoting safeguards for environmental protection and labor rights inthe country; critics fear that a CAFTA without strong environmental and labor provisions would donothing to spur reforms in the country. As noted above ( U.S.-Latin American Trade Relations ),Congress did not consider implementing legislation for the DR-CAFTA by the end of the 108thCongress. Congressional interest in Mexico generally focuses on trade, migration, drug trafficking andhuman rights issues, but more attention to migration was sparked by President Bush's January 7,2004 immigration proposal. The President called for an overhaul of the immigration system topermit the matching of willing foreign workers with willing U.S. employers when no Americans canbe found to fill the jobs. Under his proposal, temporary legal status would be available to newforeign workers who have work offers in the United States and to undocumented workers alreadyemployed in the United States for a term of three years that could be renewed but would end at somepoint. President Fox welcomed the proposal when he met President Bush on several occasions inearly 2004, and he called for renewed attention to immigration matters when he called tocongratulate President Bush on his re-election and when they met at an APEC summit in November2004. The proposal was in keeping with Fox-Bush pledges in 2001, subsequently stalled as a resultof terrorism concerns, to work to achieve more orderly and humane migration flows between thecountries. The President's proposal supplemented other congressional proposals with guest workerprovisions, including S. 1461 (McCain)/ H.R. 2899 (Kolbe), S. 1387 (Cornyn), S. 2010 (Hagel and Daschle), S. 2381 (Kennedy)/ H.R. 4262 (Gutierrez), and S. 1645 (Craig)/ H.R. 3142 (Cannon). In a related development, Congress passed the Intelligence Reform and TerrorismPrevention Act of 2004 ( S. 2845 / P.L. 108-458 ) in December 2004, with provisions toincrease immigration law enforcement personnel and to adopt more stringent border control andidentity document standards. On trade issues, Mexico is the United States' second most important trading partner, with two-way trade tripling since 1994 under the North American Free Trade Agreement (NAFTA), butthere are various disputes between the countries. Mexico has complained, for example, that theUnited States is still failing to grant Mexican trucks access to U.S. highways under the terms of theNAFTA pact, and the U.S. Supreme Court ruled against non-governmental plaintiffs in June 2004that an environmental impact statement is not required. However, the Transportation-TreasuryAppropriations for FY2005, incorporated into the Consolidated Appropriations Act for FY2005( H.R. 4818 / P.L. 108-447 ), contains a provision that prohibits implementation of anAdministration rule allowing Mexican and Canadian truck owners and operators an additional twoyears to bring their trucks into compliance with U.S. safety provisions. The United States hascomplained about Mexico's 20% tax on soft drinks made with high fructose corn syrup (HFCS) thathas had a devastating impact on HFCS and corn sales from the United States, and, in September2004, the United States and Mexico selected the panelists for a WTO dispute settlement panel toconsider the U.S. claims against Mexico's HFCS tax, although producer groups are still hoping toachieve a negotiated settlement. Mexico banned beef imports from the United States in December2003 following the discovery of one cow infected with mad cow disease in Washington state. InMarch and April 2004, following the earlier announcement of new U.S. procedures that wouldexclude unhealthy cattle from the food chain, Mexico announced that it was resuming beef trade withthe United States, but was retaining the ban on live cattle imports. On drug trafficking issues, the State Department's March 2004 International Narcotics Control Strategy Report praised Mexico for the capture of major drug cartel figures, for the seizure of largequantities of illicit drugs, and for unprecedented levels of cooperation with the United States incounter-narcotics efforts. The State Department reported in April 2004, however that marijuanacultivation increased 70% and opium poppy cultivation increased 78% in Mexico in 2003, in partbecause of unusually favorable growing conditions. In recent law enforcement actions withU.S.-Mexico cooperation, Efrain Perez and Jorge Arellano Felix, two alleged lieutenants of theArellano-Felix drug cartel, were arrested in Mexico on June 3, 2004, and Ramiro Hernandez, oneof the alleged leaders of the Gulf cartel was arrested in Mexico on August 10, 2004. On October 19,2004, DEA officials announced the dismantling through Operation Money Clip of a major Mexicanmoney-laundering and drug trafficking organization. On human rights issues, President Fox has freed several critics from jail, and he has designated special prosecutors to prosecute those responsible for human rights abuses in the 1970s and 1980s. Although a number of suspects have been arrested for past abuses, human rights groups argue thatthe special prosecutors have failed to produce significant results. In late January 2004, President Foxnamed a special prosecutor to coordinate the federal and state efforts to find and punish thoseresponsible for a decade of slayings of over 300 women in Ciudad Juarez, across the border from ElPaso, Texas. The State Department's March 2004 report on human rights conditions in Mexiconotes that the government's efforts to improve the human rights situation appeared to stall, with afew exceptions. On July 24, 2004, a Mexican judge refused a special prosecutor's request for anarrest warrant against former President Luis Echeverria for involvement in a 1971 massacre, ongrounds that the statute of limitations had expired. On December 10, 2004, President Fox,responding to an analysis by the U.N. High Commission for Human Rights, presented a series ofproposed reforms to discourage torture and to strengthen the rights of defendants in Mexico. Panama has made notable political and economic progress since the 1989 U.S. military intervention that ousted the military regime of General Manual Antonio Noriega from power. Sincethen, the country has had four successive civilian governments, with the current administration ofPresident Martin Torrijos of the Democratic Revolutionary Party (PRD) elected in May 2004 andinaugurated on September 1, 2004. In the May 2, 2004, election, Torrijos -- the son of formerpopulist leader General Omar Torrijos -- won a decisive victory with 47.5% of the vote in afour-man race. His electoral alliance also won a majority of seats in the unicameral LegislativeAssembly. Torrijos succeeded President Mireya Moscoso of the Arnulfista Party (PA) who beenelected in May 1999. The most significant challenges facing the new government include dealingwith the funding deficits of the country's social security fund (Caja de Seguro Social), developingplans for the expansion of the Panama Canal, and combating poverty and unemployment. President Moscoso had been elected as a populist, with pledges to end government corruption and reduce poverty, but her campaign pledges proved difficult to fulfill amid high-profile corruptionscandals and poor economic conditions over the past several years. As a result, the President'spopularity fell considerably in her last year in office. In one of her last presidential acts, PresidentMoscoso pardoned four anti-Castro activists who had been sentenced in April 2004 to prisons termsranging from seven to eight years for involvement in an alleged plot to kill Fidel Castro. One of thefour, Luis Posada Carriles, was allegedly involved in the 1976 bombing of a Cuban airliner. Cubaresponded to the pardon by breaking diplomatic relations with Panama. President Torrijos criticizedthe pardons and vowed to begin the process of reestablishing relations with Cuba. Before the December 1989 U.S. intervention, the Panamanian economy had been severely damaged by two years of U.S. economic sanctions and economic disruption caused by the politicalcrisis. Since 1990, the economy has rebounded, registering real growth annually, although the levelof annual growth has varied a lot and slowed considerably in 2001 and 2002. Although the economyhas improved considerably since 1990, poverty has worsened over the past three years because ofslow economic growth. Income distribution remains highly skewed and high unemployment hasbeen a persistent problem. The United States has close relations with Panama, stemming in large part from the extensive history of linkages developed when the Panama Canal was under U.S. control and Panama hostedmajor U.S. military installations. The current U.S. relationship with Panama is characterized byextensive cooperation on counternarcotics efforts as well as U.S. assistance to help Panama assurethe security of the Canal and the security of its border with Colombia. U.S. assistance to Panamahas increased in the past several years with the country receiving assistance under the BushAdministration's Andean Regional Initiative to help Colombia and its neighbors combat drugtrafficking. U.S.-Panamanian negotiations for a bilateral free trade agreement began in late April 2004. To date, six negotiating rounds have been held, with the most recent concluding in mid-December 2004.Reportedly significant progress has been made and negotiators hope to conclude an agreement inearly 2005. The most sensitive issues in the talks are differences over market access for certainagricultural products; for Panama, potatoes, onions, and vegetable oils are sensitive products, whilesugar remains a sensitive product for the United States. (15) The next round of talks will take place theweek of January 10, 2005, in Washington. with Panama wanting more access to the U.S. agricultural market, but fearing the full opening of its agricultural market to U.S. products. (16) Panamais seeking an FTA as a means of increasing U.S.investment in the country, while the Bush Administration has stressed that an FTA with Panama, inaddition to enhancing trade, would further U.S. efforts to strengthen support for democracy and therule of law. Since Panama has a service-based economy, it traditionally has imported much morethan it exports to the United States. In 2003, the U.S. trade surplus with Panama was $1.5 billion,with Panama exporting $301 million in goods and importing $1.8 billion in merchandise. The stockof U.S. foreign investment in Panama was estimated at $20 billion in 2002, surpassing the combinedU.S. foreign investment in the five other Central American nations. Peru under President Alejandro Toledo has been characterized by two seemingly contradictorytrends: high economic growth and extremely low popularity of the president. President Toledo hasbeen widely criticized as having weak leadership skills, his image has been damaged by personalissues, and his administration tarnished by corruption charges. Toledo's public support has remainedlow for two years, and was at 11% in October 2004. Many Peruvians wonder whether he will be ableto survive politically until the end of his term in 2006. Toledo denies allegations of corruption, andsaid he would open his bank accounts to public scrutiny. Although the scandals are limited incomparison to the widespread corruption of the earlier Fujimori administration, they have proveddamaging to Toledo, who came to office as a reformer. Toledo has presided over 37 consecutive months of economic growth, in contrast to four years of stagnation under his predecessors. Peru has been more stable economically than its neighbors. Under Toledo, Peru has exhibited one of the highest growth rates in Latin America, with anincreased economic output of over 4% for 2003 and 2004. The public is impatient, however, for arapid improvement in its standard of living: 54% of the population lives in poverty, and 43% areunderemployed. Responding to nearly constant, widespread protests by teachers, farmers, and othersfor higher wages, Toledo has declared several states of emergency. Opposition in Congress --where no party holds a majority -- has also limited the President's ability to push through economicreforms. In July 2004, Toledo was further weakened by his party's loss of the leadership of theunicameral Congress. Peru is a major illicit drug-producing and transit country. According to the State Department's March 2004 international narcotics report, Peru made progress in the preceding year on manycomponents of the U.S.-Peru counternarcotics program, including the reduction of coca cultivationby 15%, and the signing of an extradition treaty. The United States and Peru signed a five-yearcooperative agreement for 2002-2007 that links alternative development to coca eradication moredirectly than past programs have. After thousands of coca growers protested against forced cocaeradication, the government and growers signed an agreement calling for the "gradual and fixed"reduction of coca leaf cultivation and restricted forced eradication. Peru is the second largestbeneficiary, after Colombia, of the Andean Counterdrug Initiative. For FY2004, Peru was allocated$66 million for interdiction, $50 million for alternative development, and $1.7 million in ForeignMilitary Financing (FMF). For FY2005, the Administration requested $62 million for interdiction,$50 million for alternative development, and $1 million in FMF. The FY2005 consolidated appropriations act ( P.L. 108-447 ) contained several provisions regarding Peru. Under Economic Support Funds, $8 million was earmarked for Peru and $3 millionfor the Peru-Ecuador Peace initiative. Under the Andean Counterdrug Initiative, Peru was allocateda total of $116.3 million: $62 million for interdiction and $54.3 million for alternative development. The act continues to prohibit resumption of a Peruvian air interdiction program until enhancedsafeguards are in effect, with a 30-day notification to Congress before resumption. Peru was allotted$1 million for Foreign Military Financing funds. Support for democracy and human rights also is a U.S. concern in Peru. U.S. initiatives include the provision of $50 million over five years to support consolidating democratic reform, $3.5 millionto support the Truth and Reconciliation Commission in investigating past human rights abuses, andthe continued declassification and delivery of State Department documents requested by Peru'sCongress to support its investigation into corruption and abuses under the Fujimori government. President Alberto Fujimori fled the country in the wake of scandals in 2000. Vladimiro Montesinos,Fujimori's spy chief who had ties to U.S. agencies, continues to face trials on dozens of chargesranging from influence peddling to directing a death squad. The case of Lori Berenson, an American jailed in Peru, has been an ongoing issue in bilateral relations. Berenson's 1996 conviction by a secret military tribunal was overturned, but she wasconvicted again by a civilian court on charges of collaboration with terrorists. The Inter-AmericanCourt of Human Rights agreed in September 2002 to consider her case. Hearings were held in Mayand June 2004. Many observers were surprised by the Court's decision, announced on December3, 2004, which upheld her conviction. The ruling represents a reversal of a 2002 Inter-AmericanCommission on Human Rights decision, which found Peru responsible for violations of the right tojudicial guarantees and recommended Peru make amends for violations of Berenson's human rights. Her 20-year sentence will end in 2015. The $1.6 billion Camisea natural gas project in Peru, supported by U.S. investors, generated controversy in the 108th Congress. Critics, including some Members of Congress, some U.S.officials, and international environmental groups, expressed concern about its negative impact onindigenous societies and the environment, including a pristine tropical rain forest and Peru's onlymarine sanctuary for endangered birds and mammals. Supporters of the project say it will contributegreatly to Peru's economy, including some $5.5 billion in tax revenues, and $100 million annuallyto affected communities, and will reduce pollution in Lima. Two Texas energy companies areinvolved in the project: Hunt Oil Company, and the Kellogg Brown and Root unit of HalliburtonCompany. In August 2003, the U.S. Export-Import Bank board rejected a request for about $214million in loan guarantees for the project based on concerns for the environment and indigenouspeople in the Amazon. The Inter-American Development Bank (IDB) approved $135 million inloans to the project in September; the United States abstained. According to the U.S. Agency forInternational Development, U.S. environmental laws required the Treasury Department to vote noon the loans because the required environmental studies had not been completed. In August 2004,gas from Camisea reached Lima. The FY2005 consolidated appropriations act also included $8million to implement a regional strategy for conservation in the Amazon basin countries, includingprograms to improve the capacity of indigenous communities and local law enforcement agenciesin indigenous reserves. An oil-exporting South American nation with a population of about 25 million, Venezuela has been wracked by several years of political turmoil under the rule of President Hugo Chavez, who wasfirst elected in 1998. Under Chavez, Venezuela has undergone enormous political changes, with anew constitution in place, a new unicameral legislature, and even a new name for the country, theBolivarian Republic of Venezuela. Chavez was re-elected President with a new six-year term in July2000 under the new constitution. Although President Chavez remained widely popular untilmid-2001, his popularity has eroded considerably after that amid concerns that he was imposing aleftist agenda on the country and that his government was ineffective in improving living conditions. In April 2002, massive opposition protests and pressure by the military led to the ouster of Chavezfrom power for a brief period. However, the military ultimately restored him to power. Politicalopposition to Chavez's rule has continued since his return to office. From early December 2002until early February 2003, the opposition orchestrated a general strike that severely curtailedVenezuela's oil exports and disrupted the economy but was unsuccessful in getting President Chavezto agree to an early non-binding referendum on his rule or new elections. After months of negotiations facilitated by the Organization of American States (OAS) and the Carter Center, the government of Hugo Chavez and the political opposition signed an agreement inMay 2003 that set forth mechanisms to resolve the political crisis. This included holding apresidential recall referendum pursuant to constitutional provisions, which ultimately was held onAugust 15, 2004. Leading up to the referendum, public opinion polls conducted by various surveyfirms yielded significantly different results, with some favoring the opposition and some favoringChavez, but by early August 2004 a number of polls showed Chavez with an advantage. In the end,Chavez convincingly won the overall vote by a margin of 59.3% to 40.7%. The opposition claimedfraud and refused to accept the outcome, but both the OAS and Carter Center concluded that the voteresults were accurate and conducted an additional audit of the vote to confirm the results. The United States has traditionally had close relations with Venezuela, but there has been friction in relations with the Chavez government. The Bush Administration expressed strong supportfor the work of the OAS in resolving the crisis, welcomed the May 2003 political accord, andsupported its implementation. After the recall referendum, the Administration congratulated theVenezuelan people for their commitment to democracy and commended the work of the OAS andCarter Center. At the same time, U.S. officials stressed the importance of reconciliation on the partof the government and the opposition in order to resolve their political differences peacefully. Adilemma for U.S. policymakers has been how to press the Chavez government to adhere todemocratic principles without taking sides in Venezuela's polarized political conflict. SinceVenezuela is a major supplier of foreign oil to the United States (the fourth major foreign supplierin 2003, after Saudi Arabia, Canada, and Mexico), a key U.S. interest has been ensuring thecontinued flow of oil exports at a reasonable and stable price. | The Latin American and Caribbean region has made enormous strides over the past two decades in political development, with all countries but Cuba having regular free and fair elections for headof state. But several nations have faced considerable challenges that have threatened politicalstability, including economic decline and rising poverty, violent guerrilla conflicts, drug trafficking,and increasing crime. Bush Administration officials maintain that U.S. policy toward Latin America has three overarching goals: strengthening security; promoting democracy and good governance; andstimulating economic development. Some observers argue that the Administration has not beenpaying enough attention to the region and to instability in several countries. They maintain that theUnited States, faced with other pressing foreign policy problems like the war in Iraq and the globalanti-terrorist campaign, has fallen back to a policy of benign neglect of the region. In contrast, othersmaintain that the United States has an active policy toward Latin America and point to theconsiderable assistance and support provided to Colombia and its neighbors as they combat drugtrafficking and terrorist groups. They also point to the momentum toward free trade in the regionthrough negotiation of numerous free trade agreements, and to increased bilateral and regionalcooperation on security issues. Congressional attention to Latin America in the 108th Congress continued to focus on counter-narcotics and counter-terrorism efforts in the Andean region, trade issues, and potentialthreats to democracy and stability. U.S. counter-narcotics efforts focused on continuation of theAndean Counterdrug Initiative supporting Colombia and its neighbors in their struggle against drugtrafficking and drug-financed terrorist groups. With regard to trade, Congress approvedimplementing legislation for a bilateral free trade agreement with Chile in July 2003; the UnitedStates signed a combined U.S.-Dominican Republic-Central America Free Trade Agreement(DR-CAFTA) on August 5, 2004, but Congress did not consider implementing legislation before theend of the 108th Congress. Congress also paid increased attention to economic, social, and politicaltensions in South America that threatened democratic order, particularly in the Andean region. Inthe Caribbean, Haiti's persistent poverty and political instability remained a congressional concern,as did assistance to Haiti and other Caribbean nations in the aftermath of devastating damageincurred by hurricanes and storms in 2004. Congress also continued to debate the appropriate U.S.policy approach to Cuba, the region's only holdout to democracy, as it did for the past several years. Finally, Congress maintained an active interest in neighboring Mexico, with a myriad of trade,migration, border and drug trafficking issues dominating bilateral relations. This report examines issues in U.S. policy toward Latin America and the Caribbean in the 108th Congress. It reflects final actions of the 108th Congress and will not be updated. For more detailsand discussion, see the listed CRS products after each section. |
The President is responsible for appointing individuals to certain positions in the federal government. In some instances, the President makes these appointments using authorities granted to the President alone. Other appointments, generally referred to with the abbreviation PAS, are made by the President with the advice and consent of the Senate via the nomination and confirmation process. This report identifies, for the 113 th Congress, all nominations submitted to the Senate for full-time positions on 34 regulatory and other collegial boards and commissions. This report includes information on the leadership structure of each of these 34 boards and commissions as well as a pair of tables presenting information on each body's membership and appointment activity as of the end of the 113 th Congress. The profiles discuss the statutory requirements for the appointed positions, including the number of members on each board or commission, their terms of office, whether they may continue in their positions after their terms expire, whether political balance is required, and the method for selecting the chair. The first table in each pair provides information on full-time positions requiring Senate confirmation as of the end of the 113 th Congress and the pay levels of those positions. The second table for each board or commission tracks appointment activity within the 113 th Congress by the Senate (confirmations, rejections, returns to the President, and elapsed time between nomination and confirmation) as well as further related presidential activity (including withdrawals and recess appointments). In some instances, no appointment action occurred within a board or commission during the 113 th Congress. Information for this report was compiled using the Senate nominations database of the Legislative Information System (LIS) at http://www.lis.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 2012 Plum Book ( United States Government Policy and Supporting Positions ). Congressional Research Service (CRS) reports regarding the presidential appointments process, nomination activity for other executive branch positions, recess appointments, and other related matters may be found at http://www.crs.gov . Federal executive branch boards and commissions discussed in this report share, among other characteristics, the following: (1) they are independent executive branch bodies located, with four exceptions, outside executive departments; (2) several board or commission members head each entity, and at least one of these members serves full time; (3) the members are appointed by the President with the advice and consent of the Senate; and (4) the members serve fixed terms of office and, except in a few bodies, the President's power to remove them is restricted. For most of the boards and commissions included in this report, the fixed terms of office for member positions have set beginning and end dates, irrespective of whether the posts are filled or when appointments are made. In contrast, for a few agencies, such as the Chemical Safety and Hazard Investigation Board, the full term begins when an appointee takes office and expires after the incumbent has held the post for the requisite period of time. The end dates of the fixed terms of a board's members are staggered so that the terms do not expire all at once. The use of terms with fixed beginning and end dates is intended to minimize the occurrence of simultaneous board member departures and thereby increase leadership continuity. Under such an arrangement, an individual is nominated to a particular position and a particular term of office. An individual may be nominated and confirmed for a position for the remainder of an unexpired term to replace an appointee who has resigned (or died). Alternatively, an individual might be nominated for an upcoming term with the expectation that the new term will be under way by the time of confirmation. Occasionally, when the unexpired term has been for a relatively short period, the President has submitted two nominations of the same person simultaneously—the first to complete the unexpired term and the second to complete the entire succeeding term of office. On some commissions, the chair is subject to Senate confirmation and must be appointed from among the incumbent commissioners. If the President wishes to appoint, as chair, someone who is not on the commission, the President simultaneously submits two nominations for the nominee—one for member and the other for chair. As independent entities with staggered membership, executive branch boards and commissions have more political independence from the President than do executive departments. Nonetheless, the President can sometimes exercise significant influence over the composition of a board or commission's membership when he designates the chair or has the opportunity to fill a number of vacancies at once. For example, President George W. Bush had the chance to shape the Securities and Exchange Commission (SEC) during the first two years of his presidency because of existing vacancies, resignations, and the death of a member. Likewise, during the same time period, President Bush was able to submit nominations for all of the positions on the National Labor Relations Board because of existing vacancies, expiring recess appointments, and resignations. Simultaneous turnover of board or commission membership may result from coincidence, but it also may be the result of a buildup of vacancies after extended periods of time in which the President fails to nominate, or the Senate fails to confirm, members. Two other notable characteristics apply to appointments to some of the boards and commissions. First, for 26 of the bodies in this report, the law limits the number of appointed members who may belong to the same political party, usually to no more than a bare majority of the appointed members (e.g., two of three or three of five). Second, advice and consent requirements also apply to inspector general appointments in four of these organizations and general counsel appointments in three. During the 113 th Congress, President Barack H. Obama submitted nominations to the Senate for 86 of the 149 full-time positions on 34 regulatory and other boards and commissions (most of the remaining positions were not vacant during that time). He submitted a total of 114 nominations for these positions, of which 77 were confirmed, 7 were withdrawn, 30 were returned to the President, and no recess appointments were made. The number of nominations exceeded the number of positions because the President submitted multiple nominations for some positions. In some cases, for example, the President nominated an individual for both the end of a term in progress and a reappointment for the succeeding term. In other cases, the President submitted a second nomination after his first choice failed to be confirmed. Table 1 summarizes the appointment activity for the 113 th Congress. At the end of the Congress, 24 incumbents were serving past the expiration of their terms. In addition, there were 22 vacancies among the 149 positions. The length of time a given nomination may be pending in the Senate has varied widely. Some nominations have been confirmed within a few days, others have been confirmed within several months, and some have never been confirmed. In the board and commission profiles, this report provides, for each board or commission nomination confirmed in the 113 th Congress, the number of days between nomination and confirmation ( days to confirm ). For those nominations confirmed, a mean (average) of 124.2 days elapsed from nomination to confirmation. The median number of days elapsed was 112.0. The difference between these two numbers suggests the mean was pulled upward by a small amount of unusually high numbers. Each of the 34 board or commission profiles in this report is organized into three parts: (1) a paragraph discussing the body's leadership structure, (2) a table identifying its membership as of the end of the 113 th Congress, and (3) a table listing nominations and appointments to its vacant positions during the 113 th Congress. The leadership structure sections discuss the statutory requirements for the appointed positions, including the number of members on each board or commission, their terms of office, whether these members may continue in their positions after their terms expire, whether political balance is required, and the method for selecting the chair. Data on appointment actions during the 113 th Congress appear under both the "Membership as of the End of the 113 th Congress" and the "Appointment Action in the 113 th Congress" sections. The former identifies the agencies' positions requiring Senate confirmation and the incumbents in those positions as of the end of the 113 th Congress. Incumbents whose terms have expired are italicized. Most incumbents serve fixed terms of office and are removable only for specified causes. They generally remain in office when a new Administration assumes office following a presidential election. For those agencies requiring political balance among their members, the party affiliation of an incumbent is listed as Democrat (D), Republican (R), or Independent (I). Both sections include the pay levels of each position. For presidentially appointed positions requiring Senate confirmation, the pay levels fall under the Executive Schedule, which ranges from level I, for Cabinet-level offices, to level V, for the lowest-ranked positions. Most of the chair positions are at level III, and most of the other positions are at level IV. For each board or commission, the "Appointment Action" section provides information about each nomination, in chronological order, including the name of the nominee, the position to which he or she was nominated, the date of submission, the date of confirmation (if any), and the number of days that elapsed from submission to confirmation. It also notes actions other than confirmation (i.e., nominations rejected by the Senate, nominations returned to or withdrawn by the President, and recess appointments). Occasionally, where a position was vacant and the unexpired term of office was to end within a number of weeks or months, the President submitted two nominations for the same nominee: the first to complete the unexpired term, and the second for a full term following completion of the expired term. Tables that show more than one confirmed nomination provide the mean number of days to confirm a nomination. This figure was determined by calculating the number of days elapsed from the nomination and confirmation dates, adding these numbers for all confirmed nominations, and dividing the result by the number of nominations confirmed. For tables with instances of one individual being confirmed more than once (to be a chair and a member, for example), the mean was calculated by averaging all values in the "Days to Confirm" column, including the values for both confirmations. Appendix A provides two tables. Table A-1 includes information on each of the nominations and appointments to regulatory and other collegial boards and commissions during the 113 th Congress, alphabetically organized and following a similar format to that of the "Appointment Action" sections discussed above. It identifies the board or commission involved and the dates of nomination and confirmation. The appendix also indicates if a nomination was withdrawn, returned, rejected, or if a recess appointment was made. In addition, it provides the mean and median number of days taken to confirm a nomination. Table A-2 contains summary information on appointments and nominations by organization. For each of the 34 independent boards and commissions discussed in this report, the appendix provides the number of positions, vacancies, incumbents whose term had expired, nominations, individual nominees, positions to which nominations were made, confirmations, nominations returned to the President, nominations withdrawn, and recess appointments. A list of organization abbreviations can be found in Appendix B . The Chemical Safety and Hazard Investigation Board is an independent agency consisting of five members (no political balance is required), including a chair, who serve five-year terms. The President appoints the members, including the chair, with the advice and consent of the Senate. When a term expires, the incumbent must leave office. (42 U.S.C. §7412(r)(6)) The Commodity Futures Trading Commission consists of five members (no more than three may be from the same political party) who serve five-year terms. At the end of a term, a member may remain in office, unless replaced, until the end of the next session of Congress. The chair is also appointed by the President, with the advice and consent of the Senate. (7 U.S.C. §2(a)(2)) The statute establishing the Consumer Product Safety Commission calls for five members who serve seven-year terms. No more than three members may be from the same political party. A member may remain in office for one year at the end of a term, unless replaced. The chair is also appointed by the President, with the advice and consent of the Senate. (15 U.S.C. §2053) The Defense Nuclear Facilities Safety Board consists of five members (no more than three may be from the same political party) who serve five-year terms. After a term expires, a member may continue to serve until a successor takes office. The President designates the chair and vice chair. (42 U.S.C. §2286) The Election Assistance Commission consists of four members (no more than two may be from the same political party) who serve four-year terms. After a term expires, a member may continue to serve until a successor takes office. The chair and vice chair, from different political parties and designated by the commission, change each year. (52 U.S.C. §20923) The Equal Employment Opportunity Commission consists of five members (no more than three may be from the same political party) who serve five-year terms. An incumbent whose term has expired may continue to serve until a successor is appointed, except that no such member may continue to serve (1) for more than 60 days when Congress is in session, unless a successor has been nominated or (2) after the adjournment of the session of the Senate in which the successor's nomination was submitted. The President designates the chair and the vice chair. The President also appoints the general counsel, with the advice and consent of the Senate. (42 U.S.C. §2000e-4) The Export-Import Bank Board of Directors comprises the bank president, who serves as chair; the bank first vice president, who serves as vice chair; and three other members (no more than three of these five may be from the same political party). All five members are appointed by the President, with the advice and consent of the Senate, and serve for terms of up to four years. An incumbent whose term has expired may continue to serve until a successor is qualified, or until six months after the term expires—whichever occurs earlier (12 U.S.C. §635a). The President also appoints an inspector general, with the advice and consent of the Senate. (5 U.S.C. App., Inspector General Act of 1978, §3) The Farm Credit Administration consists of three members (no more than two may be from the same political party) who serve six-year terms. A member may not succeed himself or herself unless he or she was first appointed to complete an unexpired term of three years or less. A member whose term expires may continue to serve until a successor takes office. One member is designated by the President to serve as chair for the duration of the member's term. (12 U.S.C. §2242) The Federal Communications Commission consists of five members (no more than three may be from the same political party) who serve five-year terms. When a term expires, a member may continue to serve until the end of the next session of Congress, unless a successor is appointed before that time. The President designates the chair. (47 U.S.C. §154) The Federal Deposit Insurance Corporation Board of Directors consists of five members, of whom two—the comptroller of the currency and the director of the Consumer Financial Protection Bureau—are ex officio. The three appointed members serve six-year terms. An appointed member may continue to serve after the expiration of a term until a successor is appointed. Not more than three members of the board may be from the same political party. The President appoints the chair and the vice chair, with the advice and consent of the Senate, from among the appointed members. The chair is appointed for a term of five years (12 U.S.C. §1812). The President also appoints the inspector general, with the advice and consent of the Senate. (5 U.S.C. App., Inspector General Act of 1978, §3) The Federal Election Commission consists of six members (no more than three may be from the same political party) who may serve for a single term of six years. When a term expires, a member may continue to serve until a successor takes office. The chair and vice chair, from different political parties and elected by the commission, change each year. Generally, the vice chair succeeds the chair. (52 U.S.C. §30106) The Federal Energy Regulatory Commission, an independent agency within the Department of Energy, consists of five members (no more than three may be from the same political party) who serve five-year terms. When a term expires, a member may continue to serve until a successor takes office, except that such commissioner may not serve beyond the end of the session of the Congress in which his or her term expires. The President designates the chair. (42 U.S.C. §7171) The Federal Labor Relations Authority consists of three members (no more than two may be from the same political party) who serve five-year terms. After the date on which a five-year term expires, a member may continue to serve until the end of the next Congress, unless a successor is appointed before that time. The President designates the chair. The President also appoints the general counsel, with the advice and consent of the Senate. (5 U.S.C. §7104) The Federal Maritime Commission consists of five members (no more than three may be from the same political party) who serve five-year terms. When a term expires, a member may continue to serve until a successor takes office. The President designates the chair. (46 U.S.C. §301) The Federal Mine Safety and Health Review Commission consists of five members (no political balance is required) who serve six-year terms. When a term expires, the member must leave office. The President designates the chair. (30 U.S.C. §823) The Federal Reserve System Board of Governors consists of 7 members (no political balance is required) who serve 14-year terms. When a term expires, a member may continue to serve until a successor takes office. The President appoints the chair and vice chair, who are separately appointed as members, for 4-year terms, with the advice and consent of the Senate. (12 U.S.C. §§241-242) The Federal Trade Commission consists of five members (no more than three may be from the same political party) who serve seven-year terms. When a term expires, the member may continue to serve until a successor takes office. The President designates the chair. (15 U.S.C. §41) The Financial Stability Oversight Council consists of 10 voting members and 5 nonvoting members, and is chaired by the Secretary of the Treasury. Of the 10 voting members, 9 serve ex officio, by virtue of their positions as leaders of other agencies. The remaining voting member is appointed by the President with the advice and consent of the Senate and serves full time for a term of six years. Of the five nonvoting members, two serve ex officio. The remaining three nonvoting members are designated through a process determined by the constituencies they represent, and they serve for terms of two years. The council is not required to have a balance of political party representation. (12 U.S.C. §5321) The Foreign Claims Settlement Commission, located in the Department of Justice, consists of three members (political balance is not required) who serve three-year terms. When a term expires, the member may continue to serve until a successor takes office. Only the chair, who is appointed by the President with the advice and consent of the Senate, serves full time. (22 U.S.C. §§1622, 1622c) The Merit Systems Protection Board consists of three members (no more than two may be from the same political party) who serve seven-year terms. A member who has been appointed to a full seven-year term may not be reappointed to any following term. When a term expires, the member may continue to serve for one year, unless a successor is appointed before that time. The President appoints the chair, with the advice and consent of the Senate, and designates the vice chair. (5 U.S.C. §§1201-1203) The National Credit Union Administration Board of Directors consists of three members (no more than two members may be from the same political party) who serve six-year terms. When a term expires, a member may continue to serve until a successor takes office. The President designates the chair. (12 U.S.C. §1752a) The National Labor Relations Board consists of five members who serve five-year terms. Political balance is not required, but, by tradition, no more than three members are from the same political party. When a term expires, the member must leave office. The President designates the chair. The President also appoints the general counsel, with the advice and consent of the Senate. (29 U.S.C. §153) The National Mediation Board consists of three members (no more than two may be from the same political party) who serve three-year terms. When a term expires, the member may continue to serve until a successor takes office. The board annually designates a chair. (45 U.S.C. §154) The National Transportation Safety Board consists of five members (no more than three may be from the same political party) who serve five-year terms. When a term expires, a member may continue to serve until a successor takes office. The President appoints the chair from among the members for a two-year term, with the advice and consent of the Senate, and designates the vice chair. (49 U.S.C. §1111) The Nuclear Regulatory Commission consists of five members (no more than three may be from the same political party) who serve five-year terms. When a term expires, the member must leave office. The President designates the chair. The President also appoints the inspector general, with the advice and consent of the Senate. (42 U.S.C. §5841 and 5 U.S.C. App., Inspector General Act of 1978, §3) The Occupational Safety and Health Review Commission consists of three members (political balance is not required) who serve six-year terms. When a term expires, the member must leave office. The President designates the chair. (29 U.S.C. §661) The Postal Regulatory Commission consists of five members (no more than three may be from the same political party) who serve six-year terms. After a term expires, a member may continue to serve until his or her successor takes office, but the member may not continue to serve for more than one year after the date upon which his or her term otherwise would expire. The President designates the chair, and the members select the vice chair. (39 U.S.C. §502) The Privacy and Civil Liberties Oversight Board consists of five members (no more than three may be from the same political party) who serve six-year terms. When a term expires, the member may continue to serve until a successor takes office. Only the chair, who is appointed by the President with the advice and consent of the Senate, serves full time. (42 U.S.C. §2000ee) The Implementing Recommendations of the 9/11 Commission Act of 2007, P.L. 110-53 , Title VIII, Section 801 (121 Stat. 352) established the Privacy and Civil Liberties Oversight Board. Previously, the Privacy and Civil Liberties Oversight Board functioned as part of the White House Office in the Executive Office of the President. That board ceased functioning on January 30, 2008. The Railroad Retirement Board consists of three members (political balance is not required) who serve five-year terms. When a term expires, the member may continue to serve until a successor takes office. The President appoints the chair and an inspector general with the advice and consent of the Senate. (45 U.S.C. §231f and 5 U.S.C. App., Inspector General Act of 1978, §§3, 12) The Securities and Exchange Commission consists of five members (no more than three may be from the same political party) who serve five-year terms. When a term expires, the member may continue to serve until the end of the next session of Congress, unless a successor is appointed before that time. The President designates the chair. (15 U.S.C. §78d) The Surface Transportation Board, located within the Department of Transportation, consists of three members (no more than two may be from the same political party) who serve five-year terms. When a term expires, the member may continue to serve until a successor takes office but for not more than one year after expiration. The President designates the chair. (49 U.S.C. §701) The United States International Trade Commission consists of six members (no more than three may be from the same political party) who serve nine-year terms. A member of the commission who has served for more than five years is ineligible for reappointment. When a term expires, a member may continue to serve until a successor takes office. The President designates the chair and vice chair for two-year terms of office, but they may not belong to the same political party. The President may not designate a chair with less than one year of continuous service as a member. This restriction does not apply to the vice chair. (19 U.S.C. §1330) The United States Parole Commission is an independent agency in the Department of Justice. The commission consists of five commissioners (political balance is not required) who serve for six-year terms. When a term expires, a member may continue to serve until a successor takes office. In most cases, a commissioner may serve no more than 12 years. The President designates the chair (18 U.S.C. §4202). The commission was previously scheduled to be phased out, but Congress has extended its life several times. Under P.L. 113-47 , Section 2 (127 Stat. 572), it was extended until November 1, 2018. (18 U.S.C. §3551 note) The United States Sentencing Commission is a judicial branch agency that consists of seven voting members who are appointed to six-year terms and two nonvoting members. The seven voting members are appointed by the President, with the advice and consent of the Senate. Only the chair and three vice chairs, selected from among the members, serve full time. The President appoints the chair, with the advice and consent of the Senate, and designates the vice chairs. At least three members must be federal judges. No more than four members may be of the same political party. No more than two vice chairs may be of the same political party. No voting member may serve more than two full terms. When a term expires, an incumbent may continue to serve until he or she is reappointed, a successor takes office, or Congress adjourns sine die at the end of the session that commences after the expiration of the term, whichever is earliest. The Attorney General (or designee) serves ex officio as a nonvoting member (28 U.S.C. §§991-992). The chair of the United State Parole Commission also is an ex officio nonvoting member of the commission. (18 U.S.C. §3551 note) Appendix A. Summary of All Nominations and Appointments to Collegial Boards and Commissions Appendix B. Board and Commission Abbreviations | The President makes appointments to certain positions within the federal government, either using authorities granted to the President alone or with the advice and consent of the Senate. There are some 149 full-time leadership positions on 34 federal regulatory and other collegial boards and commissions for which the Senate provides advice and consent. This report identifies all nominations submitted to the Senate for full-time positions on these 34 boards and commissions during the 113th Congress. Information for each board and commission is presented in profiles and tables. The profiles provide information on leadership structures and statutory requirements (such as term limits and party balance requirements). The tables include full-time positions confirmed by the Senate, pay levels for these positions, incumbents as of the end of the 113th Congress, incumbents' parties (where balance is required), and appointment action within each board or commission. Additional summary information across all 34 boards and commissions appears in the appendix. During the 113th Congress, the President submitted 114 nominations to the Senate for full-time positions on these boards and commissions (most of the remaining positions on these boards and commissions were not vacant during that time). Of these 114 nominations, 77 were confirmed, 7 were withdrawn, and 30 were returned to the President. At the end of the 113th Congress, 24 incumbents were serving past the expiration of their terms. In addition, there were 22 vacancies among the 149 positions. Information for this report was compiled using the Senate nominations database of the Legislative Information System (LIS) at http://www.lis.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 2012 Plum Book (United States Government Policy and Supporting Positions). This report will not be updated. |
I n general, the Senate's presiding officer does not take the initiative in enforcing Senate rules and precedents. Instead, a Senator may raise a point of order if he or she believes the Senate is taking (or is about to take) an action that violates the rules. In most circumstances, the presiding officer rules on the point of order on advice of the Parliamentarian; that ruling is typically subject to an appeal on which the Senate votes (unless the appeal is tabled or withdrawn). Pursuant to Rule XX, however, in certain circumstances a point of order is not ruled on by the presiding officer but is instead submitted to the Senate for its decision. A point of order that a pending matter (a bill or amendment, for example) violates the U.S. Constitution presents one such circumstance. This report explains Senate rules, precedents, and practices in regard to these constitutional points of order, including an analysis of recent cases in which such a point of order has been raised. This report will be updated as events warrant. The process for raising a constitutional point of order against a pending question does not differ from that for raising other points of order. A Senator seeking to raise a constitutional point of order would simply address the presiding officer at a time when no one else holds the floor. The Senator might say, "Mr. President, I rise to point of order" or simply "Point of order, Mr. President" and then proceed to state and explain the way in which the pending matter violates the Constitution. Raising a constitutional point of order (or any point of order) confers no special recognition rights—unless a unanimous consent (UC) agreement has provided for it being raised, or considered as raised, at a certain time. No Senator can interrupt another Senator without his or her consent for the purposes of raising a point of order. In addition, a Senator loses the floor after he or she has raised the point of order, though the Senator could again seek recognition from the presiding officer once the point of order is submitted. A UC agreement may affect the availability of any point of order when the agreement includes language that prohibits all or certain points of order. In addition, if a UC agreement specifies that a vote on a matter would occur "at a time certain without any intervening action," it would preclude a point of order being raised. Further, if a UC agreement limits the time for debate of a matter, then the point of order can be raised against it only after the debate time has been used or yielded back—except by unanimous consent. This is because if a matter has been guaranteed—by UC—a certain amount of debate or a vote at a time certain, then a new UC agreement is required to allow a point of order before that debate is complete, since the disposition of the point of order could have the effect of making the matter fall. Under current practice and precedents relating to Rule XX, a point of order that a pending matter is unconstitutional is submitted to the Senate for decision rather than ruled upon by the presiding officer. The logic behind the relevant precedents is that while the presiding officer has authority to interpret Senate rules, he or she does not have the authority to interpret the Constitution. While the Senate, in its earliest history, similarly disposed of constitutional points of order through a vote of the body, there were some intervening periods during which practice varied. For an approximately 40-year period in the late 19 th and early 20 th centuries, these points of order were not submitted for disposition, but instead the proceedings resembled the current practice in the House of Representatives, under which Members are expected to implicitly express their opinion on the constitutionality of a measure by their vote for or against the measure itself. However, the Senate has generally followed its current practice of submitting constitutional points of order since establishing a relevant precedent in 1924. Sustaining the submitted point of order requires an affirmative vote of a majority of Senators voting, assuming a quorum is present. A point of order submitted to the Senate for decision is debatable except when the Senate is operating under cloture. Under most circumstances, accordingly, a cloture process could theoretically be used to end extended debate and force a vote on the point of order. Under some circumstances, statutory provisions may limit debate on points of order; these debate limits would apply equally to a submitted constitutional point of order. While a submitted point of order is generally subject to extended debate, it is also subject to a non-debatable motion to table. The tabling motion could be made at any time after the point of order has been raised unless the Senate had agreed by UC to provide a specific amount of time for debate on the point of order, in which case the tabling motion could not be made until the time has expired or been yielded back. Agreeing to a tabling motion requires a majority of those voting (assuming a quorum is present). If the motion is agreed to, it adversely and permanently disposes of the point of order. Thus, if a Senator makes a motion to table the point of order, a majority of Senators could dispose of the point of order by agreeing to the motion to table. This disposition would have the effect of determining the constitutional point of order not to be well taken. A unanimous consent agreement may affect the debatability of a submitted point of order. For example, if a UC agreement sets a time certain for a vote on the matter on which a point of order is contemplated, then a submitted point of order raised against that matter would be subject to debate only until that time expires. Other language in a UC agreement (e.g., that establishes a specific amount of debate time on a pending amendment and provides for another action immediately upon the disposition of that amendment) may also preclude extended debate on a constitutional point of order raised against that amendment. Constitutional points of order are not common, relative to many other points of order that are more routinely made (e.g., that an amendment violates the Congressional Budget Act or that an amendment to an appropriations bill constitutes legislation). Table 1 presents data on constitutional points of order in the Senate made since 1989 (the start of the 101 st Congress) on which the Senate voted, as identified in the Legislative Information System (LIS) and the Daily Digest . (An examination of references to constitutional points of order in the full text of the Congressional Record for the Congresses in question did not produce any additional examples.) The table does not include any constitutional points of order that were raised but then withdrawn before a Senate vote or those that may have been rendered moot because the underlying matter was withdrawn or otherwise negatively disposed of. Of the cases identified, more than half (11 of 17) were disposed of negatively, either through a direct vote on the point of order or via a successful motion to table; the remaining six points of order were sustained. Five of the six sustained points of order were in relation to an alleged violation of the Origination Clause (Article 1, Section 7, clause 1, which provides that only the House may originate revenue measures). Of the 11 points of order that were not well taken, 10 were raised in relation to other constitutional provisions. The table makes clear that constitutional points of order raised in the 106 th and 107 th Congresses were raised exclusively on the grounds that the pending matter would violate the Origination Clause. In the most recent Congresses (111 th and 113 th ) in which constitutional points of order were raised, however, they were raised only in relation to other provisions of the Constitution. This dominance of points of order on the grounds of other (non-Origination Clause) constitutional provisions is also evident in the Congresses spanning the 1990s. This recent ebb and flow in the constitutional grounds on which such points of order are raised is similar to the historical variation that characterizes previous periods. While the Origination Clause was the primary constitutional provision invoked prior to the 1960s, other constitutional provisions were referenced with almost equal frequency in the subsequent decades. For example, from the 1960s to 1980s, points of order were raised on constitutional grounds such as the ability of the Senate to make its own rules, the process for proposing constitutional amendments, representation and apportionment issues, the line item veto, and the Equal Protection Clause. As noted in the table above, the two most recent decades included points of order raised in relation to the First Amendment, the Due Process Clause, questions of congressional apportionment and representation, and the powers afforded to Congress (and reserved to the states), among others. | In general, the Senate's presiding officer does not take the initiative in enforcing Senate rules and precedents. Instead, a Senator may raise a point of order if he or she believes the Senate is taking (or is about to take) an action that violates the rules. In most circumstances, the presiding officer rules on the point of order on advice of the Parliamentarian; that ruling is typically subject to an appeal on which the Senate votes (unless the appeal is tabled or withdrawn). Pursuant to Rule XX, however, in certain circumstances a point of order is not ruled on by the presiding officer but is instead submitted to the Senate for its decision. A point of order that a pending matter (a bill or amendment, for example) violates the U.S. Constitution presents one such circumstance. This report explains Senate rules, precedents, and practices in regard to these constitutional points of order, including an analysis of recent cases in which such a point of order has been raised, and will be updated as events warrant. A Senator can raise a constitutional point of order against any pending matter unless a unanimous consent agreement prohibits points of order or provides for a vote on the pending matter without any intervening action. A unanimous consent agreement may also affect the time at which it is in order to raise a point of order. If a specific amount of debate has been agreed to for the pending matter, the point of order cannot be raised until the time has expired or been yielded back. While past practice has varied, the Senate's rules and precedents currently require a constitutional point of order to be submitted to the Senate for disposition, with a majority of those voting (a quorum being present) required to sustain the point of order. The point of order is debatable, though the time for debate may be subject to limitations under a unanimous consent agreement or under cloture, in some circumstances, pursuant to statutory provisions. The submitted point of order is, however, subject to a non-debatable motion to table. This report identifies 17 constitutional points of order that have been raised and received a Senate vote since 1989. Eleven of these cases were disposed of negatively. |
The 112 th Congress will decide whether, and on what terms, to extend the Temporary Assistance for Needy Families (TANF) block grant and related programs. TANF was created in the 1996 welfare reform law ( P.L. 104-193 ), and is best known for helping states pay for their cash assistance programs for very low-income families with children. However, TANF also helps states finance a wide range of benefits and services that seek to either ameliorate the effects of or address the root causes of economic disadvantage among families with children. TANF is currently funded through the end of FY2012 (September 30, 2012). This report provides an overview of potential issues that might arise during a discussion of extending TANF funding or a long-term reauthorization. It does not go into detail on TANF program rules or necessarily provide the most up-to-date data on TANF. For a non-technical overview, see CRS Report R40946, The Temporary Assistance for Needy Families Block Grant: An Introduction . For a report that details TANF program rules, see CRS Report RL32748, The Temporary Assistance for Needy Families (TANF) Block Grant: A Primer on TANF Financing and Federal Requirements . For current data on TANF, see CRS Report RL32760, The Temporary Assistance for Needy Families (TANF) Block Grant: Responses to Frequently Asked Questions . TANF is a product of the welfare reform debate of the mid-1990s, which ended four decades of legislative efforts to either substantially revamp or replace the system of providing cash assistance to needy families with children. Cash assistance programs specifically for needy families with children date back to the state- and locally funded "mothers' pension" programs of the early 1900s; the federal government first funded these programs under the Social Security Act of 1935. The visibility of cash assistance programs increased in the 1960s, when caseload increases raised concerns about their cost and effects. The welfare reform debates from the late 1960s to the mid-1990s focused on issues related to families headed by a single mother (which comprised most of the families on the assistance rolls during that period), and, specifically, concerns that welfare itself helped contribute to economic disadvantage of families with children. Social science research showed that cash assistance provided to non-working families was a disincentive for the single mother to go to work. Additionally, there was much discussion that a system of cash welfare targeted toward single parent families contributed to the rise in single, female-headed families. The research evidence on the effects of cash assistance on family structure is less conclusive than it is on the effects of cash assistance on work. There were other policy concerns about the adequacy of cash assistance benefits. Cash assistance programs were run at the state and local level, with large variations in eligibility criteria and benefit amounts. The cash assistance programs also provided limited aid to the working poor. Research conducted in the 1980s and the early 1990s indicated that while many families received cash assistance for short periods of time, some families experienced long-term welfare dependency. Further, other research showed that mandatory welfare-to-work programs could be effective in moving families from the assistance rolls into employment. Thus, a policy requiring participation in activities that could lead to employment addressed the concern that receipt of cash assistance discouraged work. TANF was created in the 1996 welfare law. The basic rules of TANF are discussed below. However, TANF was only a part of a series of policy changes that addressed the many policy concerns raised by cash assistance programs. The changes in low-income assistance policies of the mid-1990s were the culmination of a shift in emphasis away from providing a safety net for families without earnings to supporting the "working poor," particularly through expansions of the Earned Income Tax Credit (EITC). Table 1 shows the cash assistance caseload in the context of related economic and social indicators for families with children for 1995 through 2010. The table shows that some of the circumstances of 2010 were very different from those of 1995. The cash assistance rolls are significantly diminished and reach a far smaller share of poor children than in 1995. The rate at which single mothers work is even higher in 2010 than in 1995 (despite the lingering effects of the 2007-2009 recession), and the poverty rate for children living in families headed by mothers is lower in 2010 than in 1995. However, some of the indicators of social and economic disadvantage commonly associated with welfare issues have changed little or have even worsened in an era of lower cash assistance caseloads. The poverty rate for all children declined in the late 1990s—but this improvement was ephemeral, as the child poverty rate increased in the 2000s even before the onset of the recession that began in December 2007. The rate at which children are born to unmarried mothers climbed in the 2000s, reaching a historical high. The continued high rates of child poverty and children being born into and living in single-mother families raise policy issues. Research has linked both being raised in a poor family and being raised in a single-parent family to lower chances of success later in life. That is, while many poor children and many children raised by a single parent do well, these factors increase the likelihood that a child will fail in school or suffer other negative outcomes. It should be noted that the diminishment of state-based cash assistance does not mean that overall spending for the poor or poor families with children has also declined. On the contrary, expansions of the EITC and a new refundable portion of the child tax credit, along with increases in Medicaid, the Children's Health Insurance Program (CHIP), the Supplemental Nutrition Assistance Program (SNAP, the program formerly known as food stamps), and Supplemental Security Income (SSI) have resulted in higher levels of outlays for total need-tested aid to low-income families, including low-income families with children. The bulk of federal TANF funding is in a basic block grant to states that totals $16.5 billion per year. States are also required to expend a certain amount of their own funds on TANF-related programs, under what is called a maintenance of effort (MOE) requirement, equal to a total minimum of $10.4 billion per year. The basic block grant and MOE amounts, both nationally and for each state, were set back in the original 1996 welfare law based on what states were spending in pre-1996 programs, and they have not been changed since. They are not adjusted for inflation or any other changes in national or state conditions (cash assistance caseloads, population, child poverty, etc.). In addition to the basic block grant, there have been federal supplemental grants and contingency funds for states that are discussed later in this report. TANF also includes competitive grants for healthy marriage and responsible fatherhood initiatives. The statutory purpose of TANF is to increase the flexibility of states to achieve four goals: 1. provide assistance to needy families so that children may be cared for in their own homes or in the homes of relatives; 2. end the dependence of needy parents on government benefits by promoting job preparation, work, and marriage; 3. prevent and reduce the incidence of out-of-wedlock pregnancies and establish annual numerical goals for preventing and reducing the incidence of these pregnancies; and 4. encourage the formation and maintenance of two-parent families. This statutory purpose is more than a symbolic statement of policy. States may use their TANF funds (and to a certain extent MOE funds) in any manner they "reasonably calculate" could further this purpose and achieve these goals. Figure 1 shows nationally how federal TANF and state MOE funds were used in FY2010. Basic assistance, the category of expenditure most commonly associated with TANF, represents only 30% of all TANF and MOE funds used in FY2010. TANF also provides substantial support to state child care subsidy programs; additional work supports such as the refundable portion of state tax credits (state versions of the EITC); and a wide range of spending in the "other" category, on activities such as providing services to families with children at-risk of being placed in foster care, early childhood education programs (e.g., pre-K programs), programs for youths, and responsible fatherhood and healthy marriage programs. Federal law gives states complete latitude in determining the rules of their cash assistance programs. States set rules for determining how low a family's income must be to qualify for assistance as well as the amount paid. In July 2010, the maximum monthly benefit for a family of three ranged from $923 in Alaska to $170 in Mississippi. The wide variation in benefit amounts is not a result of the 1996 welfare reform law; under pre-1996 policies, states also set benefit levels that varied greatly among the states. The most well-known features of both TANF and the 1996 welfare reform law are the requirements that apply to families receiving cash assistance that include an adult recipient: work requirements and time limits. The main TANF work requirement is actually a performance measure that applies to states rather than individual recipients. TANF time limits prohibit states from aiding a family with an adult for more than 60 months (five years). However, states have considerable flexibility in implementing time limits. P.L. 112-96 (the law that extended the payroll tax cut through 2012) provided TANF funding through the end of FY2012. It provides FY2012 funding for the basic TANF block grant, healthy marriage and responsible fatherhood competitive grants, and certain other funds at their FY2011 levels. It does not provide FY2012 funding for TANF supplemental grants (discussed in detail below). In addition, P.L. 112-96 prevents electronic benefit transaction access to TANF cash at liquor stores, casinos, and strip clubs; states would be required to prohibit access to TANF cash at Automated Teller Machines (ATMS) at such establishments; and requires states to report TANF data in a manner that facilitates the exchange of that data with other programs' data systems. Under the short-term extension of TANF, the 112 th Congress would have to act again to continue the program beyond September 30, 2012 (the end of FY2012). President Obama's FY2013 budget did not propose a comprehensive reauthorization of TANF. It did propose to revive TANF supplemental grants and make them permanent. It also proposed to "restructure" the TANF contingency fund, which provides additional grants to help states deal with increased costs associated with a recession. The proposed extension of TANF and the lack of an Administration proposal for a longer-term reauthorization defers the major budget and policy decisions related to the block grant. Most federal TANF policy focuses on historical concerns related to cash assistance for needy families with children, which led to the 1996 welfare law more than 15 years ago. In terms of the larger policy issues associated with TANF, the Administration did discuss some general principals it would like to see addressed. The Department of Health and Human Services FY2013 Budget in Brief says: When Congress takes up reauthorization, we want to work with lawmakers to strengthen the program's effectiveness in accomplishing its goals. This should include using performance indicators to drive program improvement and ensuring that states have the flexibility to engage recipients in the most effective activities to promote success in the workforce – including families with serious barriers to employment. We also want to work with Congress to revise the Contingency Fund to make it more effective during economic downturns. The remainder of this report will use the Administration's budget request and general principles as a framework for discussing TANF issues before the 112 th Congress. It will first discuss general budget issues and supplemental grants that are the main focus of the President's FY2013 budget request. A discussion of TANF performance measurement, its response to recessions, and subsidized employment follow. In addition, the report will briefly address a related issue of responsible fatherhood initiatives, as the Administration put forward a responsible fatherhood agenda in its FY2013 budget. For each issue, it provides a listing of policy options that generally have been drawn from proposals made in the past. Also, see " Additional Reading ," below, for documents from organizations that provide policy options that might be addressed in TANF reauthorization. TANF is a mandatory spending program, as its grants are entitlements to the states. TANF funding is provided in authorizing legislation rather than annual appropriation bills. As a mandatory spending program, it is subject to both the pay-as-you-go budget rules, requiring tax or spending offsets to any increases in spending, and the "cut-as-you-go" rules in the House, requiring spending offsets for any increases in TANF spending. Cuts or spending increases are measured relative to the "baseline." In general, the baseline is the level of funding necessary to continue current policies. Table 2 shows actual TANF grants for FY2011 and the Congressional Budget Office (CBO) January 2012 baseline for TANF for FY2012 through FY2017. In general, the TANF baseline for future years is the same as it is for the last year for which funding is provided under current law (in this case, FY2012). Because TANF grants are set in statute, there is no adjustment for inflation or other conditions (cash assistance caseload, population growth) in constructing the baseline. Supplemental grants (discussed in further detail below) are not continued in the baseline. This is because a provision in TANF law says the baseline should assume no further supplemental grants beyond its last funding authorization (through June 30, 2011). Thus, under congressional budget rules, the cost of extending supplemental grants would have to be offset. The President's FY2013 budget proposal would reinstate and make permanent TANF supplemental grants. Under the proposal, TANF supplemental grants would be funded at their FY2001 through FY2010 levels, $319 million per year. It would be paid for through a corresponding reduction in current law funding for the TANF contingency fund (discussed later in this report). As discussed above, the TANF basic block grant and MOE were set back in the 1996 welfare reform law. Each state's block grant funding level is based on federal grants to states in the pre-1996 welfare programs; the MOE is based on state spending in the pre-1996 programs. The basic block grant and MOE are frozen, not adjusted for changes in a state's economic or demographic circumstances. During debates on the legislation that became the 1996 welfare law, it was thought that this "freeze" would particularly disadvantage two sets of states: (1) those that have high rates of population growth and that would experience steeper declines than other states in their per-capita grants; and (2) those that paid relatively low benefit amounts under pre-1996 welfare programs and thus would have low federal grants compared to poverty in the state. To address this issue, Congress provided TANF supplemental grants to certain qualifying states based on historical population growth and historical grants per poor person. In total, 17 states qualified for supplemental grants: Alabama, Alaska, Arizona, Arkansas, Colorado, Florida, Georgia, Idaho, Louisiana, Mississippi, Montana, Nevada, New Mexico, North Carolina, Tennessee, Texas, and Utah. Supplemental grants reduced the disparities in TANF funding among the states in terms of grants per poor child. However, this reduction was small. (See Table A-1 for supplemental grants per poor child by state.) Supplemental grants themselves had been frozen since FY2001, and even at their full funding level some states with high population growth and increases in child poverty (e.g., Texas and Nevada) saw continuing declines in their grants per poor child. However, further addressing the issue of disparities in grants per poor child would require either additional funding or a redistribution of existing funds from states with relatively high grants per poor child to states with lower grants per poor child. From FY2001 through FY2010, supplemental grants totaled $319 million per year. In order to keep the legislation that extended TANF through FY2011 cost neutral, FY2011 supplemental grants were funded only through June 30, 2011, and at a reduced rate. Supplemental grants have not been funded in FY2012. No FY2012 funding has been provided for supplemental grants. All of the current TANF performance measures focus on the cash assistance caseload. In the past, TANF attempted to assess a broad range of outcomes through measures used to award two bonuses: the High Performance Bonus and the bonus for reducing out-of-wedlock pregnancies. The High Performance Bonus awarded grants based on state rankings of nationally based welfare-to-work measures (job entry, job retention, wage gains), receipt in the state of work supports , and the percent of children in a state living in two-parent families. The bonus for reduction in out-of-wedlock pregnancies was awarded based on state rankings of out-of-wedlock birth ratios, with a proviso that such reductions could not stem from increases in abortions. These two bonuses were repealed in 2006. A key issue was that these broad outcome measures could not be tied to what states were doing in their TANF programs. The repeal of the TANF bonuses means that the main performance measure currently used to assess state programs is the TANF work participation standard that applies to families receiving cash assistance. This measurement reflects the major welfare reform policy concerns that led to the 1996 welfare law, but it is out of step with the way states currently use TANF funds. Should Congress wish to measure and assess TANF beyond its cash assistance programs, a number of challenges would have to be addressed. Relative to the information that states are currently required to provide the federal government, measuring and assessing the broader range of TANF activities would require: (1) more detailed descriptions of the programs and activities that states are conducting in order to know what policies are actually being assessed; (2) more detailed data on how much money is spent for these programs and activities in order to know how much effort a state is making in a particular policy area; and (3) measuring program outcomes and impacts to permit assessments of whether programs are effective. The Claims Resolution Act, which extended TANF through FY2011, included a requirement that states submit supplemental expenditure reports in 2011 detailing program expenditures on activities such as child welfare payments, child welfare services, emergency aid, domestic violence services, mental health and addiction services, education and youth programs, early childhood development programs, and TANF-funded expenditures on juvenile justice. These are not categories in the existing TANF expenditure report. HHS reports from the Claims Resolution Act data confirmed that much of "other" spending is for activities for families with children who have been subject to, or are at risk of, abuse and neglect, and potentially subject to removal from the home to foster care. The additional reporting required for 2011 in the Claims Resolution Act indicates that Congress recognized that a part of the TANF story is not being told. Obtaining more detailed information imposes additional reporting burdens on the states. However, for the long term, Congress could modify TANF's existing requirements to obtain such information rather than require additional reports. Existing reports include TANF plans, which are prospective documents that states must submit before receiving their block grants, quarterly reports on expenditures and caseloads, and a retrospective annual report. Options for modifying these reports include changing the requirements for state plans to (1) describe all TANF-funded programs and activities; (2) submit information in a standardized form, for better comparisons across states; (3) relate each program or activity to a TANF goal; (4) establish goals and outcome measures for the program or activity; and (5) provide a plan for assessing the effectiveness of the activity; requiring additional detail in quarterly expenditure reports, such as the additional information required for the supplemental reports under the Claims Resolution Act; and expanding quarterly caseload reporting to include additional, selected TANF-funded benefits and services (e.g., require reporting on participants in subsidized jobs); Congress potentially also could expand relevant reporting systems in certain related programs (e.g., child care reporting system) to include TANF-funded services. In terms of requiring an assessment of TANF-funded activities, Congress could ask the U.S. Department of Health and Human Services (HHS) to re-establish some national measures and assess programs in that manner. However, because each state may use TANF's flexibility differently, another option would be to have each state set its own goals and provide an annual assessment for how these goals are being met in retrospective annual reports. As discussed above, the TANF work participation standard is the main performance measure used to assess the block grant. It relates to only one facet of what states do with TANF. It also affects a relatively small population (particularly when compared with the historical welfare caseload). However, the work participation standard reflects the welfare-to-work philosophy that helped to create TANF. Additionally, it reflects efforts to help a very disadvantaged population (those who have come on the cash assistance rolls) reintegrate into the workforce. TANF's work participation standards are numerical performance measures that set target rates of participation in work and self-sufficiency activities for a state's cash assistance caseload as a whole. They do not apply directly to recipients, though they may help shape the types of requirements states place on individuals. The TANF statute sets a target that 50% of all families with an adult recipient should be engaged in specified work or self-sufficiency activities for at least a certain number of hours per week each month. It also sets a separate two-parent work participation standard, with a target of 90% for these families. Figure 2 shows that the national average work participation rate for all families has been fairly stable over the period from FY2000 to FY2009 at a level well below 50%. The rate has hovered around 30% for the entire period. Most states have met their individual state standards because the actual, effective standard they face is lower than 50% because of credits. A state receives credit toward meeting its participation standard through caseload reductions and also for spending in excess of what is counted toward the MOE. The calculation of the work participation rate is fairly complex. Almost all activities that one would typically think of as helping a recipient achieve self-sufficiency count in some manner toward the TANF work standard—including educational and rehabilitative activities. However, the law places limits on counting pre-employment activities. The combination of job search and job readiness activities, which includes rehabilitative activities, is only countable for up to 12 weeks in a fiscal year. Vocational educational training, which includes post-secondary education, is only countable for one year in a recipient's lifetime. Completing secondary school or obtaining a General Educational Development (GED) credential for those age 20 or older are countable only in conjunction with activities more closely associated with work. Teen parents engaged in education may be considered as engaged in activities countable toward the standard. However, the combination of teen parents engaged in education and those engaged by virtue of vocational educational training cannot count for more than 30% of all families engaged in work or activities countable toward the standards. The only activities that count without limit are unsubsidized employment, subsidized employment, on-the-job training, and working off a cash assistance benefit through work experience or community service. The limits on counting pre-employment activities of job search, rehabilitation, and education raise both measurement and policy issues. In terms of measurement, they raise questions about whether the work participation rate adequately measures state effort in moving families from welfare-to-work. An alternative, broader measure that reports the percent of adult recipients engaged in any activity for any number of hours shows somewhat higher rates of engagement, but little change in the trend (fluctuating between 42% and 45% for FY2000 through FY2008). This broader measure might also understate total engagement if states fail to report participation that does not count toward the official standard. The Claims Resolution Act included a provision to require states to make a supplemental report on engagement, focusing on activities that do not count toward the official standard. HHS reports from the Claims Resolution Act reporting showed that states did fail to report some work activity, but that this failure to report some participation does not substantially alter the picture in terms of the percent of the caseload engaged in any activity. However, the Claims Resolution Act data did provide new information on the circumstantiates of those with zero hours of participation – including the share of the caseload exempt because of illness or disability (6% of all those considered work-eligible) and the share in the process of being sanctioned (10% of all those considered work-eligible). Additionally, the work participation rate only captures activities for those on the rolls. States may, and have, used TANF funds for employment and education activities for low-income parents who are not on the cash assistance rolls. A major recent example, discussed below, is subsidized employment. To address the measurement issues, Congress might seek to require states to report activities even if they don't count toward the TANF work participation standard; require the calculation of a second, broader measure of participation in self-sufficiency activities that could be developed to complement the existing, current participation standard; this could include employment and training activities for those not on the assistance rolls, such as subsidized employment and participation of low-income parents in TANF-funded community college programs. The policy question is whether the work participation standard achieves the goal of engaging a sufficient number of recipients in activities that could lead to employment. The credits against the participation standard have diluted its effect. If Congress would seek to raise the rate at which recipients engage in activities, the major issue would be determining what rate is achievable and under what circumstances. Welfare-to-work programs evaluated before the 1996 law, even the successful ones, failed to achieve a 50% monthly participation rate. The natural dynamics of the cash assistance caseload—new recipients coming on to the rolls and awaiting assignments, and others leaving—can depress monthly participation rates. A 90% participation rate for two-parent families has generally been considered difficult to achieve, and many states have withdrawn their two-parent families from TANF to avoid the necessity of achieving that standard. Most of the past proposals for changing the participation standard focused on expanding either education or rehabilitative activities (e.g., vocational rehabilitation for physical disabilities; mental health or substance abuse treatment, etc.). The evaluation literature of the 1980s and early 1990s found that education-focused programs, while effective in moving families from welfare-to-work, were not more effective than "work-first" programs even over a relatively long (five-year) time period. However, since that research was completed, a new generation of programs has emerged in the education arena that shows promise in addressing the factors that might have limited the effectiveness of past education-focused programs (for example, progressing in an educational program). Little definitive research has been done on the effectiveness of rehabilitative activities on cash assistance recipients. Moreover, it should be noted that the "work-first" approach evaluated in welfare-to-work studies emphasized job search—itself only countable for up to 12 weeks in the fiscal year under the current work participation rules. Policy options to address the policies of work participation among cash assistance families include strengthening the participation standard by eliminating credits against them, so that only participation in activities helps states achieve the work participation rate; expanding the exemptions from families being considered in the participation rate calculation, such as allowing an optional exemption for the first month on the rolls to allow states time to engage a recipient in activities; eliminating the 90% participation standard for two-parent families; and allowing broader measures of participation—that count more or even all pre-employment activities—to be used against the standard rather than the current work participation rate; the broader measure could also count selected activities of those not receiving ongoing cash assistance, such as subsidized employment. Welfare-to-work and the work participation standard reflect policies that apply to families with an adult recipient. However, a large share of the TANF assistance caseload does not have an adult recipient. In June 2011, 41% of all TANF assistance families had no adult receiving benefits on their own behalf—all benefits were paid on behalf of the children in the families. This portion of the caseload, known as the "child-only" caseload, reflects families in a range of circumstances. This includes families where (1) the parents receive Supplemental Security Income (SSI), usually on the basis of disability; (2) the children are living with non-parent caretakers, such as grandparents; and (3) citizen children are living with TANF-ineligible noncitizens. There is little federal policy that affects this portion of the cash assistance caseload. Moreover, there is little in the way of performance measurement for these families. The Government Accountability Office (GAO) recently examined the "child welfare caseload" and, focusing on those child-only cases in the care of non-relative parents, recommended that HHS clarifying its guidance and provide technical assistance to the states to facilitate greater data sharing between TANF and the agencies that deal with issues related to child abuse and neglect. The recession of 2007-2009 represents the first deep and long economic slump since the enactment of the 1996 welfare reform law. During the recession and its aftermath, the cash assistance caseload increased nationally and in most states. Though the cash assistance caseload fell during the first months of the recession, the caseload increased beginning in August of 2008. From July 2008 to June 2011, the cash assistance caseload increased by 15%, adding about 250,000 families to the monthly benefit rolls. Under TANF, the cash assistance rolls continued to be much diminished from their pre-1996 welfare reform levels. The number of families receiving benefits in June 2011—1.9 million—is well below the number receiving benefits—5.1 million—at the peak of the cash assistance caseload in March 1994, well after the end of the 1990-1991 recession. Whether the 15% rise in the TANF cash assistance caseload was an adequate response to the recession is difficult to answer. Not all demographic groups were hit equally hard by the recession. The unemployment rate for men was well above that for women, though young women and young single mothers, who represent most TANF cash adult recipients, had higher rates of unemployment than older, married women (see Table A-2 and Table A-3 for changes in unemployment and employment by family type). Additionally, TANF's response is best viewed in the context of the response of all assistance programs. The front-line program of income support during a recession is Unemployment Insurance (UI). During the 2007-2009 recession and thereafter, the share of the unemployed receiving UI was higher than during any recession since the 1970s. Moreover, UI receipt had a greater effect on reducing poverty in the most recent recession—including poverty among children living with single mothers—than it did during either the 1990-1991 or the 2001 recessions. Much of the impact of UI on incomes and poverty is owed to the legislated, ad-hoc extensions of benefits (beyond the 26 weeks of regular UI benefits usually available). Taken together, all transfer programs had a substantial impact in mitigating the income loss during the 2007-2009 recession and its aftermath. Further, TANF responded to the recession in ways other than through increases in the cash assistance caseload. As discussed below, TANF also funded subsidized jobs in response to the recession and provided emergency, short-term aid to families. Participants in subsidized employment and receiving short-term aid are not counted in the TANF assistance caseload figures. However, the experience of the 2007-2009 recession raises a number of policy concerns. First, some of the policies outside of TANF to aid families during the recession—particularly the extensions of UI benefits—are not part of permanent policy, but rather were temporary measures enacted to respond to the recession. There is no assurance that Congress will be able or willing to respond to future recessions in the same manner. Second, the 1996 welfare law included a $2 billion contingency fund, most of which was still available at the beginning of FY2008. However, the fund was exhausted in early FY2010 based on grants made to relatively few states (18 states and the District of Columbia). Many states failed to qualify for regular contingency funds because of its requirement that states expend more than 100% of what they spent in FY1994 to receive matching grants. Congress augmented the regular contingency fund by creating a temporary, Emergency Contingency Fund (ECF), funded at $5 billion for two years, FY2009 and FY2010. The ECF only financed expenditures for basic assistance, short-term non-recurrent aid, and subsidized jobs. However, it allowed states to access these funds based on increased expenditures in these categories from the recent pre-recession years rather than increases from pre-welfare reform levels. The ECF rules expanded access to extra funding and 52 of the 54 jurisdictions operating TANF drew ECF grants. However, the ECF also is not part of permanent law, and it expired on September 30, 2010. Finally, the story of how TANF responds to the recession is ongoing, given the persistent high rate of unemployment. The most likely options for Congress to address TANF's ability to respond to a future recession are through changes to the contingency fund. Congress might consider adding new funding to the contingency fund or establishing policies that would structure aid (though, given budget constraints, not necessarily automatically provide funding) that would be available in future recessions. Congress might consider the following: Revising the requirement that states spend more than 100% of what they spent in FY1994. Like the ECF, proposals approved by the Senate Finance Committee (but not acted on by the full Senate) during the 2002-2005 period would have allowed access to contingency funds on the basis of increased expenditures from recent, pre-recession years, rather than linking it to increased spending from FY1994 levels. Narrowing the types of expenditures reimbursed to target economic aid to families, such as basic assistance, short-term emergency aid, and subsidized employment. This would help ration extra funding, which otherwise might be diverted into fiscal relief that could be simply re-financing existing state spending on human services. Revising the economic criteria for allowing access to the contingency fund. This might help target aid to periods when a state experiences its next economic slump. The current economically needy criteria for states—particularly the criterion that Supplemental Nutrition Assistance Program (SNAP ) caseloads be at least 10% above pre-welfare reform levels—are likely to be met by many states long after the recent recession has ended. Despite the focus on work during the 1996 welfare reform debate, subsidized employment has been a relatively small part of TANF throughout most of its history. However, the ECF (discussed above) provided grants of $1.3 billion to help finance subsidized employment during FY2009 and FY2010. The ECF was estimated to have funded 262,500 job slots during its lifetime. TANF-funded subsidized employment programs can be for those who are on the cash assistance rolls, or for those who are not receiving cash assistance but qualify for TANF: needy custodial parents, noncustodial parents, nonparent caretaker relatives (grandparents, aunts, and uncles) or youth. That is, a subsidized job can be provided in lieu of cash assistance or to certain persons (e.g., noncustodial parents) who are unlikely to receive TANF cash assistance. Subsidized employment programs can benefit individual participants by providing job experience for those with limited work histories, filling gaps in employment histories for those who are unemployed for long periods of time, and keeping an individual attached to the labor force. Subsidized employment programs can also provide more income for families than TANF cash assistance benefits provide. Subsidized employment programs can also benefit communities by producing goods or services that are of value to the community. However, a more difficult question to answer is whether subsidized employment programs actually create jobs. While programs must comply with non-displacement requirements (cannot use a subsidized job to fill a position where someone is on layoff), this does not mean that all subsidized employment positions reflect jobs that otherwise would not exist. Research on public sector, public service jobs in the 1970s found that state and local governments did to some degree substitute subsidized jobs for regular public sector jobs. The applicable research is more limited on whether subsidized private sector jobs can substitute for regular jobs. One of the Obama Administration's "general principles" for reauthorization of TANF is to build on recent experience with TANF subsidized employment. Congress could consider establishing a dedicated funding stream for subsidized employment; and/or creating non-financial inducements for states to expand their subsidized employment programs, such as counting participation in subsidized employment for those not on the ongoing cash assistance rolls toward a state's work participation standard. The current cash assistance programs date their lineage to "mothers' pension" programs, and most of the policy concerns in past welfare reform debates have focused on families headed by a single mother. The circumstances of the fathers of children living with single mothers—today, more likely to be alive but absent from the household rather than deceased—have received far less policy attention until recently. Noncustodial fathers are expected to help support their children through the payment of child support. Child support collections through the Federal-State Child Support Enforcement (CSE) program increased dramatically in the post-welfare reform period, rising 73% in inflation-adjusted terms between FY1995 and FY2009. Total CSE collections stood at $26.4 billion in the recession year FY2009. Despite the successes of the CSE program in increasing collections, the CSE program collected only 64% of the total amount of current support that was due and an even smaller proportion (7%) of past-due support. One common characterization of noncustodial fathers who fail to pay their child support is that of a "dead-beat" dad. However, research has shown that some of these fathers are themselves poor. These fathers—like their single mother counterparts—tend to have lower levels of educational attainment and face above-average rates of health barriers to employment. Long-term economic and social trends reflect some of the challenges to policies that would further involve men in the lives of their children. Wages of men in general have been stagnant—the inflation-adjusted median annual earnings of a man working full-time all year peaked in 1973—and for men with lower levels of educational attainment, wages have fallen. Fathers face an additional barrier to supporting their children—high rates of incarceration. In 2009, 949 per 100,000 males were incarcerated versus 67 per 100,000 females. For African-American males, the incarceration rate was 3,119 per 100,000. While fathers who are in prison have obvious constraints on their ability to support their children, the stigma of having a criminal record is an employment barrier faced by ex-offenders. The Deficit Reduction Act of 2005 ( P.L. 109-171 ) established within the TANF program two categorical, competitive grant programs to fund healthy marriage and responsible fatherhood initiatives. For FY2006 through FY2010, the grants were funded at about $100 million per year for healthy marriage activities and $50 million per year for responsible fatherhood activities. These programs fund grants to community-based organizations, to operate initiatives that focus on providing training in "soft-skills" (e.g., social skills, conflict resolution) to help either couples or noncustodial fathers. TANF's one year extension in the Claims Resolution Act provided equal funding at $75 million each for these two sets of activities, though the Administration solicited grantees who would take a more comprehensive approach to fatherhood issues, integrating employment services with soft-skills training. Congress has a number of options should it wish to expand programs focused on fathers. It could create a new funding stream within the CSE program for this purpose. Or Congress might consider ways states could make more extensive use of existing TANF funds to serve disadvantaged noncustodial parents by, for example, continuing DRA-established programs, possibly emphasizing activities such as employment services in addition to training in social skills; providing states with the incentive to expand subsidized jobs programs for noncustodial parents; an example of such an incentive is allowing states to count participants in subsidized employment who are not recipients of ongoing cash assistance toward the TANF work participation standard; establishing a TANF state plan requirement that requires states to discuss and set goals for noncustodial parents; this could be paired with requiring states to assess their efforts at aiding noncustodial parents. P.L. 112-35 ( H.R. 2943 , Geoff Davis). Extended TANF basic, healthy marriage and responsible fatherhood, and mandatory child care grants (and certain other TANF funds) through December 31, 2011. Passed the House, September 21, 2011; passed the Senate, September 23, 2011; signed by the President, September 30, 2011. P.L. 112-78 ( H.R. 3765 , Camp). Includes a two-month extension of TANF funding through February 29, 2012. Passed by both the House and Senate by unanimous consent, and signed by the President, on December 23, 2011. P.L. 112-96 ( H.R. 3630 , Camp). Includes provisions to extend TANF basic, contingency fund, responsible fatherhood and healthy marriage grants, and mandatory child care funds through the end of FY2012. Also provides that TANF cash assistance cannot be accessed in strip clubs, liquor stores, or casinos. Requires that TANF data reported by states be in a standardized format. Passed the House December 13, 2011. Amended to provide a two-month extension of TANF funding without policy changes and passed by the Senate December 17, 2011. Conference agreement, including an extension of TANF through the end of FY2012, filed on February 16, 2012, and passed both the House and Senate February 17, 2012. Signed by the President on February 22, 2012. S. 943 (Hatch) and H.R. 3567 (Boustany). Would require states to establish policies that prevent the use of TANF cash assistance in any transaction that occurs in a liquor store, a casino, or a strip club. States that fail to implement a policy could be penalized with a funding reduction of up to 5% of the state family assistance grant. Amended version passed the House February 2, 2012. H.R. 628 (Cleaver). Establishes a $20 billion TANF Emergency Contingency Fund for FY2011 through FY2018. It provides funding for increases in cash assistance, non-recurrent short-term benefits, and subsidized employment. H.R. 1135 (Jordan) and H.R. 1167 (Jordan). Similar bills; both would reduce the TANF basic block grant to $15.5 billion. Also, both would set an overall cap on spending for need-tested benefits, enforced through the congressional budget process. H.R. 2277 (Doggett). Would extend TANF supplemental grants through the end of FY2011 (September 30, 2011). H.R. 3193 (Fincher). Would require state TANF programs to operate random drug testing programs for TANF applicants and recipients and would require state TANF programs to deny assistance to individuals who test positive for illegal drugs or are convicted of drug-related crimes. The state family assistance grant would be reduced by 10% if a state does not implement a drug testing program. H.R. 3226 (Lee). Would reestablish the Emergency Contingency Fund for state TANF programs to provide funding related to increased caseload, increased expenditures for non-recurrent short-term benefits, and increased expenditures for subsidized employment. H.R. 3573 (Moore). Would permanently reauthorize TANF, increase the basic block grant for both inflation and child population growth since 1996, prospectively increase the block grant for inflation and child population growth, establish open-ended matching grants for subsidized employment, revise the TANF contingency fund, and provide open-ended matching grants for child care. It would establish reducing child poverty as the first goal of the block grant. The bill would also prohibit states from ending benefits entirely (full family sanctions) for failure to meet program requirements, require states to engage in a sanction review process with a family before imposing a sanction, and prohibit states from imposing a time limit on receipt of assistance of less than 60 months. It would also require states to determine a family budget necessary to meet basic needs, as well as penalize states that fail to provide a benefit commensurate with such a family benefit. H.R. 3638 (Grijalva). Includes a provision to establish a $5 billion contingency fund for FY2012 and FY2013. H.R. 3659 (Paulsen). Includes provisions to extend TANF basic, contingency fund, responsible fatherhood and healthy marriage grants, and mandatory child care funds through the end of FY2012. Also provides that TANF cash assistance cannot be accessed in strip clubs, liquor stores, or casinos. Requires that TANF data reported by states be in a standardized format. Passed the House December 15, 2011. H.R. 3722 (Pearce). Would require states to operate drug testing programs for all applicants of assistance and require sanctions for those that fail the test. Also requires applicants to pay the costs of the drug test up-front. Such costs would be reimbursed to the applicant once he or she passes the drug test and begins to receive assistance. S. 83 (Vitter) and H.R. 1769 (Boustany). Would require states to operate drug testing programs for recipients of TANF assistance, and would require states to sanction individuals who fail drug tests. The American Public Human Services Association and the National Association of State TANF Administrators, Temporary Assistance for Needy Families: Recommendations for Reauthorization , December 2010, http://www.aphsa.org/Home/Doc/APHSA-NASTATANFRecommendations.pdf . Katherine Bradley and Robert Rector, Confronting the Unsustainable Growth of Welfare Entitlements: Principles of Reform and Next Steps , Heritage Foundation, June 24, 2010, http://thf_media.s3.amazonaws.com/2010/pdf/bg2427.pdf . Elizabeth Lower-Basch, Goals for TANF Reauthorization, Center for Law and Social Policy January 24, 2011, http://www.clasp.org/admin/site/publications/files/TANF-Reauthorization-Goals.pdf . | P.L. 112-96 funds TANF through the end of FY2012. It generally provides FY2012 TANF funding at FY2011 levels, but does not fund TANF "supplemental grants." In addition, P.L. 112-96 prevents electronic benefit transaction access to TANF cash at certain establishments, and also revises TANF reporting standards to facilitate data exchanges with other programs. The short-term extension of TANF defers major budget and policy decisions related to the block grant. Most federal TANF policy focuses on historical concerns related to cash assistance for needy families with children, which led to the 1996 welfare law. However, TANF has evolved into a funding stream that funds a wide range of economic aid and human services that address economic and social disadvantage for families with children. In FY2010, only 30% of all federal TANF and associated state dollars were used for basic monthly cash assistance. The recent recession was the first long and deep one since the enactment of the 1996 welfare law. TANF's contingency fund, established in 1996 to provide extra grants during recessions, was exhausted in early FY2010. Congress created a $5 billion temporary Emergency Contingency Fund (ECF) for FY2009 and FY2010 that provided extra funding to help pay for increased cash assistance caseloads, short-term aid, and subsidized employment. The ECF expired on September 30, 2010. Congress might consider policy alternatives to provide states with extra funding during the next economic downturn. A TANF-funded activity that was substantially expanded during the recent economic downturn was subsidized employment. The ECF provided $1.3 billion for subsidized employment for an estimated 262,500 slots during the lifetime of the fund. TANF-funded subsidized employment can be for those on the assistance rolls as well as other low-income parents, caretakers, or youth. Congress might consider ways to encourage states to continue subsidized employment activities, including providing dedicated funding for this activity and/or considering participation in subsidized employment for individuals not receiving ongoing assistance when assessing state TANF performance. Additionally, most traditional welfare reform issues have focused on families headed by a single mother. Current law provides TANF grants to community-based organizations for initiatives to promote both healthy marriage and responsible fatherhood. However, poor noncustodial fathers, like their poor single mother counterparts, tend to have low levels of educational attainment, weak attachment to work, and health barriers to employment. They might also have a criminal record. Congress might examine ways to expand TANF-funded work and employment services for disadvantaged noncustodial fathers. |
The Section 8 Housing Choice Voucher program provides monthly rental assistance to around 2 million low-income households each year. It is administered at the local level by quasi-governmental public housing agencies (PHAs). While some form of Section 8 rental assistance has been in place since the mid-1970s, the modern program was shaped largely by the 1998 assisted housing reform act ( P.L. 105-276 ). More than a decade later, the Section 8 Housing Choice Voucher program has come under new scrutiny, with PHA industry leaders, low-income housing advocates, both the Bush and Obama Administrations, and some Members of Congress calling for reforms. Further, recent efforts to reduce domestic discretionary spending have resulted in constraints in funding for the program, which has intensified PHAs' calls for cost-saving administrative reforms. This report introduces the primary features of the Section 8 Housing Choice Voucher program, issues that have arisen, and recent reform proposals. The current Section 8 Housing Choice Voucher program and its approximately 2 million vouchers are administered by more than 2,500 local PHAs across the country. PHAs vary greatly in their size, jurisdiction, and capacity. Some administer as few as 10 vouchers, while one PHA, the New York City Housing Authority, administers almost 90,000. Roughly half of all PHAs administer 250 or fewer vouchers. Some PHAs have jurisdiction over all rural areas of a state or an entire county or city, while others have jurisdiction over only part of a city or county. Some PHAs have a full-time director and a large staff; others have one person serving part-time as both the director and sole staff. This heterogeneity has been criticized at times by some researchers and housing advocates. They have argued that housing markets are regional, and thus housing programs should be administered on a regional level. Most other social service programs serving low-income families—such as Temporary Assistance for Needy Families, child care assistance, and the Supplemental Nutrition Assistance Program (SNAP, formerly Food Stamps)—are administered at the state level. If the voucher program were administered at the state level, it is argued, it might be easier to coordinate it with other social services. A recent Government Accountability Office (GAO) report suggested that consolidated administration of the voucher program could increase efficiency; however, it could also result in reduced local control over the program. The organizations representing PHAs have generally argued in favor of the current locally driven and focused system. Local PHAs have important local connections with entities ranging from landlords to zoning boards, connections that states, they contend, would not have. Furthermore, PHAs have the most experience in administering federal housing assistance for the poor, both through the voucher program and the federal public housing program. HUD has taken some steps to encourage consolidation of PHAs. For example, the department has provided guidance to PHAs on how to voluntarily transfer their voucher programs to another PHA. Many of the features of the program (described throughout this report) are set by federal statutes and regulations, such as the general eligibility requirements, maximum subsidy levels, minimum tenant contributions towards rent, and basic housing quality standards. However, PHAs are given discretion in some areas, such as managing and prioritizing their waiting lists for assistance and screening tenants for suitability. PHAs must describe their programs and how they are using their local discretion in five-year and annual PHA plans, as well as in administrative plans. All of these plans must be developed with public input and made available for public review. (For more information about PHAs' discretionary authority, see CRS Report R42481, The Use of Discretionary Authority in the Housing Choice Voucher Program: A CRS Study , by [author name scrubbed].) Today's voucher program provides a federally defined subsidy, called a voucher, which a family can use to help pay its housing costs in the private market. That voucher pays roughly the difference between a unit's rent and the tenant's contribution towards the rent. The bulk of voucher funds provided by HUD to PHAs is used to renew existing, previously funded and authorized vouchers. New vouchers are called incremental vouchers. No funds had been provided for new, general purpose incremental vouchers since 2002; however, the appropriations acts since FY2008 have all provided funding for incremental vouchers for targeted populations, including homeless veterans and families in the child welfare system. In addition to receiving funding for the rent subsidies themselves, PHAs receive funding for the cost of administering the program. PHAs earn administrative fees on a per-voucher basis. They can use their administrative fee funding to cover the cost of administering the voucher program, and for other purposes, such as providing supportive services, downpayment or security deposit assistance, or housing search assistance. The voucher program is governed by hundreds of pages of regulations and guidance that make it, some argue, costly, overly prescriptive, and difficult to administer. Past reform initiatives have proposed to convert the current program into something more akin to a block grant, redefining the concept of a voucher by instead providing funds that PHAs could use for rental assistance, homeownership assistance, and/or supportive services, as defined by the grantee. A "voucher" would no longer have uniform meaning, and PHAs could provide more or less generous assistance to families at their discretion, outside of some, if not all, current federal rules. Such a reform would be consistent with the 1996 welfare reform law that abolished the Aid to Families with Dependent Children (AFDC) program and replaced it with the broader-purpose Temporary Assistance for Needy Families (TANF) block grant. The concept of block-granting the voucher program raises concerns among low-income housing advocates, who argue that block granting could lead to funding cuts, that block grants can lead to less federal oversight and less transparency about how funds are being spent, and that existing rules and regulations are necessary to protect tenants. To some degree, the Moving to Work (MTW) Demonstration (discussed later in this report) has allowed some PHAs to receive their federal housing assistance funding (Section 8 and public housing) in block grant form. MTW has been popular with participating PHAs, who feel that the added flexibility allows them to innovate and run more efficient programs. Low-income housing advocates have criticized MTW for lacking transparency and clear program objectives and for allowing PHAs to adopt proposals—such as time limits and work requirements for recipients—that they argue are detrimental for assisted families. (For more information about MTW, see CRS Report R42562, Moving to Work (MTW): Housing Assistance Demonstration Program , by [author name scrubbed].) In some cases, families can use their vouchers to help pay the monthly costs of a mortgage, but only if their local PHA chooses to run a homeownership voucher program. There has been debate about how much of the voucher program should, and can realistically, be focused on promoting homeownership. The George W. Bush Administration made a priority of increasing the number of first-time homebuyers making purchases with homeownership vouchers. Successful homeownership can help lower-income families build assets and wealth, which can help their long-term financial security. However, the voucher homeownership program has minimum requirements that many families currently served by the rental voucher program may be unable to meet (minimum income standards, employment requirements). Furthermore, some voucher families, particularly those in low-wage and/or volatile employment markets may not have the financial stability necessary to successfully maintain homeownership. Given the recent turmoil in the housing market, the immediate future growth of the voucher homeownership option is uncertain. After a peak of nearly 2,800 closings in FY2004, the number of closings has averaged around 1,700 per year through the end of FY2010, and around 1,100 closings in FY2011 and FY2012. Under the current rules of the voucher program, families pay an income-based rent. Specifically, families are required to pay 30% of their adjusted incomes toward rent, although they may choose to pay more. Given this income-based rent structure, as tenants' incomes increase, the amount they are required to pay in rent increases, and as their incomes decrease, the amount they are required to pay in rent decreases. The current income-based rent structure used in the voucher program—and most other HUD rent-assistance programs—is based on the concept of affordability. It is generally accepted that housing is affordable for low-income families if it costs no more than 30% of their adjusted gross income, on the assumption that low-income families need the full remaining 70% to meet other needs. However, this figure may be considered somewhat arbitrary. For some families with few costs for work, transportation, medical, child care, or other needs, 40% or even 50% of income might be a reasonable contribution toward housing costs. In fact, the current voucher program allows families to choose to pay up to 40% of their incomes toward housing costs initially, and even greater amounts upon renewal of a lease. For other families, with high expenses for work, transportation, medical, child care, or other outside costs, some percentage lower than 30% might be the most reasonable, or "affordable," contribution. In fact, in the early years of the rent assistance program, the standard was set lower, at 25% of family income. Critics of the current rent calculation, including the former George W. Bush Administration and some PHA industry groups, have argued that PHAs should have the flexibility to modify the existing income-based rent system or adopt new systems partially or fully decoupled from income, such as flat or tiered rents. Under flat rents, families would pay a PHA-determined, fixed, below-market rent, based on unit size, regardless of their incomes. As income changed, rent would stay the same. Current law permits PHAs to set voluntary flat rents for public housing. Families are permitted to choose to pay flat rents, but must be permitted to switch back to income-based rents. Under tiered rents, PHAs could set different flat rents for broad tiers of income. Families would pay the rent charged for their income tier, and only fluctuations in income that move them from one tier to another would change their rent. If PHAs set rent tiers very low, then fewer tenants would face an increase in rent, but PHAs could face higher voucher costs. If the tiers were set higher, then more tenants would face rent increases, but PHAs would see reduced voucher costs. Shallower subsidies under flat or tiered rents would allow PHAs either to save money or serve more people with the same amount of money, depending on the authority provided by HUD and Congress. However, shallower subsidies would also result in greater cost-burdens for the lowest-income families. Many PHAs that have been given the choice to adopt alternative rent structures—those participating in the Moving to Work demonstration—have made that choice. According to data from HUD, nearly half of MTW PHAs have adopted flat or tiered rents. Another argument in favor of moving away from an income-based rent structure concerns administrative ease. The current complicated rent calculation, paired with the difficulty of verifying the incomes of tenants, has led to high levels of error in the subsidy calculation. According to a HUD 2001 Quality Control study looking at data from 2000, over 60% of all rent and subsidy calculations contained some type of error. The report estimated the errors resulted in $1 billion in subsidy over- and under-payments. These errors led the Government Accountability Office (GAO) to designate the Section 8 program as a "high risk" program, meaning that it was particularly susceptible to waste, fraud, and abuse. HUD has undertaken a number of initiatives to try to reduce errors. Beginning with the FY2003 Consolidated Appropriations Act ( P.L. 108-7 ), HUD was given access to the National Directory of New Hires, a database that may allow PHAs to better verify income data. HUD has also implemented the Enterprise Income Verification system, a fraud-detection tool that makes income and wage data available to PHAs. It appears these efforts have resulted in some improvement. The FY2009 Quality Control study found a 60% reduction in erroneous payments from 2000, down to $440 million, but up from $400 million the prior year. About 42% of subsidies were erroneously calculated, down from 60% in 2000, but up from 39% in FY2008. In 2007, GAO removed the rental assistance program from its high risk series. Adopting flat or tiered rents could substantially reduce—if not eliminate—errors in rent calculations. A flat rent structure may also help reduce the work disincentives inherent in the current calculation. Since rent goes up as income goes up, families face an effective 30% tax on any increase in earnings and therefore they may have a disincentive to increase earnings and/or an incentive to under-report income. To help address this problem in the public housing program, Congress has instituted a mandatory earned income disregard that applies to new earnings for some families; however, no such mandatory disregard exists in the voucher program, except in the case of certain recipients who have disabilities. If PHAs administering the voucher program choose to voluntarily disregard increased earnings, they will not receive funding to cover the increased subsidy costs, or they may face sanctions from HUD for not accurately calculating subsidies. Under flat or tiered rents, families can generally increase their earnings without facing changes in their rents. Low-income housing advocates generally agree that the current rent-setting system is overly complicated, but still support income-based rents over flat rents. Flat rents are not as responsive to changes in family income as income-based rents, and their adoption could result in some families paying more toward rent than is generally considered affordable (30% of income). They argue that changes to the method of calculating income could do much to simplify the rent-setting process. Eligibility for a voucher is based on a family's annual gross income, and the amount of rent a family must pay is based on a family's annual adjusted income. The current system for calculating income, as noted earlier in relation to rents, has been criticized as cumbersome and prone to errors. Annual income, which is used for determining eligibility and is the basis for determining adjusted income for rent-setting purposes, is defined as all amounts that are anticipated to be received by all members of a household during the subsequent 12-month period, with some exclusions (such as foster care payments). Anticipating low-income families' future incomes can be difficult, as their employment is often variable. The composition of a family may also be variable, with members joining or leaving the household over the course of a year. Further, PHAs are expected to verify families' incomes using third-party sources. While this process helps to ensure accuracy, it can be time-consuming for PHAs. Once the total amount of a family's income has been determined, adjusted income is calculated for rent-setting purposes by applying various deductions. From total annual income, the family may qualify to have certain amounts deducted, such as $480 per dependent; $400 for elderly and disabled households; and reasonable child care expenses, disability expenses, and certain medical expenses of the elderly or disabled. The complexity of the income determination system is a factor driving errors in rent determination. Many of the requirements are statutory, so changes would require congressional action. Some of the current requirements are regulatory, rather than statutory, and PHA groups have called on HUD to simplify the process. In the past, HUD has stated that it is looking at ways to improve the income calculation process, although no major administrative changes have been made. The current voucher program sets initial eligibility for assistance at the very low-income level (50% or below of local area median income (AMI)), with a requirement that 75% of all vouchers be targeted to extremely low-income families (30% or below local AMI). The targeting requirement was enacted as a part of the 1998 assisted housing reform law ( P.L. 105-276 ) and was designed to ensure that the neediest families received assistance. Serving lower income families results in higher costs per voucher. In a limited funding environment, the higher the per voucher cost, the fewer the number of families that can be served. The difficult tradeoff between serving more families with less generous subsidies or serving fewer families with more generous subsidies can be found in most social programs and lies at the center of many of the voucher reform debates. The George W. Bush Administration advocated loosening current targeting standards in an attempt to either serve more families or reduce the cost of the program. Low-income housing advocates have generally supported retaining current income eligibility and targeting requirements, arguing that the lowest-income households face the heaviest rent burdens and are the most in need of assistance. The voucher program does not currently have time limits or work requirements for applicants or recipients. Families that receive voucher assistance can retain that assistance until they choose to leave the program; they are forced to leave the program (due to non-compliance with program rules or insufficient funding); or their incomes rise to the point that 30% of their incomes equal their housing costs, at which point their subsidy is zero. The public housing program does have a mandatory eight-hour per month work or community service requirement for non-elderly, non-disabled tenants; however, many public housing residents are exempted. Some have advocated setting time limits for receipt of voucher assistance and making work a requirement for ongoing eligibility. They argue that under the current system, families have no incentive to increase their incomes or work efforts and leave the program. Adopting a work requirement in the voucher program may help encourage non-elderly, non-disabled households that are not currently working to go to work. Time limits and, particularly work requirements, have been at least partly credited with decreasing the size of the cash assistance caseload in the Temporary Assistance for Needy Families (TANF) program. Another reason to consider time limits relates to the fact that many communities have long waiting lists for assistance. Since few new vouchers have been funded in recent years, turnover in the current program is the primary way to serve those families on the waiting lists. There is some evidence that families with children, those most likely to be affected by work requirements and time limits, already leave the program relatively quickly. According to HUD research from 2003, the median length of stay for families with children is two and a half years. Further, while time limits and work requirements may help move families out of the voucher program, it is unclear whether such changes would increase families' incomes or lead to self-sufficiency. Research based on the 1996 welfare reform changes ( P.L. 104-193 ) indicates that for many poor families, increases in work do not necessarily translate into greater total income, and most households need work supports (such as child care and transportation assistance) in order to make them successful in becoming financially self-sufficient. Such supportive services are not currently a part of the voucher program, and would likely require additional funding. In fact, it is unclear how low-income families that are leaving the program now are meeting their housing costs. HUD conducted preliminary research looking at families with children who left the voucher program over a five-year period, and found that less than 1% of them had incomes sufficient to afford an apartment at the fair market rent in their community. Low-income housing advocates promote providing incentives for families to increase their work efforts and their incomes, rather than time limits and work requirements. For example, non-elderly, non-disabled families could be encouraged to find and increase work through expansions in the Family Self-Sufficiency program (FSS), which provides work supports for some tenants with vouchers and deposits participating tenants' increased rent payments (that result from increased earnings from work) into escrow accounts on their behalves. However, not every PHA runs an FSS program; as of 2008, 28,469 voucher program participants were enrolled in FSS programs. The full effects of FSS are unclear, as it has not been implemented using as a demonstration or in such a way as to test its impact. HUD has produced a couple of descriptive profiles of FSS participants, which found higher income increases experienced by FSS program participants compared to non-FSS participants. Before a PHA can make subsidy payments for a unit selected by a tenant, the unit must first be inspected to ensure that it complies with the HUD-adopted Housing Quality Standards (HQS). If the unit is approved, it must be reinspected at least annually. If the unit fails inspection, the PHA cannot make payments to the landlord until the unit is in compliance. These inspections are designed to protect tenants from living in substandard housing. However, the inspections themselves (or finding inspectors to conduct them) can add delays to the leasing process, which may result in landlords' reluctance to participate in the voucher program and families losing out on units in tight markets. Further, some HQS failures may be found for violations that a tenant might consider a "minor" violation (such as missing light-switch plates or a tear in the carpet that could be considered a tripping hazard), yet PHAs are still required to withhold payment. This may also contribute to landlords' reluctance to participate in the program. The prevalence of substandard housing varies widely; for example, areas with a relatively new housing stock (particularly in the Southwest) may only need inspections every couple of years to ensure quality, whereas areas with a relatively old housing stock (such as the Northeast) may require more frequent inspections, perhaps even more than once a year, in order to ensure quality. Although there have been calls to change the inspection requirements, it has proven difficult to balance providing flexibility to PHAs to address the needs of specific communities with ensuring protection for tenants from substandard conditions. Section 8 vouchers are nationally portable, which means that families can take their vouchers and move from the jurisdiction of one PHA to the jurisdiction of another PHA. Once a family moves, the two PHAs come to an agreement on how to administer the voucher. The receiving PHA can "absorb" it, meaning the receiving PHA agrees to serve the family with one of its vouchers, freeing up the voucher for the originating PHA. Alternatively, the receiving PHA can also choose to "bill" the originating PHA for the voucher, meaning the receiving PHA will administer the voucher on behalf of the originating PHA, and will seek reimbursement from the originating PHA for any costs associated with the voucher. In a billing situation, the originating PHA will retain the voucher as a part of its stock, and if and when the family leaves the program, the originating PHA can reissue it. There are advantages and disadvantages to both billing and absorbing. Receiving PHAs that bill only receive a partial (80%) administrative fee from the originating PHA, yet the administration can be complicated. Receiving PHAs that absorb vouchers have to serve the porting family before the next person on their own waiting list, a person who may have been on the waiting list for a long time already. Recognizing these problems, PHAs have the ability to limit portability. A PHA can require a family to live in its jurisdiction for up to one year upon initial receipt of a voucher and a PHA can deny a portability move if it will increase PHAs costs above what can be supported by federal appropriations. Proposals have been offered to alter portability to make it administratively easier. They have ranged from limiting portability except between jurisdictions with preexisting agreements to having a national pool of vouchers that could be used to smooth out the absorption process. Proposals that limit portability result in limits to families' choices; proposals that involve national pools generally require additional funding. Portability offers the possibility for families with vouchers to move from areas of high concentrations of poverty, poor schools, and little employment opportunity to areas with low concentrations of poverty, good schools, and more employment opportunity. Research looking into the effects of mobility on families has found generally positive effects, but not in all cases or to the extent that researchers and proponents had expected. Advocates for low-income families have argued that the mobility potential of portability has not been fully reached. They argue for more funding for mobility counseling and performance standards that encourage mobility efforts. Advocates for state or regional administration of the voucher program argue that moving away from PHA-level administration could help improve mobility. (For more information, see CRS Report R42832, Choice and Mobility in the Housing Choice Voucher Program: Review of Research Findings and Considerations for Policymakers , by [author name scrubbed] and [author name scrubbed].) The cost of a voucher is equal to roughly the difference between the rent for a unit (capped by a maximum set by the PHA and called the payment standard) and the tenant's contribution toward the rent (generally, 30% of the tenant's income). The cost of a voucher fluctuates as a family's income and market rents increase or decrease. Prior to FY2003, HUD reimbursed PHAs for the actual cost of their vouchers, and each year, HUD would ask Congress for funding sufficient to cover what HUD anticipated it would take to fund PHAs' costs. Due partly to changes in the rental market and partly to changes in the rules of the voucher program (such as increases in the payment standard), PHAs' actual costs began rising rapidly in 2002 and 2003. This raised concerns for both the George W. Bush Administration and Congress about the cost of the program. Partly in response to these cost increases, the Bush Administration proposed potentially cost-saving changes in both the way that PHAs received funds and in the underlying factors that led to the cost growth, including the amount tenants were asked to contribute toward rent and the maximum payment standard. Congress reacted by changing only the way that PHAs received their renewal funding, without enacting other program reforms. In FY2005, Congress directed HUD to fund PHAs based on the amount of funding they received in the previous year, rather than their costs. This new funding formula, which was continued in FY2006, was more predictable for PHAs, similar to formulas used for other discretionary social programs, and easier for HUD to administer. However, it also led to funding problems for some PHAs, whose actual costs were still driven by the difference between rents and incomes in their communities, while their funding was capped. As a result, some PHA groups called for either a change back to an actual cost funding formula or changes to the structure of the voucher program that would allow them to better control their costs. In the FY2007 funding law ( P.L. 110-5 ), Congress reverted back to a funding formula based on actual costs and utilization. A similar formula has been adopted each year since. (For more information, see CRS Report RL33929, The Section 8 Voucher Renewal Funding Formula: Changes in Appropriations Acts , by [author name scrubbed].) In recent years, as per voucher costs and the number of vouchers in use have risen, some Members of Congress have expressed concern about the rising cost of the Section 8 voucher program. These concerns have led to continued calls for program reforms to constrain future cost growth. A 2012 GAO report examined recent cost growth in the voucher program and found that it was largely driven by market factors; during the recent economic recession, tenant incomes have declined significantly and rents have increased significantly. In recent years there have been calls to expand the Moving to Work (MTW) Demonstration. MTW was authorized by Section 204 of the Omnibus Consolidated Rescissions and Appropriations Act of 1996 ( P.L. 104-134 ) in order to design and test ways to promote self-sufficiency among assisted families; achieve programmatic efficiency and reduce costs; and increase housing choice for low-income households. Under Moving To Work, HUD can select up to 30 PHAs to participate in the demonstration and receive waivers of most rules that govern public housing and the Section 8 voucher program (those under the U.S. Housing Act of 1937 (P.L. 75-412, as amended)). With HUD approval, MTW agencies can merge their Section 8 voucher, public housing capital and public housing operating funds, alter eligibility and rent policies, modify their funding agreements and reporting requirements with HUD, and make other changes. Rules outside of the U.S. Housing Act cannot be waived under MTW, such as labor requirements and fair housing rules, nor can rules governing the demolition and disposition of public housing. Participating agencies must also agree to serve substantially the same number of people they were serving before the demonstration and they must agree to continue to serve low-income families. Agencies participating in MTW have used the flexibility it provides differently. Some have made minor changes to their existing Section 8 voucher and public housing programs, such as limiting reporting requirements; others have implemented full funding fungibility between their public housing and voucher programs and significantly altered their eligibility and rent policies. Some have adopted time limit and work requirement policies, similar to those enacted in the 1996 welfare reform law. Several of the national PHA industry groups support an expansion of MTW. They argue that the flexibility provided under MTW would permit PHAs to more efficiently and effectively manage their limited federal funding and make programmatic changes tailored to their local communities. Low income housing advocates, particularly the National Low Income Housing Coalition, have expressed opposition to an MTW expansion. Specifically, they are concerned that MTW agencies will choose to serve higher income families than they are permitted under the rules of the U.S. Housing Act and that the agencies will disconnect rent-setting policies from income with the result that tenants will pay increased rents. While the initial intent of PHAs may not be to charge higher rent or serve higher-income families, there is concern that in a restricted funding environment, such policy changes will have to be made in order to balance budgets. The existing MTW program, while called a demonstration, was not implemented in a way that would allow it to be rigorously evaluated. Therefore, there is not sufficient information about different reforms adopted by MTW agencies to evaluate their effectiveness. There is some information available about how PHAs have implemented the program (as noted earlier); however, it is unclear whether PHAs implementing a modified MTW program in an environment where funding is limited would make the same choices that earlier MTW agencies made. (For more information, see CRS Report R42562, Moving to Work (MTW): Housing Assistance Demonstration Program , by [author name scrubbed].) Several bills were considered in the 110 th and 111 th Congresses to expand the MTW program, although none were enacted before the end of those Congresses. The Moving to Work Charter Program Act has been introduced in each of the past several Congresses, and was introduced again in the 112 th Congress ( S. 117 ). It proposed to expand and modify the MTW program, permitting the Secretary of HUD to enter into a new form of charter contract with up to 250 PHAs. The Section 8 Voucher Reform Act, ordered reported by the House Financial Services Committee in the 111 th Congress and introduced in the 112 th Congress, included a provision that would have replaced the existing Moving to Work program with a new Housing Innovation Program (HIP). The HIP would have maintained several aspects of MTW, including the ability to blend public housing and voucher funding, but would make several major changes. HUD would have been required to designate up to 60 agencies to participate in HIP, with the option of adding another 20 under a modified version of the program. HUD would have been required to develop a selection process, based on priorities established under the bill, and select a diverse group of agencies (including a limited number of lower-performing agencies, but not troubled agencies). HUD would also have been required to establish performance standards and evaluate, or contract for the evaluation of, HIP participating agencies with the goal of developing successful models that can be adopted by other agencies. Unlike MTW, HIP would have included limits to some policies pursued by participating agencies, including guidelines for time limit and employment condition policies and limits on rent policies that result in higher rent burdens for tenants. Also in the 112 th Congress, the House Financial Services Committee circulated a discussion draft of the Moving to Work Improvement, Expansion, and Permanency Act of 2011 . The discussion draft bill proposed to make the MTW program permanent and lift the cap on the number of participating agencies. It also proposed to modify the purposes of MTW to include promoting economic independence, flexibility and cost effectiveness, and housing choice. The draft bill included modifications to reporting requirements both for PHAs to HUD, and for HUD to Congress. It also included a mechanism to transition existing MTW agencies to the new model. The language from this draft bill was included in the draft Affordable Housing and Self Sufficiency Improvement Act (AHSSIA), discussed in the next section of this report. Since the early 2000s, Congress has considered reforms to the Housing Choice Voucher program each year. From 2003 through the end of its second term, the George W. Bush Administration proposed either eliminating the Section 8 voucher program and replacing it with a new initiative, or substantially reforming the program. Bills to enact President Bush's reforms were introduced in Congress, although no further action was taken. Legislative proposals in the 107 th and 108 th Congresses envisioned fundamentally reworking the voucher program, with initiatives including transferring administrative responsibilities from PHAs to the states, implementing time limits and work requirements, and allowing PHAs to experiment with various rent-setting policies. Bipartisan reform bills from the past couple of years have been narrower in scope than the earlier reform proposals. They have proposed changes to the rules governing the existing program, rather than fundamentally altering it. In 2006, a bipartisan voucher reform bill, the Section 8 Voucher Reform Act of 2006 (SEVRA) ( H.R. 5443 , 109 th Congress) was approved by the House Financial Services Committee, but no further action was taken before the close of the 109 th Congress. Similar, bipartisan reform legislation was proposed in the 110 th Congress. The Section 8 Voucher Reform Act of 2007 ( H.R. 1851 , 110 th Congress) passed the House and the Section 8 Voucher Reform Act of 2008 ( S. 2684 , 110 th ) was introduced in the Senate. The bills were similar but had several key differences. Reform legislation was not enacted before the end of the 110 th Congress. A new version of SEVRA—the Section Eight Voucher Reform Act of 2009 ( H.R. 3045 )—was introduced in the 111 th Congress and reported out of the House Financial Services Committee, but not enacted before the 111 th Congress adjourned. Several Section 8 reform bills were again circulated, introduced, or considered in the 112 th Congress. No reform legislation has been introduced in the 113 th Congress. The following section of the report summarizes reform efforts from the 112 th Congresses. A version of SEVRA very similar to the one approved by the House Financial Services Committee in the 111 th Congress was introduced by Representative Waters in the 112 th Congress. The bill proposed to simplify the income calculation process by streamlining deductions, permitting families on fixed incomes to self-certify their income for up to three years, and permitting PHAs to use tenants' prior-year income to calculate current year income. It would have modified the inspection process to permit PHAs to inspect units every other year, rather than every year. It proposed other changes, including requiring PHAs to absorb portability vouchers, allowing PHAs to establish alternative rent structures for non-elderly, non-disabled tenants (with limits on how much families could be required to pay), and making it possible for PHAs to use their voucher funding to provide downpayment assistance for first time homebuyers (without requiring direct appropriations). The bill would have established a new renewal funding allocation formula for PHAs, similar to the formula enacted in appropriations laws since FY2007, but including provisions for reallocating unused funds and permitting PHAs to borrow against future appropriations. It would have directed the Secretary to develop a new administrative fee formula as well as a new performance rating system (both within guidelines set in the bill). The major difference between the Section 8 Voucher Reform Act of 2011 ( H.R. 1209 ) and the version from the prior Congress is that the most recent version did not contain a controversial firearms provisions that had been added during committee consideration. SEVRA was not considered before the end of the 112 th Congress. On June 23, 2011, the Insurance, Housing and Community Opportunity Subcommittee of the House Financial Services Committee held a hearing entitled "Legislative Proposals to Reform the Housing Choice Voucher Program." At that hearing, witnesses discussed a draft bill that has been circulated by the subcommittee, the Section Eight Savings Act of 2011 (SESA). On October 13, 2011, the subcommittee held another hearing entitled " The Section 8 Savings Act of 2011: Proposals to Promote Economic Independence for Assisted Families," where a revised draft version of SESA was circulated. The two draft versions of SESA both included many provisions from SEVRA, but also made changes; most notably, neither version of SESA included an expansion of MTW. With the start of the second session of the 112 th Congress, the House Financial Services Committee circulated a new draft reform bill. It contained many provisions from SEVRA and SESA, but with several changes, including a new name, which reflected the fact that all of these bills included provisions beyond the Section 8 voucher program: the Affordable Housing and Self Sufficiency Improvement Act of 2012 (AHSSIA). Like SEVRA, AHSSIA contained provisions that address inspection of units under the Section 8 voucher program. The primary difference is that SEVRA would have permitted PHAs to use rent payments withheld from property owners whose units had failed inspections to make repairs to the unit; AHSSIA would not permit the use of withheld rent to make repairs. Both AHISSA and SEVRA proposed to change the way income eligibility and tenant rent are defined and calculated for families participating in assisted housing programs. AHISSA, unlike SEVRA, would have increased the minimum rent threshold, subjected it to future inflation increases, and required PHAs to use the new minimum rents. Like SEVRA, AHSSIA proposed an expansion of MTW. AHSSIA would have changed MTW from a demonstration to a HUD program, lifted the existing cap on the number of participants, required HUD to evaluate participating PHAs' progress in achieving the purposes of the program, and required HUD to evaluate the program to identify replicable program models. AHSSIA also contained several new provisions that were not included in SEVRA, including a title to modify the Family Self Sufficiency (FSS) program. Among other changes to FSS, the draft legislation proposed to combine the public housing and Section 8 voucher versions of the FSS program into one program and allow for it to be available to Section 8 assisted multifamily housing properties. It would have made participation in FSS mandatory for large PHAs (subject to the availability of funding), created a new formula for distributing funding, and prohibited PHAs from terminating tenancy for families because they fail to successfully complete the program. Under the same title of the draft legislation, AHSSIA would have required HUD to conduct a new rigorous demonstration to identify the most effective methods for promoting economic security among non-elderly, non-disabled assisted tenants. Further, AHSSIA included an authorization for the Rental Assistance Demonstration (RAD) to convert certain assisted housing properties to a new form of Section 8 rental assistance. RAD was initially authorized in the FY2012 appropriations legislation. AHSSIA also contained a new provision to allow PHAs to have additional funding flexibility in their public housing programs. The subcommittee on Insurance, Housing, and Community Opportunity marked up and approved a draft version of AHSSIA in early February 2012, but the bill was not formally introduced, nor was it considered by the full committee, before the end of the 112 th Congress. The President's FY2014 budget request to Congress, like his FY2012 and FY2013 requests, included proposals for several statutory changes that would affect HUD's rental assistance programs, including the Section 8 Housing Choice Voucher program. Specifically, HUD asked for language that would broaden the definition of "extremely low-income" to reflect the higher of 30% of area median income or the poverty thresholds published by the Department of Health and Human Services (HHS); revise the deductions from income used to calculate rent for elderly or disabled families by increasing the standard deduction and increasing the threshold for deducting medical or related costs; cap the amount of utility allowance a family can receive based on the size of the family, rather than the size of the unit leased by the family; alter inspection requirements; and permit HUD to run a demonstration to test different models for setting rent in rental assistance programs. Similar provisions were included in Section 8 voucher reform legislation considered in the 111 th Congress and included in SEVRA, SESA and, most recently, AHSSIA. HUD's FY2014 budget estimated that these changes would result in an overall reduction in the cost of HUD rental assistance programs. | The Section 8 Housing Choice Voucher program provides monthly rental assistance to around 2 million low-income households each year and is the largest (both in terms of people served and annual cost). It is administered at the local level by nearly 2,500 quasi-governmental public housing agencies (PHAs). While some form of Section 8 rental assistance has been in place since the mid-1970s, the modern program was shaped largely by the 1998 public housing reform act (P.L. 105-276). More than a decade later, the Section 8 voucher program has come under new scrutiny, with PHA industry leaders, low-income housing advocates, and some Members of Congress calling for reforms. This report introduces the primary features of the Section 8 voucher program, issues that have arisen, and recent reform proposals. Many of the key features of the program have been considered for reform, including its administration; eligible uses of program funds; the method by which tenant income is determined and rents are calculated; who is eligible and what conditions are placed on receipt of assistance; and other features of the program such as portability and quality inspections. Some reform proposals have focused on changing aspects of the program seen as administratively cumbersome and prone to errors. Other proposals have focused on altering the incentives in the program in order to promote policy goals such as homeownership, mobility and family self-sufficiency. Issues have also arisen regarding how the Section 8 voucher program is funded, how changes in formula allocations have affected PHAs, and the cost of the program. Partly in response to funding issues, and partly in response to programmatic issues, there have been calls for deregulation of PHAs through expansion of the Moving to Work (MTW) Demonstration. Section 8 voucher reform legislation has been considered in every Congress since at least the 108th Congress. One version of this reform legislation, called the Section 8 Voucher Reform Act (SEVRA), was introduced and considered in both the 110th and 111th Congresses (H.R. 1851 and S. 2684, 110th Congress; H.R. 3045, 111th Congress). These bills—which were largely similar, but with some changes—would have made modifications to several features of the Section 8 voucher program, including how income is calculated, how inspections are conducted, and how portability is treated, and they would have adopted a new funding formula. They also would have renamed, expanded, and modified the MTW Demonstration and permitted PHAs to implement alternate rent structures, within limits. A version of SEVRA that is very similar to H.R. 3045 was introduced in the 112th Congress (H.R. 1209) by Representative Waters. However, instead of taking up SEVRA, the House Financial Services Committee held hearings on new draft Section 8 voucher reform legislation, initially called the Section 8 Savings Act (SESA) and then titled the Affordable Housing and Self Sufficiency Improvement Act (AHSSIA). This draft legislation contained many of the same or similar provisions that have been included in SEVRA, including an expansion of a modified version of MTW. The draft AHSSIA was marked-up in subcommittee, but was not considered in full committee. Reform legislation has not been introduced in the 113th Congress. |
In every war fought by the United States, civilian ships have supported military operations by transporting supplies and personnel. The civilians that have served on these vessels historically have worked in varying capacities either for private shipping companies under contract with the federal government or for the government itself. These civilians are collectively referred to as merchant mariners . In World War II, an estimated 8,500 merchant mariners were killed and 11,000 were wounded. During Operation Enduring Freedom (OEF) and Operation Iraqi Freedom (OIF), it is estimated that 63% of the military cargo shipped to the Middle East and Afghanistan was delivered by U.S.-flagged commercial vessels crewed by merchant mariners and an additional 35% of military cargo was transported by government-owned vessels crewed by civilian federal employees and federal contractors. Although merchant mariners have always played an important role in support of U.S. war efforts, they generally have not been considered veterans for the purposes of federal benefits. Currently, only limited groups of World War II-era merchant mariners are eligible for benefits from the Department of Veterans Affairs (VA). After World War II, merchant mariners sought through legislation to gain recognition as veterans. Legislation was introduced either to provide benefits to merchant mariners comparable to those provided under the Servicemen's Readjustment Act of 1944 (P.L. 78-346), commonly known as the GI Bill, or to expand the employee benefits merchant mariners were receiving at that time. During hearings in late 1945, the House Committee on Merchant Marine and Fisheries heard testimony on four bills that would have provided some benefits to merchant seamen. One of these bills, H.R. 2346, would have provided benefits to merchant mariners comparable to those of other World War II veterans. Testimony in favor of H.R. 2346 was heard from a number of former merchant seamen and the Merchant Marine Veterans Association. Testimony in opposition to H.R. 2346 came from various agencies, including the War Department, the Veterans Administration, and the American Legion. Opponents to granting veteran status to merchant mariners generally focused on the freedom of a merchant mariner to make decisions about whether or not to take a particular voyage or leave service. They also focused on the higher earnings of merchant mariners relative to uniformed Navy personnel. H.R. 476, introduced in 1947, would have expanded the existing benefits for merchant seamen related to health care and disability and introduced an education benefit. Ultimately, no legislation was enacted in the immediate aftermath of World War II to grant veteran status to merchant mariners or to provide additional benefits to merchant mariners related to health care, disability, or education. Section 401 of the GI Bill Improvement Act of 1977 ( P.L. 95-202 ) granted veterans' benefit eligibility to civilians who served as Women's Air Forces Service Pilots (WASPS) during World War II. In addition, Section 401 of P.L. 95-202 provided the Secretary of Defense the authority to extend "active duty" status for the purpose of eligibility for federal veterans' benefits to other groups of civilian federal employees or contractors who rendered service to the Armed Forces and were "similarly situated" to the WASPS. Regulations implementing P.L. 95-202 , issued as Department of Defense Directive 1000.20, delegated the authority to grant active duty status to civilian groups to the Secretary of the Air Force. In addition, Directive 1000.20 established the Department of Defense Civilian/Military Service Review Board to review each application for active duty status. The factors to be used in reviewing such applications included the uniqueness of service rendered by the group and whether or not the group was subject to military control, discipline, and justice. A complete list of groups granted active duty status for the purpose of eligibility for veterans' benefits pursuant to P.L. 95-202 is provided in regulation. In 1982, the Secretary of the Air Force rejected the application for active duty status for oceangoing merchant mariners who served during World War II. In 1985, the Secretary rejected the applications of merchant mariners who served in contested waters in World War II, merchant mariners involved in any military invasion during World War II, and all merchant mariners involved in Operation Mulberry during World War II. These rejections were recommended by the Civilian/Military Service Review Board. The rejection of the oceangoing merchant mariners was based on the Secretary of the Air Force's decision that these groups received only limited military training; did not render service exclusively for the Armed Forces; were not subject exclusively to military discipline; were not subject to "pervasive" military control; had no reasonable expectation of "active military service" status, and were not part of a wartime organization formed for or because of a wartime need. In recommending the rejection of the application of the Operation Mulberry group, the Civilian/Military Service Review Board stated that this group "was too broad and diverse to make an adequate determination as to the roles played by the multitude of subgroups and members that made up Operation Mulberry." However, although the application of all merchant mariners that participated in Operation Mulberry was rejected, the application of those who served only on blockships during this operation was approved. In recommending the approval of the blockship group's application, the Civilian/Military Review Board stated that [t]hese merchant marines performed a uniquely military mission in a combat zone that would not normally be considered a mission of the Merchant Marine. The merchant crews were not tasked with delivering a cargo, per se, but were asked to be a part of a team to create an artificial harbor a beachhead mission normally associated with military engineers for a military operation. This is not a mission that the Merchant Marine historically perform. This group, then, was a creation of World War II for that specific time and place, i.e., the Invasion of Normandy. Following the 1985 rejections of applications of merchant mariners for active duty status, a lawsuit was filed challenging the denial of active duty status for World War II oceangoing merchant mariners and those who participated in World War II invasions. The plaintiffs argued that the merchant mariners included in these applications satisfied the established criteria to a greater extent than many of the previously approved groups and argued that the denials were inconsistent with the Secretary of the Air Force's prior decisions. The Secretary of the Air Force responded that the plaintiffs misunderstood the designation criteria and outlined characteristics that the approved groups shared. The U.S. District Court for the District of Columbia ruled that the Secretary of the Air Force erred in rejecting the applications of the oceangoing merchant mariners and those that participated in World War II invasions. The court remanded these individuals' applications back to the Secretary of the Air Force for reconsideration. In 1988, following the Schumacher decision, the Secretary of the Air Force granted active duty status for the purpose of eligibility for veterans' benefits to World War II-era merchant mariners who served on vessels engaged in oceangoing service from December 7, 1941, to August 15, 1945. Section 402 of the Veterans Programs Enhancement Act of 1988 ( P.L. 105-368 ) extended veterans' burial benefits and the right to interment in national cemeteries to merchant mariners who served on vessels engaged in oceangoing service from August 16, 1945, to December 31, 1946. In 1999, the Secretary of the Air Force determined that the service of oceangoing merchant marines during the period from August 15, 1945, to December 31, 1946 (those covered by P.L. 105-368 ) is not considered active duty under the provisions of P.L. 95-202 for the purposes of other benefits administered by the VA. Under current law and regulations, only the following groups of merchant mariners are considered to have served on active duty or are otherwise eligible for veterans' benefits. No other merchant mariners are eligible for any veterans' benefits administered by the VA. United States merchant seamen who served on blockships in support of Operation Mulberry. American merchant marine in oceangoing service during the period of armed conflict, December 7, 1941, to August 15, 1945, and who meet the following qualifications: was employed by the War Shipping Administration or Office of Defense Transportation (or their agents) as a merchant seaman documented by the U.S. Coast Guard or the Department of Commerce (Merchant Mariner's Document/Certificate of Service) or as a civil servant employed by the U.S. Army Transport Service (later redesignated U.S. Army Transportation Corps, Water Division) or the Naval Transportation Service; and served satisfactorily as a crew member during the period of armed conflict, December 7, 1941, to August 15, 1945, aboard merchant vessels in oceangoing—that is, foreign, intercoastal, or coastwise—service (per 46 U.S.C. §§10301 and 10501) and further to include near foreign voyages between the United States and Canada, Mexico, or the West Indies via ocean routes, or public vessels in oceangoing service or foreign waters. Served between August 16, 1945, and December 31, 1946, as a member of the United States merchant marine (including the Army Transport Service and the Naval Transport Service) serving as a crewmember of a vessel that was operated by the War Shipping Administration or the Office of Defense Transportation (or an agent of either); operated in waters other than inland waters, the Great Lakes, and other lakes, bays, and harbors of the United States; under contract or charter to, or property of, the government of the United States; and serving the Armed Forces; and while so serving, was licensed or otherwise documented for service as a crewmember of such a vessel by an officer or employee of the United States authorized to license or document the person for such service. Although some World War II-era merchant mariners were granted eligibility for veterans' benefits in 1985 and 1988, the passage of time between their service and the granting of this eligibility may have made it impossible for them to fully access these benefits. For example, when these former merchant mariners were of typical college age after the war, they were not eligible for benefits under the GI Bill. In addition, those with service-connected disabilities or medical conditions may have lost out on nearly 40 years of VA disability compensation or medical benefits. H.R. 154 , the Honoring Our WWII Merchant Mariners Act of 2017, would provide compensation to former World War II-era merchant mariners to account for the benefits they were not able to access before being granted veterans' benefit eligibility in the 1980s. Similar legislation has been introduced in each Congress since the 108 th Congress. Specifically, this legislation would provide a one-time payment of $25,000 to any merchant mariner who served between December 7, 1941, and December 31, 1946, and who otherwise meets the definition of service provided for burial benefits and interment eligibility in P.L. 105-368 . Eligible persons would have one year from the date of enactment of the legislation to apply for benefits. A total of $125 million would be authorized to be appropriated in FY2017 for these benefits, to be available until expended. Although the benefits created by this legislation would partially compensate former merchant mariners for lost benefits, H.R. 154 would place the former merchant mariners in a unique position compared to other civilians who served in World War II and other veterans. Active duty status for the purposes of eligibility for veterans' benefits has been extended under the provisions of P.L. 95-202 to 33 groups of civilians who served during World Wars I and II, all of whom can claim to have missed the opportunity to claim certain benefits during the period between their service and the granting of active duty status. However, if H.R. 154 were to be enacted, only the two merchant mariner groups would be eligible for any form of compensation to account for these lost benefits. In addition, merchant mariners would join Medal of Honor winners as the only groups eligible for cash compensation from the VA without having to demonstrate a financial hardship (for VA pension benefits) or a service-connected disability (for VA disability compensation). | Although merchant mariners have supported the Armed Forces in every war fought by the United States, they generally are not considered veterans for the purpose of eligibility for federal benefits. Pursuant to legislation enacted in 1977 (P.L. 95-202) and 1988 (P.L. 105-368) and to decisions made by the Secretary of the Air Force in 1985 and 1988, the following groups of World War II-era merchant mariners are the only merchant mariners eligible for veterans' benefits. Eligible for all veterans' benefits: United States merchant seamen who served on blockships in support of Operation Mulberry. American merchant marine in oceangoing service during the period of armed conflict, December 7, 1941, to August 15, 1945, and who meet the following qualifications: employed by the War Shipping Administration or Office of Defense Transportation (or their agents) as a merchant seaman documented by the U.S. Coast Guard or the Department of Commerce (Merchant Mariner's Document/Certificate of Service) or as a civil servant employed by the U.S. Army Transport Service (later redesignated U.S. Army Transportation Corps, Water Division) or the Naval Transportation Service; and served satisfactorily as a crew member during the period of armed conflict, December 7, 1941, to August 15, 1945, aboard merchant vessels in oceangoing—that is, foreign, intercoastal, or coastwise—service (per 46 U.S.C. §§10301 and 10501) and further to include near foreign voyages between the United States and Canada, Mexico, or the West Indies via ocean routes, or public vessels in oceangoing service or foreign waters. Eligible for burial benefit and national cemetery interment only: Served between August 16, 1945, and December 31, 1946, as a member of the United States merchant marine (including the Army Transport Service and the Naval Transport Service), serving as a crewmember of a vessel that was operated by the War Shipping Administration or the Office of Defense Transportation (or an agent of either); operated in waters other than inland waters, the Great Lakes, and other lakes, bays, and harbors of the United States; under contract or charter to, or property of, the government of the United States; and serving the Armed Forces; and while so serving, was licensed or otherwise documented for service as a crewmember of such a vessel by an officer or employee of the United States authorized to license or document the person for such service. H.R. 154, the Honoring Our WWII Merchant Mariners Act of 2017, would provide one-time compensation of $25,000 to World War-II merchant mariners to account for benefits they were not able to access before being granted veterans' benefit eligibility. |
The Modified Waters Deliveries Project (Mod Waters) is being implemented by the Department of the Interior (DOI) and the U.S. Army Corps of Engineers in southern Florida. (See Figure 1 .) For FY2007, the Administration has requested a total of $48 million for the project: $35 million through the Corps and $13.3 million through the DOI. The House-passed Interior and Energy and Water appropriations bills, and the Senate-reported Interior appropriations bill, provide the requested amount of funding for Mod Waters for FY2007. The Senate-reported Energy and Water bill, however, provides no funding for Mod Waters (for the Corps) for FY2007 and limits funds to $35 million for the Corps to construct this project. The Senate Appropriations Committee report on the Energy and Water bill ( S.Rept. 109-274 ) states that Mod Waters should be solely funded by the DOI since it benefits Everglades National Park. DOI and the Corps jointly funded Mod Waters in FY2007. Previously, DOI had solely funded the project. Joint funding of Mod Waters has generated controversy and raised the question of whether the Corps is authorized to receive appropriations to work on the project. The Administration's position appeared to be for the Corps to pay for roughly two-thirds of the remaining $146 million required to complete the project from FY2007 to FY2009. For FY2006, $25 million was appropriated to the DOI, and $35 million to the Corps for this project. A provision in the Interior Appropriations Act for FY2006 ( P.L. 109-54 ) conditions funding for Mod Waters on meeting state water quality standards. This provision cites provisions in the FY2004 Interior Appropriations Act, which states that funds appropriated for Mod Waters will be provided unless the Secretary of the Interior, Secretary of the Army, Administrator of the EPA, and Attorney General indicate in a joint report (to be filed annually until December 31, 2006) that water entering the A.R.M. Loxahatchee National Wildlife Refuge and Everglades National Park does not meet state water quality standards, and the House and Senate Committees on Appropriations respond in writing disapproving the further expenditure of funds. The FY2007 Administration request did not contain this condition; however, the House-passed Interior Appropriations bill and Senate-reported bill both contain this provision. The Modified Water Deliveries Project was authorized by the Everglades National Park Protection and Expansion Act of 1989 ( P.L. 101-229 ; 16 U.S.C. §§410r-5, etc.) to improve water deliveries to Everglades National Park (ENP) and, to the extent possible, restore the natural hydrological conditions within the park. The completion of Mod Waters is expected to be significant step towards the implementation of the Comprehensive Everglades Restoration Plan (CERP; Title VI, P.L. 106-541 , the Water Resources Development Act of 2000 [WRDA 2000]). Indeed, Mod Waters must be completed before appropriations can be made to construct other restoration projects in the east Everglades (§601(b)(2)(D)(iv) of WRDA 2000). Mod Waters is expected to consist of structural modifications and additions to the Central and Southern Florida Project (C&SF Project) to improve the timing, distribution, and quantity of water flow to the Northeast Shark River Slough. Increased water flow to the Northeast Shark River Slough will increase water supplies in the ENP and is expected to improve the natural habitat and hydrology of a portion of the Everglades ecosystem. There are four components to Mod Waters: 8.5 SMA flood mitigation, Tamiami Trail modifications, conveyance and seepage control features, and Combined Structural and Operational Plan (CSOP). The 8.5 SMA flood mitigation and Tamiami Trail modifications are discussed below. Mod Waters is expected to flood some residential and agricultural areas adjacent to the park. Legislation authorizing this project instructs the Secretary of the Army to determine if residential and agricultural areas within or adjacent to the 8.5 SMA will be flooded from the hydrological changes of Mod Waters (§104(a)). If these areas are under threat of flooding, the law mandates that a flood protection system must be developed for the area (§104(b)). To prevent flooding, several mitigation features have been developed. One of these features is called Alternative 6D, which is a plan for protecting residents in the 8.5 SMA from flood waters resulting from the project. The purpose of the Tamiami Trail modification is to identify alterations to the highway that would improve water flows for Northeast Shark River Slough and Everglades National Park. A general reevaluation report and environmental impact statement have been prepared for this project. These reports include a recommended alternative calling for two bridges that would allow water flows to pass across the highway. Construction is expected to begin in 2007. Three issues are being debated about the implementation of Mod Waters, including its estimated funding level, project delays, and the controversy surrounding land acquisition in the 8.5 SMA. The question of whether the Corps is authorized to fund Mod Waters was an issue during the deliberation over the FY2006 Energy and Water Appropriations. Arguments used to support the proposition that the Corps could be authorized to directly fund Mod Waters cite §102(f) of the Everglades National Park Protection and Expansion Act of 1989 ( P.L. 101-229 ), which is the only section that authorizes funding and authorizes such sums as may be necessary to carry out the provisions of the act. This provision would include §104, which authorizes Mod Waters, though it primarily authorizes activities carried out by the Corps. Arguments used to argue against Corps authorization to fund Mod Waters could cite the long history of transfers from the NPS to the Corps, which could be argued to establish a strong precedent for the lack of Corps authority. Due to these conflicting arguments and the lack of clear legislative intent, the authority for the Corps to directly fund Mod Waters might still remain debatable. In the FY2007 Energy and Water Appropriations debate, the Senate Energy and Water Appropriations Committee has not provided funds to the Corps for Mod Waters. Rising project costs for Mod Waters has led some critics to question its viability. The original cost of completing Mod Waters was estimated at $81.3 million in 1990. The current estimated cost for completing the project is $398 million. To date, approximately $252 million has been appropriated for constructing and implementing Mod Waters, and $146 million more is estimated to be needed to finish the project (i.e., FY2007-FY2009). Some contend that changes in the implementation plan, the rising cost of land acquisition, and flood mitigation requirements have led to higher costs. This was reflected, according to some, in the changes in the 1992 General Design Memorandum, which were derived from updated modeling data and the project's need to be compatible with CERP. Mod Waters was originally estimated to be completed by 1997, yet now some argue it is unclear as to when or even whether the project will be completed. The FY2006 Administration request indicates that funding will be requested through FY2009. Some contend that delays are due to the undefined roles of DOI and the Corps in implementing the project, a lack of a unified approach to restoration, redesigning the project, and litigation regarding the 8.5 SMA and Tamiami Trail portion of the project. Some argue that the delay in implementing Mod Waters jeopardizes implementation of CERP projects, causes further degradation within Everglades National Park, and will set a precedent for delays and deliberation regarding land acquisition activities when CERP projects are being implemented. Some proponents of the project contend that ongoing land acquisition in the 8.5 SMA will minimize any future delays. Implementation of Mod Waters is dependent on acquiring land in the 8.5 SMA. Land acquisition in this area is controversial because there are several unwilling sellers and the Corps is exercising eminent domain in some cases to acquire necessary lands. The 8.5 SMA is a region adjacent to ENP of approximately 5,600 acres. Due to its low topography and lack of drainage, parts of the 8.5 SMA frequently flood for several months during the year. With the implementation of Mod Waters, the Corps expects that most of the 8.5 SMA would flood. The Corps developed a flood mitigation plan in 1992 to provide flood mitigation for residents in the 8.5 SMA and allow for the implementation of Mod Waters. However, the 1992 Plan was later deemed "unworkable" by the superintendent of Everglades National Park, who claimed that it would not provide full flood protection for current and future residents in the 8.5 SMA. The Corps began to devise a new plan for Mod Waters and the 8.5 SMA in 1999, which considered several alternative plans, including the complete buyout of the 8.5 SMA. A new plan, referred to as Alternative 6D, was proposed by the Corps in 2000. This plan includes a perimeter levee, seepage canal, pump station, and storm water drainage for flood protection in the 8.5 SMA. Instead of a complete buyout of the 8.5 SMA, this plan proposed the acquisition of approximately 2,500 acres in the 8.5 SMA (39% of the total area) and the acquisition of 77 residential tracts (24 tenant-occupied tracts and 53 owner-occupied tracts) in the 8.5 SMA (13% of the total number of "residential areas" in the 8.5 SMA). Some residents who were unwilling to sell their land in the 8.5 SMA filed suit against the Corps in 2001. They asserted that the Corps does not have the authority to implement a plan that does not protect the entire 8.5 SMA from flooding, and that the Corps does not have the authority to exercise eminent domain or spend money to acquire their land through condemnation. On July 5, 2002, a district judge restricted the Corps from veering from its original mandate to protect the entire community from flooding, and prevented the Corps from acquiring land in the 8.5 SMA. The Corps later appealed this decision and are now acquiring lands in the area. To help implement Mod Waters, Congress included a provision in the Consolidated Appropriations Resolution for FY2003 (Division F, Title I, §157 of P.L. 108-7 ) that authorizes the Corps to implement a flood protection plan (Alternative 6D) for the 8.5 SMA as part of Mod Waters. Three conditions are specified in the section authorizing implementation of Alternative 6D: (1) the Corps may acquire residential property needed to carry out Alternative 6D if the owners are first offered comparable property in the 8.5 SMA that will be provided with flood protection; (2) the Corps is authorized to acquire land from willing sellers in the flood-protected portion of the 8.5 SMA to carry out the first condition; and (3) the Corps and the nonfederal sponsor may carry out these provisions with funds provided under the Everglades National Park Protection and Expansion Act of 1989 ( P.L. 101-229 ; 16 U.S.C. §410r-8) and funds provided by the DOI for land acquisition for restoring the Everglades. Some critics of land acquisition in the 8.5 SMA base their arguments on the same principles used to criticize the acquisition of the entire 8.5 SMAâthat the federal government should not exercise eminent domain to remove unwilling sellers and that the federal government is obligated to protect all residential areas from floods under P.L. 101-229 . Some critics also argue that there are several unwilling sellers in the area and that if condemnations proceed, delays due to litigation will be inevitable and will eventually harm the ecosystem. The Corps asserts that there are several willing sellers in the 8.5 SMA. Approximately 78% of the 843 needed tracts have been acquired, and of the remaining 189 tracts, 57% are in negotiations for acquisition and 43% are expected to be condemned. | The Modified Water Deliveries Project (Mod Waters) is a controversial ecological restoration project in south Florida designed to improve water delivery to Everglades National Park. The implementation schedule of Mod Waters is of interest to Congress partly because its completion is required before the implementation of portions of the Comprehensive Everglades Restoration Plan. Concerns have been raised in hearings on the Administration's FY2007 budget request regarding the cost of implementing the project, project delays, and the U.S. Army Corps of Engineers' role in funding the project. Currently, the project is eight years behind schedule and will cost an estimated $400 million to build. Part of the delay is due to extended efforts to acquire land from private and state owners. Federal agencies have used eminent domain to acquire some lands, a process that has been contentious. Further, funding for the project in Interior appropriations acts (FY2004-FY2006) is being conditioned on the State of Florida meeting water quality standards by reducing excessive phosphorus, among other things. This report provides background on Mod Waters and discusses issues relating to its current status, funding, and land acquisition needs. This report will be updated as warranted. |
On July 16, 1787, the 55 Founding Fathers at the Constitutional Convention in Philadelphia reached what is commonly called the "Great Compromise." The compromise emerged after a struggle between the large and small states over the system of representation for the House and Senate. The Framers readily accepted the principle of bicameralism—a two-house national legislature. After all, the British Parliament was bicameral as were most state legislatures. However, the Framers encountered sharp divisions in grappling with these two questions: should representation (the number of Members) in both chambers be apportioned according to each state's population, or, instead, should representation in the House be determined by population and in the Senate on state equality? Under the first approach, the large states would dominate both chambers; under the second plan, the large states would be advantaged in the House while all states, regardless of their population, would be represented equally in the Senate. This clash between proportional versus equal representation provoked the most contentious debate at the Constitutional Convention and nearly led to its end. Delegate Luther Martin of Maryland wrote that differences over the issue "nearly terminated in a dissolution of the Convention." George Washington wrote to Alexander Hamilton that he "almost despaired" that the small and large states would ever resolve their differences. In the end, the Great Compromise granted each side in the dispute a chamber where their interests could be protected and guaranteed. House seats would be apportioned among the states based on population, with each state guaranteed at least one Member; Representatives would be directly elected by the people. By contrast, the Senate would be composed of two senators per state—regardless of population—indirectly elected by the state legislatures. As James Madison wrote in Federalist No. 39 , "The House of Representatives will derive its powers from the people of America .... The Senate, on the other hand, will derive its powers from the States, as political and co-equal societies; and these will be represented on the principle of equality in the Senate." The principle of two Senators from each state was further guaranteed by Article V of the Constitution: "no State, without its Consent, shall be deprived of equal Suffrage in the Senate." Decisions made at the Constitutional Convention about the Senate still shape its organization and operation today, and make it one of the most distinctive legislative institutions in the world. As William E. Gladstone, four-time British Prime Minister during the 19 th century, said about the American Senate, it is a "remarkable body, the most remarkable of all the inventions of modern politics." Plainly, the Framers did not want the Senate to be another House of Representatives. The institutional uniqueness of the Senate flows directly from many of the decisions made at the Constitutional Convention. Several of these features merit discussion, because they highlight important and enduring features of the Senate. These features include constituency, size, term of office, and special prerogatives. The one modification to the plan not foreseen by the Framers was the direct election of Senators. The "one state-two Senator" formula means that most senators represent constituencies that are more heterogeneous than the districts represented by most House members. One result is that Senators must accommodate a larger diversity of interests and voices in their representational roles. For example, a House member might represent a district that is overwhelmingly agriculture in character. The Senators from that state focus on agriculture, too, but they must also be responsive to a wider array and diversity of interests. The bottom line is that Senators represent an entire state, not a part of it. Because the votes of Senators are equal, balloting power in the Senate is not apportioned by population. As various scholars have pointed out: "The nine largest states are home to 51 percent of the population but elect only 18 percent of the Senate; the twenty-six smallest states control 52 percent of the Senate but hold only 18 percent of the population." The disparity in the voting strength of Senators from lightly versus heavily populated states prompted the late Senator Daniel Moynihan, D-N.Y., to predict that sometime "in the twenty-first century the United States is going to have to address the question of apportionment in the Senate." From the outset the Senate's membership was relatively small compared to the House. When the Senate first convened in 1789, there were twenty-two Senators. North Carolina and Rhode Island soon entered the Union to increase the number to twenty-six. As new states entered the Union, the Senate's size expanded to the 100 that it is today. The Senate's size significantly shapes how it works. For example, it operates in a generally informal manner, often relying on the unanimous consent of all 100 senators to function. There is large deference to minority views—either those of the minority party, a small group of lawmakers, or a single senator. The Senate's formal rules and precedents are less comprehensive than the many detailed rules and voluminous precedents of the larger House of Representatives. Viewed as "ambassadors" from the several states, the seed was planted early that senators should have few restraints placed on their parliamentary rights. For example, in 1789, the Senate informally "adopted a policy of keeping formal rules to a minimum," agreeing to twenty short rules. Further, in framing its rules, the Senate "quite naturally put a great premium on ease and dignity of speech." The Senate grants every Member two parliamentary freedoms that, so far as is known, no other lawmaker worldwide possesses. These two freedoms are unlimited debate and an unlimited opportunity to offer amendments, including non-relevant amendments. Both prerogatives are, of course, subject to certain constraints. As two Senate parliamentarians wrote, "Whereas Senate Rules permit virtually unlimited debate, and very few restrictions on the right to offer amendments, these [unanimous consent] agreements usually limit debate and the right of Senators to offer amendments." Unanimous consent agreements establish a tailor-made procedure for considering virtually any kind of business that the Senate takes up. They are commonly drafted by the parties' floor leaders and managers and, to be implemented, must be agreed to by the entire Senate membership (that is, not objected to by any senator.) Two fundamental objectives of these accords are to limit debate and to structure the amendment process. It was the smaller size of the Senate that no doubt encouraged these parliamentary traditions to emerge and flourish. Not until 1917 did the Senate even adopt a method for ending extended debate (called a "filibuster" if employed for dilatory purposes.) It was called cloture (closure of debate) and its procedural requirements are spelled out in Senate Rule XXII. So from 1789 to 1917 there was no way for the Senate to terminate extended debates except by unanimous consent, compromise, or exhaustion. A key goal of the Framers, as noted earlier, was to create a Senate differently constituted from the other chamber so that it could check the popular passions that might overly influence legislation emanating from the directly elected House. To foster values such as deliberation, reflection, and continuity, the Framers made three important decisions. First, they set the senatorial term of office at six years even though the duration of a Congress is two years. The Senate is a "continuing body" with only one-third of its membership up for election at any one time. As Article I, section 3, states: "Immediately after they shall be assembled in consequence of the first election, they shall be divided as equally as may be into three classes." Consequently, the electorate that chooses the one-third up in November 2008 is different in various ways—in regard to the array of salient issues that may influence peoples' choices, for example—from the voters who selected the other two-thirds of the Senate. These lawmakers were influenced, respectively, by the public mood of the voters in November 2004 and 2006; thus, some of them might act collectively as a "brake" and block or slow down floor consideration of issues debated during the 2008 campaigns. Second, to be a Senator, individuals must meet certain constitutional qualifications. For example, to hold office, Senators must be 30 years of age and nine years a citizen; House members are to be 25 years of age and seven years a citizen. The Framers expected Senators to be more seasoned and experienced than House members. Whether this expectation has been met is problematic, even in Congress's earliest years when the likes of James Madison and Albert Gallatin served in the House. Unlike House members, the selection of senators was done by the state legislatures, which bolstered the states' role as a counterweight to the national government and insulated the Senate from popular pressures. The House and Senate share lawmaking authority, but the Framers assigned special "advice and consent" prerogatives exclusively to the Senate. Under Article II, section 2, the Senate functions as a unicameral body when it considers (1) the ratification of treaties, which require approval by a two-thirds vote, or (2) presidential nominations for high governmental positions such as Federal judges, ambassadors, or Cabinet officers (all of whom require Senate consent by a majority vote). The Framers assigned the advice and consent responsibilities to the Senate (but not the House) because of certain characteristics embedded in that institution, such as stability, a longer time perspective, and its smaller size. As one of the Framers (Pierce Butler of South Carolina) noted, treaty negotiations "always required the greatest secrecy, which could not be expected in a large body" like the House. The Senate's role in the appointments process, wrote Hamilton in Federalist No. 65 , would serve as "an excellent check upon the spirit of favoritism in the President, and would tend greatly to preventing the appointment of unfit characters from State prejudice." The Constitution (Article I, section 3) also grants the Senate the "sole Power to try all Impeachments." The House possesses the constitutional authority to decide by majority vote whether to impeach (or indict) executive or judicial officials while the Senate, by a two-thirds vote, determines whether to convict the indicted public officials, which could even include the president. "Where else," wrote Hamilton in Federalist No. 65 , "than in the Senate could have been found a tribunal sufficiently dignified, or sufficiently independent? What other body would be likely to feel confidence enough in its own situation , to preserve unawed and uninfluenced the necessary impartiality between an individual accused, and the representatives of the people, his accusers? " (Italics in the original.) The Senate, like any legislative institution, constantly changes in big and little ways. If the Framers returned today to visit the Senate, they would surely recognize that it remains the preeminent legislative forum for protecting minority rights and for debating and refining the great issues of the day. They would continue to find that many of their fundamental principles—two Senators from each state, the advice and consent role, or the impeachment prerogative—continue to govern the Senate's composition and activity. To be sure, they would likely be awe-struck by the country's many changes: the demographic diversity among the 50 states; the size and reach of the federal establishment; the rise of presidential power; the cost of campaigns; the role of political parties; the extent of the nation's international obligations; and numerous other societal, technological, or medical developments. They would soon discover a significant change to their handiwork, however: today's Senators no longer are elected by state legislatures. In 1913 the Seventeenth Amendment to the Constitution was ratified providing for the direct election of Senators. The Framers would probably view this as the most significant constitutional change affecting the Senate. The election of Senators by state legislatures lasted for more than 125 years until the two institutions that were vested politically in the procedure—the U.S. Senate and the state legislatures—opted for the popular election of Senators. Why? Two words epitomize the fundamental drivers of the change: democracy and deadlock. The direct election of Senators was triggered by the Progressive movement of the 1890s and early 1900s which advocated an agenda of democratic reform, such as women's suffrage, the direct primary, and the direct election of senators. Progressive leaders wanted to end the influence of powerful special interests, especially corporations, over state legislatures; block the purchase of Senate seats; blunt the influence of party bosses in determining who state lawmakers should select; and make senators directly answerable to the people for their actions or inactions. For example, the spread of direct primaries in many states "led to voters expressing their choice for senator on the primary ballot. Although not legally binding on the legislatures, the popular choice was likely to be accepted." The second major stimulus for the Seventeenth Amendment involved the often contentious state legislative deadlocks in electing Senators. Various factors provoked the deadlocks, such as different party control of the two chambers, and lengthy contests among as many as 80 or more senatorial candidates, with balloting extending over several weeks. As a scholar of the Senate reported, the "record of senatorial elections for the fifteen years, 1891 to 1905, shows forty-five such deadlocks—from one to seven in each of twenty states." The combination of these two forces—the democratic impulse and disgruntlement with deadlocks—led to congressional passage of a direct election constitutional amendment in May 1912. Ratification by three-fourths of the state legislatures occurred a year later. To close, as British Prime Minister Gladstone said, the Senate is a "remarkable body." Many senators throughout history have shared his view. As Senator Claude Pepper, D-FL, said in 1939, on the occasion of the Senate's 150 th anniversary: The varied and extraordinary functions and powers of the Senate make it, according to one's view, a hydra-headed monster, or the citadel of constitutional and democratic liberties. Like democracy itself, the Senate is inefficient, unwieldy, inconsistent; it has its foibles, its vanities, its Members who are great, the near great, and those who think they are great. But, like democracy also, it is strong, it is sound at the core, it has survived many changes, it has saved the country from many catastrophes, it is a safeguard against any form of tyranny which ... might tend to remove the course of Government from persistent public scrutiny. In the last analysis it is probably the price we in America have to pay for liberty. | Decisions made at the Constitutional Convention about the Senate still shape its organization and operation today. Several of these features merit discussion, because they highlight important and enduring characteristics of the Senate. These aspects include constituency, size, term of office, and special prerogatives. In addition, this report identifies a major constitutional change that the Founding Fathers could not foresee: the direct election of Senators. |
The Arab League, or League of Arab States, is an umbrella organization comprising 22 Middle Eastern and African countries and entities. Arab League members are Algeria, Bahrain, Comoros, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, the Palestinian Authority, Qatar, Saudi Arabia, Somalia, Sudan, Syria, Tunisia, the United Arab Emirates, and Yemen. The Arab League was founded in 1944, and in 1945 began a boycott of Zionist goods and services in the British controlled mandate territory of Palestine. In 1948, following the war establishing Israel's independence, the boycott was formalized against the state of Israel and broadened to include non-Israelis who maintain economic relations with Israel or who are perceived to support it. The boycott is administered by the Central Boycott Office, a specialized bureau of the Arab League based in Damascus but believed for many decades to be operating out of Cairo, Egypt. The U.S. government has often been at the forefront of international efforts to end enforcement of the boycott and to seek the Arab League's revocation of it. The U.S. government participates in bilateral and multilateral negotiations with Arab League members regarding the boycott. U.S. legislative action related to the boycott dates from 1959 and includes multiple statutory provisions expressing U.S. opposition to the boycott, usually in foreign assistance legislation. In 1965, Congress adopted mandatory reporting of any requests by Arab League member countries to U.S. companies to participate in the boycott. In 1977, Congress passed laws making it illegal for U.S. companies to cooperate with the boycott and authorizing the imposition of civil and criminal penalties against U.S. violators. According to the Department of Commerce, participation in the boycott includes Agreements to refuse or actual refusal to do business with or in Israel or with blacklisted companies; Agreements to discriminate or actual discrimination against other persons based on race, religion, sex, national origin, or nationality; Agreements to furnish or actual furnishing of information about business relationships with or in Israel or with blacklisted companies; and/or Agreements to furnish or actual furnishing of information about the race, religion, sex, or national origin of another person. Lastly, U.S. taxpayers who cooperate with the boycott are subject to the loss of tax benefits that the U.S. government provides to exporters. These benefits include, among others, the foreign tax credit and the tax deferral available to U.S. shareholders of a controlled foreign corporation (CFC). The boycott has three tiers. The primary boycott prohibits citizens of an Arab League member from buying from, selling to, or entering into a business contract with either the Israeli government or an Israeli citizen. The secondary boycott extends the primary boycott to any entity world-wide that does business with Israel. A blacklist of global firms that engage in business with Israel is maintained by the Central Boycott Office, and disseminated to Arab League members. The tertiary boycott prohibits an Arab League member and its nationals from doing business with a company that in turn deals with companies that have been blacklisted by the Arab League. The boycott also applies to companies that the Arab League identifies as having "Zionist sympathizers" in executive positions or on the board of the company. According to one analyst, the "nature and detail of these rules reflect the boycotting countries' tolerance for only the most minimal contacts with Israel." The Arab League does not enforce the boycott and boycott regulations are not binding on member states. However, the regulations have been the model for various laws implemented by member countries. The League recommends that member countries demand certificates of origin on all goods acquired from suppliers to ensure that such goods meet all aspects of the boycott. Overall enforcement of the boycott by member countries appears sporadic. Some Arab League members have limited trading relations with Israel. The Arab League does not formally or publicly state which countries enforce the boycott and which do not. Some Arab League member governments have maintained that only the Arab League, as the formal body enforcing the boycott, can revoke the boycott. However, adherence to the boycott is an individual matter for each Arab League member and enforcement varies by state. There are indications that some Arab League countries publicly support the boycott while continuing to quietly trade with Israel. According to Doron Peskin, head of research at InfoProd, a consulting firm for foreign and Israeli companies specializing in trade with Arab states, "the Arab boycott is now just lip service." This sentiment has been echoed by Arab officials, albeit anonymously. One official commented to the Egyptian newspaper Al-Ahram that, "boycotting Israel is something that we talk about and include in our official documents but it is not something that we actually carry out—at least not in most Arab states." Others assert that enforcement of the boycott waxes and wanes with the level of intensity of the Israeli-Palestinian issue. The Arab League has acknowledged that U.S. pressure has affected its ability to maintain the boycott. At the May 2006 Arab League conference on the boycott, one conference participant reportedly said, "The majority of Arab countries are evading the boycott, notably the Gulf states and especially Saudi Arabia." He added that a major reason for these countries bypassing the boycott is "growing U.S. pressures in the direction of normalization with the Jewish state." Some states and entities have formally ended their adherence to the boycott, or at least some aspects of it. Egypt (1979), the Palestinian Authority (1993), and Jordan (1994) signed peace treaties or agreements that ended their respective adherence to the boycott. Mauritania, which never applied the boycott, established diplomatic relations with Israel in 1999. Algeria, Morocco, and Tunisia do not enforce the boycott. In 1994, the member countries of the Gulf Cooperation Council (GCC)—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates—announced that they would only enforce the primary boycott. In 1996, the GCC states recognized that total elimination of the boycott is a necessary step for peace and economic development in the region. However, U.S. companies continue to receive requests to cooperate with the boycott from GCC member countries. Lebanon enforces the primary, secondary, and tertiary boycotts. According to the Office of the United States Trade Representative (USTR), some member states of the 57-member Organization of the Islamic Conference (OIC), headquartered in Saudi Arabia, also enforce a boycott against Israel. For example, Bangladesh imposes a primary boycott on trade with Israel. By contrast, other OIC members, such as Tajikistan, Turkmenistan, and Kazakhstan impose no boycott and have encouraged trade with Israel at times. Since the boycott is sporadically applied and ambiguously enforced, its impact, measured by capital or revenue denied to Israel by companies adhering to the boycott, is difficult to measure. The effect of the primary boycott appears limited since intra-regional trade and investment are small. Nonetheless, there is some limited trade between Israel and its Arab neighbors. As Figure 1 illustrates, Israel's regional trade is negligible compared to Israel's trade with the United States, China, and other large trading partners. Enforcement of the secondary and tertiary boycotts has decreased over time, reducing their effect. A 1996 study by researchers at Tel Aviv University looked at the effect of the Arab boycott on the Israeli economy through the automobile market. Following a relaxation of boycott enforcement in the late 1980s through the early 1990s, Asian countries began exporting cars to Israel. The study found that if the boycott had continued to be enforced, and these cars did not enter the Israeli market, the Israeli car market would have been 12% smaller—leading to a $790 price increase per car. Total welfare loss for the study year, 1994, would have been an estimated $89 million. Thus, it appears that since intra-regional trade is small, and that the secondary and tertiary boycotts are not aggressively enforced, the boycott may not currently have an extensive effect on the Israeli economy. Despite the apparent lack of economic impact on either Israeli or Arab economies, the boycott remains of strong symbolic importance to all parties. Many Arab countries want to deny normalization with Israel until there is a final resolution to the conflict in the Palestinian territories. Israel, on the other hand, has asserted that it wants to be accepted in the neighborhood both in political terms and as a source of, and target for, foreign investment. The U.S. government officially opposes the boycott and works to end its enforcement on multiple levels. For many years, language has been included in successive foreign operations appropriations legislation concerning the boycott. Most recently, Section 7035 of the Consolidated and Further Continuing Appropriations A ct, FY 201 7 ( P.L. 115-31 ) states that it is the sense of Congress that 1. the Arab League boycott of Israel, and the secondary boycott of American firms that have commercial ties with Israel, is an impediment to peace in the region and to U.S. investment and trade in the Middle East and North Africa; 2. the Arab League boycott, which was regrettably reinstated in 1997, should be immediately and publicly terminated, and the Central Office for the Boycott of Israel immediately disbanded; 3. all Arab League states should normalize relations with their neighbor Israel; 4. the President and the Secretary of State should continue to vigorously oppose the Arab League boycott of Israel and find concrete steps to demonstrate that opposition by, for example, taking into consideration the participation of any recipient country in the boycott when determining to sell weapons to said country; and 5. the President should report to Congress annually on specific steps being taken by the United States to encourage Arab League states to normalize their relations with Israel to bring about the termination of the Arab League boycott of Israel, including those to encourage allies and trading partners of the United States to enact laws prohibiting businesses from complying with the boycott and penalizing businesses that do comply. The United States passed antiboycott legislation in the late 1970s to discourage U.S. individuals from cooperating with the secondary and tertiary boycotts. Antiboycott laws apply to "U.S. exports and imports, financing, forwarding and shipping, and certain other transactions that may take place wholly offshore." Although U.S. legislation and practices were designed to counteract the Arab League boycott of Israel, in practice, they apply to all non-sanctioned boycotts. According to the Department of Commerce's Office of Antiboycott Compliance, the legislation was enacted to "encourage, and in specified cases, require U.S. firms to refuse to participate in foreign boycotts that the United States does not sanction. They [the legislation] have the effect of preventing U.S. firms from being used to implement foreign policies of other nations which run counter to U.S. policy." U.S. regulations define cooperating with the boycott as (1) agreeing to refuse or actually refusing to do business in Israel or with a blacklisted company; (2) agreeing to discriminate or actually discriminating against other persons based on race, religion, sex, national origin, or nationality; (3) agreeing to furnish or actually furnishing information about business relationships in Israel or with blacklisted companies; and (4) agreeing to furnish or actually furnishing information about the race, religion, sex, or national origin of another person. U.S. antiboycott laws are included in the Export Administration Act of 1979 (EAA) and the Ribicoff Amendment to the Tax Reform Act of 1976 (TRA). The export-related antiboycott provisions are administered by the Department of Commerce and prohibit U.S. persons from participating in the boycott. The Internal Revenue Service (IRS) administers tax-related antiboycott regulations that deny tax benefits to U.S. taxpayers that participate in the boycott. Regulations promulgated under Section 8 of the EAA prohibit any U.S. person or company from complying with an unsanctioned foreign boycott and require them to report requests they have received to comply with a boycott. Such requests must be reported quarterly to the Department of Commerce's Office of Antiboycott Compliance (OAC) in the Bureau of Industry and Security (BIS). These regulations are implemented in part 760 of the Department of Commerce's Export Administration Regulations (EAR). The EAA prescribes penalties that may be imposed for violation of the antiboycott regulations. Criminal penalties for each "knowing" violation of the antiboycott regulations are a fine of up to $50,000 or five times the value of the exports involved, whichever is greater, and imprisonment of up to five years. During periods when the EAR are continued in effect by an Executive Order issued pursuant to the International Emergency Powers Act (IEEPA), the criminal penalties for each willful violation can be a fine of up to $50,000 and imprisonment for up to 10 years. Administrative penalties may also be levied. For each violation of the EAR any or all of the following may be imposed: General denial of export privileges; The imposition of fines of up to $11,000 per violation; and/or Exclusion from practice. When the EAR are continued under IEEPA, penalties for violations of the antiboycott regulations may be imposed as follows: up to the greater of $250,000 per violation or twice the value of the transaction for administrative violations, and up to $1 million and 20 years imprisonment per violation for criminal violations. In July 2007, BIS amended existing penalty guidelines to introduce a voluntary disclosure program that could reduce a potential fine levied on an exporter if it voluntarily discloses its violation of U.S. antiboycott laws. For the disclosure to have a mitigating effect, notification must take place prior to BIS learning about the violation from other sources and commencing an investigation. The new guidelines also created a new supplement no. 2 to the antiboycott provisions that more clearly describes how BIS investigates violations of U.S. antiboycott laws and determines penalty rates. The Ribicoff Amendment to the TRA added Section 999 to the Internal Revenue Code. This section denies various tax benefits normally available to exporters if they participate in the boycott. In addition, the IRS requires U.S. taxpayers to report operations in, with, or related to countries that the Department of the Treasury includes on its annual list of countries that may require participation in an international boycott, and with any other country from which they receive a request to participate in a boycott. The current list of countries that request U.S. companies to participate or agree to participate in boycotts prohibited under U.S. law includes Iraq, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, United Arab Emirates, and Yemen. The list remains unchanged since Iraq was added to the list of boycotting countries in August 2012. Denying tax benefits to U.S. firms that participate in the boycott appears to be an effective antiboycott strategy. According to a 1990s study, U.S. legislation had reduced overall participation in the boycott by U.S. taxpayers by between 15% and 30%. However, the effectiveness of U.S. antiboycott tax legislation may have diminished somewhat since the U.S. government is reducing export tax benefits that are available to U.S.-based companies to comply with World Trade Organization (WTO) rulings. A "BDS" (boycott, divestment, and sanctions) movement against Israel—ostensibly linked to its treatment of Palestinians—has gained support among civil society organizations in a range of countries. Some divestment from and boycotts of Israel or Israeli goods have resulted. For example, the American Studies Association, a scholarly organization devoted to the interdisciplinary study of American culture and history, voted for an academic boycott of Israeli institutions in December 2013, amplifying the controversy surrounding the issue with lawmakers and with U.S. higher education institutions and student councils. Some who oppose BDS measures against companies in Israel because of concerns that the movement's demands could endanger Israel's identity as a Jewish state nevertheless support efforts to divest from Israeli companies doing business in West Bank settlements. Additionally, some European countries' pension funds and companies have withdrawn investments or canceled contracts owing to concerns regarding connections with settlement activity. However, some reports have questioned whether such developments are properly characterized as constituting a boycott or a significant threat to Israel's economy. Extending existing U.S. antiboycott measures to incorporate the BDS movement raises several challenges. To the extent a U.S. organization may participate in the BDS movement, it would not appear to violate existing federal antiboycott legislation, which targets organizations' participation in foreign boycotts. Foreign states do not directly participate in the BDS movement, and the movement does not have a secondary tier targeting companies that do business in or with Israel. It appears, rather, to essentially be an informal grouping of civil society organizations—originating among Palestinians but subsequently expanding into other countries—making common cause rather than exercising economic pressure on companies to participate. U.S. legislation similar to the 2011 Israeli "Anti-Boycott Law," which instituted civil penalties for Israeli citizens who organize or publically endorse boycotts against Israel, would probably be vulnerable to challenge on free speech (First Amendment) grounds. | The Arab League, an umbrella organization comprising 22 Middle Eastern and African countries and entities, has maintained an official boycott of Israeli companies and Israeli-made goods since the founding of Israel in 1948. The boycott is administered by the Damascus-based Central Boycott Office, a specialized bureau of the Arab League. The boycott has three tiers. The primary boycott prohibits citizens of an Arab League member from buying from, selling to, or entering into a business contract with either the Israeli government or an Israeli citizen. The secondary boycott extends the primary boycott to any entity world-wide that does business in Israel. A blacklist of global firms that engage in business with Israel is maintained by the Central Boycott Office, and disseminated to Arab League members. The tertiary boycott prohibits an Arab League member and its nationals from doing business with a company that deals with companies that have been blacklisted by the Arab League. Since the boycott is sporadically applied and ambiguously enforced, its impact, measured by capital or revenue denied to Israel by companies adhering to the boycott, is difficult to measure. The effect of the primary boycott appears limited since intra-regional trade and investment are small. Enforcement of the secondary and tertiary boycotts has decreased over time, reducing their effect. Thus, it appears that since intra-regional trade is small, and that the secondary and tertiary boycotts are not aggressively enforced, the boycott may not currently have an extensive effect on the Israeli economy. Despite the lack of economic impact on either Israeli or Arab economies, the boycott remains of strong symbolic importance to all parties. The U.S. government has often been at the forefront of international efforts to end the boycott and its enforcement. Despite U.S. efforts, however, many Arab League countries continue to support the boycott's enforcement. U.S. legislative action related to the boycott dates from 1959 and includes multiple statutory provisions expressing U.S. opposition to the boycott, usually in foreign assistance legislation. In 1977, Congress passed laws making it illegal for U.S. companies to cooperate with the boycott and authorizing the imposition of civil and criminal penalties against U.S. violators. U.S. companies are required to report to the Department of Commerce any requests to comply with the Arab League Boycott. This report provides background information on the boycott and U.S. efforts to end its enforcement. More information on Israel is contained in CRS Report R44281, Israel and the Boycott, Divestment, and Sanctions (BDS) Movement, coordinated by Jim Zanotti. |
Since embarking on a road of free market reforms nearly three decades ago, China has been one of the world's fastest growing economies. The actual size of China's economy has been a subject of extensive debate among economists. China reports that its 2005 gross domestic product (GDP) was 18.4 trillion yuan. Using average annual nominal exchange rates (at 8.2 yuan per dollar) yields $2.2 trillion, equal to less than one-fifth the size of the U.S. economy. China's per capita GDP (a common measurement of living standards) in nominal dollars was $1,761, or 4.2% of U.S. levels. These data would indicate that China's economy and living standards in 2005 were vastly below U.S. levels. However, economists contend that these figures are very misleading. First, nominal exchange rates only reflect the price of currencies in international markets, which can vary greatly over time. Secondly, some exchange rate mechanisms, such as between the dollar and the Chinese yuan, may be significantly distorted by foreign government intervention. Finally, nominal GDP data fail to reflect differences in prices that exist across nations. Surveys indicate that prices in developing countries (such as China) are generally much lower than they are in developed countries (such as the United States and Japan), especially for non-traded goods and services. Thus, a measurement of a developing country's GDP expressed in nominal U.S. dollars will likely understate (often significantly) the actual level of goods and services that GDP can buy domestically. Economists have attempted to factor in national price differentials by using a purchasing power parity (PPP) measurement, which converts foreign currencies into a common currency (usually the U.S. dollar) on the basis of the actual purchasing power of those currencies (based on surveys of the prices of various goods and services) in each respective country. In other words, the PPP data attempt to determine how much local currency (yuan, for example) would be needed to purchase a comparable level of goods and services in the United States per U.S. dollar. This "PPP exchange rate" is then used to convert foreign economic data in national currencies into U.S. dollars. One of the largest PPP projects in the world is the International Comparison Program (ICP), which is coordinated by the World Bank. The ICP collects price data on more than 1,000 goods and services in 146 countries and territories (and makes estimates of 39 others). Prior to December 2007, data from the ICP and various private economic forecasting firms all seemed to agree that China's economy, measured on a PPP basis, was close to $9 trillion in 2005, ranking it as the world's second-largest economy, after the United States. Based on these estimates, and projections of continued rapid economic growth, many analysts predicted that China's economy would surpass that of the United States within a few years. Such projections helped fuel the growing debate over whether China posed an economic threat to the United States. However, newly revised PPP data released by the World Bank in December 2007 purport to show that China's economy in 2005 was 40% smaller than previously estimated. The ICP's previous 2005 PPP estimate of China's GDP (hereinafter referred to as ICP 1 ) at $8.8 trillion fell to $5.3 trillion (down by $3.3 trillion) under the ICP revision (hereinafter referred to as ICP 2 revision ). In addition, China's per capita GDP on a PPP basis dropped from $6,765 to $4,091 (see Table 1 ). The size of China's GDP relative to that of the United States fell from 71.3% under ICP 1 to 43.1% under ICP 2 revision , while per capita GDP relative to the United States dropped from 16.2% to 9.8%. Finally, the new revision decreased China's 2005 share of world GDP from 14.2% to 9.7% (the U.S. share rose from 20.5% to 22.5%). According to the ICP, the major difference between the old and new estimates of China's economy is that the latter reflects, for the first time, the inclusion of recent price survey data provided by China. Previously, the ICP estimated China's PPP data based on a 1986 comparative survey of prices in the United States and China and subsequent extrapolations of that data. ICP 2 revision significantly increased price level estimates within China's economy. The new data estimated that Chinese prices were on average 42% of U.S. levels (compared to 26% under the previous estimate), which is reflected in the change in the estimate of China's PPP exchange rate from 2.1 yuan to the dollar to 3.4. The revised data indicate it will likely take many more years than previously thought before China's GDP and living standards reach U.S. levels. Although China's access to assistance and loans from international development agencies may be unaltered by the ICP PPP revision, the data may directly or indirectly effect China's economic policies and its attitudes in international trade discussions. China may attempt to use the PPP revisions to boost its claim that it is a "poor" country and that, given its development needs and large numbers of people living in poverty, it should not be pressed to adopt economic reforms (such as changes to its currency policy) that could prove disruptive, or be expected to adopt policies that slow its economy, such as curtailing its energy use in response to international concerns over global climate change. As a recent article in The Economist put it, "China would probably be quite happy to see its GDP revised down, hoping that America might stop picking on a smaller, poorer economy." In February 2008, the World Bank stated that the ICP's revised estimate of China's PPP exchange rate data would affect its estimates of poverty levels in China, based on the daily cost of basic needs (estimated at roughly $1 PPP) and household surveys on consumption. The Bank estimates that the new PPP revisions would raise the estimated poverty rate in China in 2004 from 10% to 13-17%, or an increase from 130 million to between 169 to 221 million. Thus, previous estimates may have underestimated the number of Chinese living in poverty by up to 91 million people. Regardless of how China seeks to present the overall status of its economic development, commentators are speculating on the possible implications of the smaller GDP estimate of China for its socio-economic situation and policies, including: China ' s political stability may be weaker than previously thought —In the past, dissatisfaction with China's economic condition has lead to public unrest (e.g.—Spring 1989). The rising number of protests and demonstrations over the last few years may reflect, in part, the dissatisfaction of China's poor with their lack of economic progress. A 2005 article in People ' s Daily described China's growing income disparity as a "yellow alert" that could become a "red alert" in five years if the government failed to take proper actions. A 2005 United Nations report stated that the income gap between the urban and rural areas was among the highest in the world and warned that this gap threatened social stability. The report urged China to take greater steps to improve conditions for the rural poor, and bolster education, health care, and the social security system. The new PPP measurement may increase pressure within China to expand efforts to promote development in the rural areas where over 800 million people reside. According to a recent article in the Atlantic Monthly , some Chinese question why the government does not use its massive foreign exchange reserves to help alleviate poverty and respond to increasing income disparities across the country, rather than invest those funds overseas assets, such as in U.S. Treasuries. Such a reallocation of China's investment portfolio might have repercussions for the U.S. economy. Lower prospects for democracy —Prior to the release of the ICP revision report, some analysts had speculated that, once China reached a certain level of economic development and possessed a large and educated middle class, it would follow the examples of Taiwan and South Korea and begin to institute democratic reforms. The lower estimate of China's economy and living standards may dampen expectations in the West that China might soon move to adopt political reforms. Lower commitment to market reforms and trade liberalization —In an effort to reduce income disparities and improve conditions for China's poor, there may be a return to some of the "command economy" methods of the past. The recent decision to impose strict price controls on basic food items and other household necessities might be seen as a temporary retreat from market reforms. Finally, the ICP study may also alter how the U.S. government and the U.S. business community perceive China. The possible new view of China includes: Reevaluation of the Chinese government ' s budget —The PPP data may affect how U.S. policymakers evaluate China's spending levels on policies that affect U.S. policy. For example, the U.S. Defense Department's annual report on China's military spending includes conversions of China's budget data by the Chinese People's Liberation Army (PLA) from nominal U.S. dollars into PPP levels. The report estimated the PLA's 2003 budget in $30.6 billion in nominal dollars and $141 billion on a PPP basis. The World Banks's PPP revision could significantly decrease this estimate and other measurements of Chinese military spending as well as various public spending programs. Smaller export market potential —As a senior fellow at the Council on Foreign Relations wrote, "U.S. businesses and entrepreneurs hoping to crack the Chinese and Indian markets must come to terms with a middle class that is significantly smaller than thought. Companies with growth plans tied to the Indian and Chinese markets could face disappointing results." However, it is important to note the limitations of PPP estimates of GDP—and where and when they provide useful insight in economic analysis. Although the estimated size of China's economy decreases under the PPP revisions, other aspects on China's economy remain significantly large. For example, trade and international financial data are generally unaffected by the reduction in China's PPP GDP. It is estimated that in 2007, China overtook the United States to become the world's second-largest exporter (after the European Union). Similarly, in 2006 China was the world's fifth-largest recipient of foreign direct investment, the largest steel producer, the second-largest consumer of oil, and by some accounts, the largest emitter of carbon dioxide (CO2). In addition, since 2006, China has been the world's largest holder of foreign exchange reserves ($1.5 trillion at the end of 2007). Thus, despite the ICP results, China remains a major trade and economic power and a major potential global player in international finances and investment flows. | China's rapid economic growth since 1979 has transformed it into a major economic power. Over the past few years, many analysts have contended that China could soon overtake the United States to become the world's largest economy, based on estimates of China's economy on a "purchasing power parity" (PPP) basis, which attempts to factor in price differences across countries when estimating the size of a foreign economy in U.S. dollars. However, in December 2007, the World Bank issued a study that lowered its previous 2005 PPP estimate of the size of China's economy by 40%. If these new estimates are accurate, it will likely be many years before China's economy reaches U.S. levels. The new PPP data could also have an impact on U.S. and international perceptions over other aspects of China's economy, including its living standards, poverty levels, and government expenditures, such as on the military. This report will not be updated. |
The number of children coming to the United States who are not accompanied by a parent or legal guardian is raising a host of policy questions. While much of the congressional interest initially focused directly on immigration policy, the implications for other areas, including education, are now arising as well. Under federal law, states and LEAs are required to provide all children with equal access to a public elementary and secondary education, regardless of their immigration status. Upon arrival in the United States, unaccompanied alien children generally are initially served through programs operated by the Department of Health and Human Services' (HHS's) Office of Refugee Resettlement (ORR). While in these programs, children are provided with basic education services and activities and are not enrolled in local school systems. However, once an unaccompanied alien child is released to an appropriate sponsor (e.g., parent, other family member, or other adult), the child has the right to enroll in a local school, just like any other child living in that area, even while awaiting immigration proceedings. In response to congressional interest in these issues, this report addresses possible sources of federal support for schools and local educational agencies that have enrolled unaccompanied alien children. It is not intended to provide a comprehensive review of all programs that could potentially serve these children. Rather, the first part of this report includes a discussion of three federal elementary and secondary education programs administered by the U.S. Department of Education (ED): (1) Title I-A Grants to Local Educational Agencies (LEAs) authorized by the Elementary and Secondary Education Act (ESEA), (2) English Language Acquisition Grants (Title III-A) authorized by the ESEA, and (3) Part B Grants to States authorized by the Individuals with Disabilities Education Act (IDEA) with an emphasis on how these programs could currently serve unaccompanied alien children or possibly be modified to increase support for these children. The second part of the report examines two programs that were previously administered by ED but are no longer funded. The first is the Emergency Immigrant Education Act (EIEA), which preceded the English Language Acquisition program. The second is the Temporary Emergency Impact Aid for Displaced Students program, which was enacted following Hurricanes Katrina and Rita to provide aid to states that enrolled elementary and secondary students who were displaced as a result of the storms. This program has been of particular interest to Congress because it provided aid on a short-term basis to schools and LEAs that experienced an unexpected influx of students. The next section of the report provides an overview of the Refugee School Impact Aid program administered by ORR, which funds activities aimed at the effective integration and education of refugee children. The last section of the report addresses the challenge of providing funds to LEAs and schools that are absorbing newly arriving unaccompanied children in light of the lack of local area data on the number of unaccompanied alien children that have been released from ORR custody. This section of the report includes ORR data on the number of unaccompanied alien children that have been released from ORR custody by county and state . There are several existing federal education programs administered by ED that could be used by LEAs to support the education of unaccompanied alien children upon their arrival and in subsequent years. The three largest programs that are most relevant to serving this student population include Title I-A Grants to LEAs authorized under the ESEA, English Language Acquisition Grants authorized under Title III-A of the ESEA, and Part B Grants to States authorized under the IDEA. These are not the only programs from which unaccompanied alien children could benefit or may be served, but they are some of the largest federal elementary and secondary programs, and given their aims, they may receive consideration as vehicles to provide assistance to schools and LEAs absorbing unaccompanied alien children. An overview of each program is provided below with a brief explanation of how the program is particularly relevant to unaccompanied alien children. Title I, Part A, of the ESEA authorizes federal 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 pre-kindergarten through grade 12 schools with relatively high concentrations of students from low-income families. It 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 a condition for receiving Title I-A grants. For FY2014, the program was funded at $14.4 billion. Title I-A funds are allocated by the U.S. Department of Education (ED) to state educational agencies (SEAs), which then suballocate grants to LEAs. It is one of the few federal K-12 formula grant programs for which substate grants are, in most cases, calculated by ED. Portions of each annual appropriation for Title I-A are allocated under four different formulas—Basic, Concentration, Targeted, and Education Finance Incentive Grants—although funds allocated under all of these formulas are combined and used for the same purposes by recipient LEAs. Although the allocation formulas have several distinctive elements, the primary factors used in all four formulas are estimated numbers of children aged 5-17 in poor families plus a state expenditure factor based on average expenditures per pupil for public K-12 education. Within LEAs, Title I-A funds are used to provide supplementary educational services to students at public schools with the highest percentages or numbers of children from low-income families, as well as eligible students who live in the areas served by these public schools, but who attend private schools. While there are several program rules related to school selection, the participating schools must generally have a percentage or number of children from low-income families that is greater than the LEA's average. LEAs can generally choose to focus Title I-A services on selected grade levels (e.g., only in elementary schools), but they must usually provide services in all schools, without regard to their grade level, where the percentage of students from low-income families exceeds 75%. Once schools are selected, Title I-A funds are allocated among them on the basis of their number of students from low-income families. There are two basic types of Title I-A programs. Schoolwide programs are authorized if the percentage of low-income students served by a school is 40% or higher. In schoolwide programs, Title I-A funds may be used to improve the performance of all students in a school. For example, funds might be used to provide professional development services to all of a school's teachers, upgrade instructional technology, or implement new curricula. The other major type of Title I-A school service model is the targeted assistance program. This was the original type of Title I-A program, under which Title I-A-funded services are generally limited to the lowest achieving students in the school. For example, students may be "pulled out" of their regular classroom for several hours of more intensive instruction by a specialist teacher each week, or they may receive such instruction in an after-school program, or funds may be used to hire a teacher's aide who provides additional assistance to low-achieving students in their regular classroom. If an unaccompanied alien child enrolls in a school receiving Title I-A funds, the student may immediately be eligible for services, depending on the student's academic needs and the type of Title I-A program the school is operating. If the student remains in the school and is a low-income student, the student may eventually be included in the data used to determine Title I-A grants to schools and the estimates of the number of children living in families in poverty within the LEA. Title III-A was designed to help ensure that limited English proficient (LEP) students, including immigrant students, attain English proficiency, develop high levels of academic attainment in English, and meet the same state academic content and student academic achievement standards that all students are expected to meet. For the purposes of the English Language Acquisition program, "immigrant children and youth" are defined as individuals ages 3 through 21 who were not born in any state and have not been attending one or more schools in any one or more states for more than three full academic years. For FY2014, the program received $723 million. Formula grant allocations are made to states based on the proportion of LEP students and immigrant students in each state relative to all states. These amounts are weighted by 80% and 20%, respectively, resulting in a formula allocation based primarily on the number of LEP students in each state. States make subgrants to eligible entities (often LEAs) based on the relative number of LEP students in schools served by the eligible entity. States are also required to reserve up to 15% of the state allocation to make grants to eligible entities that have experienced a significant increase in the number of immigrant students enrolled in schools in the geographic area served by the eligible entity. States that are not reserving the full 15% of Title III-A funds to support LEAs that have experienced a significant increase in the number of immigrant students have the discretion to increase the percentage of funds reserved for this purpose. It should be noted that recent immigrant students could benefit from the funds set aside specifically for immigrant students as well as the majority of the funding provided under the English Language Acquisition program which focuses on increasing English language proficiency and student academic achievement in core academic subjects. Eligible entities receiving subgrants are required to use funds for two activities. Funds must be used to increase the English language proficiency of LEP students by providing high-quality instructional programs that are grounded in scientifically based research that demonstrates the program is effective in increasing English language proficiency and student academic achievement in core academic subjects. Funds must also be used to provide high-quality professional development to school staff or community-based personnel that work with LEP students. Eligible entities receiving grants from the funds reserved specifically for immigrant students are required to use these funds to support activities that "provide enhanced instructional opportunities" for immigrant students. If Congress wants to provide additional funds under the English Language Acquisition program to LEAs that have experienced a significant increase in the number of immigrant students, there are several options that could be considered. The overall program appropriation could be increased, which would increase state allocations (assuming all other factors remained constant). This would mean that the 15% reservation of funds would be based on a higher state allocation amount. Another option would be to increase the 15% cap on the percentage of funds that could be reserved to support such LEAs. However, this would leave less funding to support the LEP students (including immigrant students) served through the main program. Other options would be to change the underlying formula used to award grants to states to increase the weight given to immigrant students or use annual state data to determine the count of recent immigrant children and youth. This could result in some states receiving higher grant amounts and some states receiving lower grant amounts. IDEA Part B provides federal funding for the education of school-age children with disabilities and requires, as a condition for the receipt of such funds, the provision of a free appropriate public education (FAPE). FAPE involves the provision of specially designed instruction provided at no cost to parents that meets the needs of a child with a disability. IDEA contains procedural safeguards, which are provisions intended to protect the rights of parents and their children with disabilities regarding the provision of FAPE. In FY2014, IDEA Part B received $12.3 billion. To be covered under IDEA, a child with a disability must meet one or more of the categorical definitions of disability in the act, and the child must require special education and related services as a result of the disability in order to benefit from public education. Once a child meets IDEA's eligibility criteria, FAPE is implemented through an Individualized Education Program (IEP), which is the plan for providing special education, related services, and accommodations by the LEA. To receive services under IDEA, an unaccompanied alien child would first have to be identified as having or potentially having a disability that meets the IDEA eligibility criteria and subsequently be evaluated by the LEA to determine whether the child is a child with a disability and to determine the child's educational needs prior to the student being eligible for services under IDEA. That is, unaccompanied alien children would not be eligible for services under IDEA when they initially enroll in a school. If, however, as a result of the aforementioned evaluation process an unaccompanied alien child is determined to have met the IDEA eligibility criteria, the child is eligible for services under IDEA. In addition to the current federal education programs that may be useful in assisting LEAs in meeting the needs of recent immigrant students, there are other federal education programs administered by ED that are no longer funded that either focused on immigrant students (Emergency Immigrant Education Act) or have been used in the past to assist schools and LEAs experiencing an unexpected influx of students in elementary and secondary school (Temporary Emergency Impact Aid for Displaced Students). This program was formerly included in the ESEA (Title VII-C) and was eliminated when the English Language Acquisition program was enacted under the No Child Left Behind Act of 2002 ( P.L. 107-110 ). With respect to the need for the EIEA program, Congress found that "local educational agencies have struggled to fund adequately education services"; states have the responsibility to educate all students regardless of immigration status; and "immigration policy is solely a responsibility of the Federal Government." The program was designed to assist LEAs that experienced "unexpectedly large increases in their student population due to immigration" to provide high-quality instruction to these students, assist with their transition into American society, and help them to meet the challenging state performance standards expected of all children. Similar to the English Language Acquisition program, "immigrant children and youth" were defined as individuals ages 3 through 21 who were not born in any state and have not been attending school in any one or more states for more than three full academic years. Under the EIEA program, formula grants were awarded to states based on each state's proportional share of immigrant children and youth enrolled in public elementary and secondary schools served by an LEA and nonpublic elementary and secondary schools within the LEA. However, in determining the number of immigrant students, only immigrant students enrolled in LEAs in which (1) the LEA enrolled at least 500 of such children or (2) such children represented at least 3% of the total number of students enrolled in such public or nonpublic schools during the fiscal year were included in the state count. Immigrant students enrolled in LEAs that did not meet either of these criteria were not included in the determination of the state's grant amount. Funds provided under this program had to be used to pay for "enhanced instructional opportunities" for immigrant children and youth. While a comparable program to the EIEA could be developed to meet the needs of recent immigrant students, the reservation of funds for immigrant students under the English Language Acquisition program may already be addressing this aspect of providing assistance to such children. As previously discussed, the English Language Acquisition program includes provisions requiring states to reserve up to 15% of the state allocation to make grants to eligible entities that have experienced a significant increase in the number of immigrant students enrolled in schools in the geographic area served by the eligible entity. Similar to the EIEA program, these funds must be used to provide "enhanced instructional opportunities" for immigrant students. Following Hurricanes Katrina and Rita, Section 107 of P.L. 109-148 authorized the Secretary of Education (hereinafter referred to as the Secretary) to award Temporary Emergency Impact Aid for Displaced Students Grants to SEAs to enable them to award funds to eligible LEAs and Bureau of Indian Affairs (BIA)-funded schools for the education of students displaced by the natural disaster. Under the program, federal funding was made available to LEAs and schools on a per-student basis, irrespective of whether the school in which parents chose to enroll their child was a public or nonpublic school. Aid was limited to LEAs and schools serving students displaced by Hurricanes Katrina and Rita. Under the program, the Secretary was authorized to make four quarterly payments to SEAs, which in turn awarded funds to LEAs and BIA-funded schools on a per-student basis. A maximum of $6,000 was authorized per displaced student (and up to $7,500 per displaced student served under IDEA, Part B). If insufficient funds were available to pay the full amount which an LEA or BIA-funded school was eligible to receive, then awards were required to be proportionately reduced. LEAs and eligible BIA-funded schools were permitted to use these funds for the purpose of providing services and assistance to elementary and secondary schools enrolling displaced students during the 2005-2006 school year. LEAs serving areas in which displaced students enrolled in nonpublic schools prior to December 20, 2005, were required to deposit a proportionate amount of funds into student accounts on behalf of such students. Nonpublic schools, in turn, were able to access funds from student accounts for authorized uses. The amount to be deposited into each student account could not exceed the cost of tuition and fees at the nonpublic school a student attends. Nonpublic schools were also required to waive or reimburse tuition in order to access funds from student accounts. For FY2006, $645 million was appropriated. The program initially expired on August 1, 2006. P.L. 109-234 provided an additional $235 million for the program and extended the period of obligation until September 30, 2006, but only for expenses incurred during the 2005-2006 school year. Portions of the funds were provided to 49 states and the District of Columbia. LEAs, BIA-funded schools, and eligible non-public schools could use Temporary Emergency Impact Aid for Displaced Students program funds for the following purposes: paying the compensation of personnel, including teacher aides, in schools enrolling displaced students; identifying and acquiring curricular material, including the costs of providing additional classroom supplies, and mobile educational units and leasing sites or spaces; basic instructional services for such students, including tutoring, mentoring, or academic counseling; reasonable transportation costs; health and counseling services; and education and support services. These funds could not be used for construction or major renovations. Under the program, neither LEAs nor non-public schools were required to use funds exclusively to serve displaced students. While funds could be used specifically to serve displaced students, they could also be used for activities and services related to serving displaced students, such as educational programs or transportation services that benefit both displaced students and other students. SEAs were required to notify parents and guardians of displaced students that they had the option of enrolling their child in a public or non-public school; and that the aid provided under the program was temporary and only available for the 2005-2006 school year. The program contained no prohibition against non-public schools using federal funds received through student accounts to compensate personnel engaged in religious instruction or to purchase curricular materials and classroom supplies to be used in religious instruction. Funds were required to be deposited into student accounts only at the request of the parent or guardian of a displaced student. The parent or guardian of a displaced student had to be provided with the option of having their child opt out of religious worship or religious classes. While students were able to opt out of religious instruction, there did not appear to be any prohibition against funds made available on a child's behalf (at the request of the child's parent or guardian) being used for religiously oriented activities on a schoolwide basis. A comparable program could be developed to support SEAs, LEAs, or schools serving unaccompanied alien children. In order to create a similar program, however, states, LEAs, schools, or the ORR would need to identify how many eligible children were enrolled in schools in a given state or LEA. The ORR is responsible for the placement of unaccompanied alien children in appropriate custody and, therefore, may be best positioned to make these determinations. Various decisions regarding the program structure would also need to be made, including determining the program appropriation level, the period of time for which funds would be provided, whether higher grant amounts would be provided for unaccompanied alien children who are eligible for services under IDEA, and whether funds would be provided only on behalf of unaccompanied alien children attending public schools or also on behalf of unaccompanied alien children enrolled in private schools. There is one smaller program—not part of those funded by the U.S. Department of Education—that provides current funding for a portion of the unaccompanied alien children. Unaccompanied alien children who receive asylum are eligible for assistance through the Refugee School Impact Aid program. In 1980, Congress enacted the Refugee Education Assistance Act ( P.L. 96-422 ) only a few months after passing the landmark Refugee Act of 1980 established the ORR. Among other features, P.L. 96-422 authorized special impact aid to LEAs for the education of Cuban, Haitian, and Indochinese children who had sought refuge in the United States. The vestige of the Refugee Education Assistance Act exists today in ORR's Refugee School Impact Aid program, which funds activities aimed at the effective integration and education of refugee children. The most current report from ORR indicates this program provided grants totaling $15 million in FY2012 to state governments and nonprofit groups to assist local school systems impacted by significant numbers of refugee children. Unaccompanied alien children who have received asylum in the United States number 108 children through the third quarter of FY2014. Only two of these approved cases were for unaccompanied children apprehended in FY2014. All of the other approved cases were for unaccompanied children apprehended in prior years. As a consequence, the ORR's Refugee School Impact Aid program would not be a major source of funding unless Congress amended the law to include all, or additional classes of, unaccompanied alien children among those eligible for the assistance. Much as Congress specified in the law that the Cuban and Haitian Entrant children who were not deemed as refugees or asylees under the Immigration and Nationality Act were eligible for the Refugee Education Assistance Act, so too Congress might consider amending the provision to include unaccompanied alien children that ORR has temporarily released to a parent or sponsor. One of the principal challenges of providing funds to LEAs that are absorbing newly arriving unaccompanied children is the lack of local area data. The best available data from the ORR are county-level totals that do not indicate the age of the child. As many LEAs do not conform to county boundaries, any formula distributions would be approximate at best. Information on the specific schools that may be receiving the recent influx of unaccompanied children does not exist. ORR has begun releasing state-level data of unaccompanied alien children released to sponsors, and the most complete data available are from January 1, 2014, to July 31, 2014. A total of 37,477 unaccompanied alien children were released during this seven-month period. The data do not provide information on the child's country of birth or other demographic details. As Figure 1 shows, four states dominate among host homes for unaccompanied alien children: Texas, New York, California, and Florida. Table 1 presents the data that ORR has made publically available, beginning in January 1, 2014. Six counties have received over 1,000 unaccompanied alien children during the period January 1 to July 31, 2014: Harris, TX; Los Angeles, CA; Suffolk, NY; Miami-Dade, FL; Nassau, NY; and Fairfax, VA. | The number of children coming to the United States who are not accompanied by a parent or legal guardian is raising a host of policy questions. While much of the congressional interest initially focused directly on immigration policy, the implications for other areas, including education, are now arising as well. Under federal law, states and LEAs are required to provide all children with equal access to a public elementary and secondary education, regardless of their immigration status. Upon arrival in the United States, unaccompanied alien children generally are served initially through programs operated by the Department of Health and Human Services' (HHS's) Office of Refugee Resettlement (ORR). While in these programs, children are provided with basic education services and activities and are not enrolled in local school systems. However, once an unaccompanied alien child is released to an appropriate sponsor (e.g., parent, other family member, or other adult), the child has the right to enroll in a local school, just like any other child living in that area, even while awaiting immigration proceedings. While several federal education programs administered by the U.S. Department of Education (ED) provide funds that may be used by schools, local educational agencies (LEAs), and states to serve unaccompanied alien children, this report focuses on three ED programs that may be particularly helpful in providing support for these children: (1) Title I-A Grants to Local Educational Agencies (LEAs) authorized by the Elementary and Secondary Education Act (ESEA), (2) English Language Acquisition Grants (Title III-A) authorized by the ESEA, and (3) Part B Grants to States authorized by the Individuals with Disabilities Education Act (IDEA). In addition to current federal education programs that may be useful in assisting local education systems in meeting the needs of recent immigrant students, there are other federal education programs previously administered by ED that are no longer funded that either focused on immigrant students (Emergency Immigrant Education Act) or have been used in the past to assist schools and LEAs experiencing an unexpected influx of students in elementary and secondary school (Temporary Emergency Impact Aid for Displaced Students). In addition to these ED programs, ORR administers the Refugee School Impact Aid program administered by ORR, which funds activities aimed at the effective integration and education of refugee children. One of the principal challenges of providing federal funds to LEAs and schools that are absorbing newly arriving unaccompanied children is the lack of local area data. The best available data from ORR are county-level totals that do not indicate the age of the child. A discussion of these data and their limitations is included at the end of this report. |
1. (back) Library of Congress (LOC), FederalResearch Division (FRD), Iraq: A Country Study , edited by Helen Chapin Metz, research completedMay 1988, p. 153; Copyright(C)United States Goverment as represented by the Secretary of the Army. 2. (back) World Bank, World DevelopmentIndicators (WDI) 2003. Note that the World Bank's WDI data does not appear to include adjustmentsfor 1991 war-related population loss as is done by the U.S. Bureau of the Census in their population series for Iraq. 3. (back) Average annual growth of cerealproduction between the periods 1969-71 and 1988-90. 4. (back) Kamil Mahdi, State and Agriculturein Iraq , "Chapter 1 -- The Agricultural Resources and Population of Iraq," Exeter Arab and IslamicStudies Series, Ithaca Press; copyright(c)Kamil A. Mahdi, 2000, p.12-13. 5. (back) Compton's InteractiveEncyclopedia , Copyright(c)1993, 1994 Compton's NewMedia, Inc.; and "Iraq," Microsofts(R)Encarta(R) 98Encyclopedia . (c)1993-1997 Microsoft Corp. 6. (back) Ibid., pp.17-18. 7. (back) Ibid., p.17. 8. (back) United Nations (UN), Food andAgriculural Organization (FAO), FAOSTAT. (A hectare equals about 2.47 acres.) 9. (back) Ahmad, Mahmood. "Agricultural PolicyIssues and Challenges in Iraq: Short- and Medium-term Options," from Iraq's EconomicPredicament , Kamil Mahdi, Editor. Exeter Arab and Islamic Studies Series, Ithaca Press,copyright©Kamil Mahdi, 2002, p. 172. 10. (back) In the early 1990s, cultivated areatemporarily expanded to nearly 5.5 million hectares, due primarily to government incentives (seesection "Iraq's Agriculture in the post-gulf War Era: 1001-2002" of this report), before returning to under 4 million. 11. (back) U.N. FAO, FAOSTAT. 12. (back) Europa Publications, "Iraq: Agricultureand Food," from The Middle East and North Africa 2003 , 49th edition, pp 475. 13. (back) LOC, FRD, Iraq: A CountryStudy , "Chapter 3 -- The Economy: Industrialization," May 1988, p. 153 14. (back) Ahmad (2002), p. 170. 15. (back) Ibid., pp. 170-171. Note that 1 inchequals about 25.4 millimeters (mm). 16. (back) Mahdi (2000), p. 27. 17. (back) Agence France Presse, February 11,2003, copyright 2003 18. (back) IPR Strategic Business InformationDatabase, September 18, 2000. 19. (back) U.N. AQUASTAT, "Country Profile:Iraq," -- FAO's Information System on Water and Agriculture, Food and Water DevelopmentDivision, 1997 version. Note: 1 km 3 = 1 billion m 3 . 20. (back) Mahdi (2000), p. 19. 21. (back) U.N., FAO, AQUASTAT (1997), p. 22. (back) Ibid. 23. (back) Ibid. 24. (back) Mahdi (2000), p.16. 25. (back) Okin (undated). http://www.evsc.virginia.edu/~desert/ 26. (back) Iraq was part of the Ottoman Empirefrom the mid-1500s until 1920 when it became a British Mandate. At that time, Britain establisheda monarchy in Iraq. Independence was achieved by Iraq in 1932, but Britain retained a role in defense and foreignaffairs. A military coupin 1958 ended the monarchy and established Iraq as a republic. 27. (back) LOC, FRD, Iraq: A CountryStudy , "Land Tenure and Agrarian Reform," 1990. 28. (back) Kamil A. Mahdi, State andAgriculture in Iraq , Exeter Arab and Islamic Studies Series, Ithaca Press, copyright©Kamil Mahdi,2000.p. 201. 29. (back) Europa Publications (2003), p. 474. 30. (back) LOC, FRD, Iraq: A CountryStudy , "Land Tenure and Agrarian Reform," 1990. 31. (back) Ibid. 32. (back) World Bank, World DevelopmentIndicators, 2003. 33. (back) Mahdi (2000), p.31. 34. (back) Springborg, Robert. "Infitah, AgrarianTransformation, and Elite Consolidation in Contemporary Iraq," The Middle East Journal , Vol.40, No. 1, Winter 1986, pp. 33-52. 35. (back) LOC, FRD, Iraq: A CountryStudy , 2000. 36. (back) Ibid., p. 32. 37. (back) Kurtzig, Michael E. and John B.Parker. "World Agriculture and Trade: Iraq," Agricultural Outlook , November 1980, pp. 18. 38. (back) Ibid. Springborg suggests that at leasta partial motivation for this behavior by Saddam was that, by weakening the Baath Partystructure, he was able to enhance his own power base within the Party. 39. (back) Ibid., p. 40-41. 40. (back) Chaudhry, Kiren Aziz, "ConsumingInterests: Market Failure and the Social Foundations of Iraqi Etatisme," from Iraq's EconomicPredicament , Kamil Mahdi, Editor. Ithaca Press, copyright©Kamil Mahdi, 2002, pp. 245. 41. (back) Ahmad (2002), p. 184. 42. (back) Springborg (1986), p. 37. 43. (back) Chaudhry (2002), p. 245. 44. (back) Ibid., p. 247. 45. (back) Ahmad (2002), p. 191. 46. (back) USDA. January 1998. "Soil QualityResource Concerns: Salinization," Natural Resources Conservation Service, USDA. http://soils.usda.gov/sqi/files/Salinzation.pdf 47. (back) Springborg (1986), p. 38-39. 48. (back) Ahmad (2002), p. 184. 49. (back) Ibid., p. 40. 50. (back) Michiel Leezenberg,"Refugee Campor Free Trade Zone? The Economy of Iraqi Kurdistan since 1991," from Iraq's EconomicPredicament , Kamil Mahdi, Editor. Exeter Arab and Islamic Studies Series, Ithaca Press,copyright©Kamil Mahdi, 2002, pp. 291. 51. (back) U.N., FAO, FAOSTAT. 52. (back) U.S. General Accounting Office(GAO), November 1990, p. 2. Note: under GSM-102 USDA's Commodity Credit Corporation (CCC)guarantees repayment for credit sales of three years or less; under GSM-103, CCC guarantees repayment for creditsales of more than threeyears but less than 10 years. 53. (back) IPR Strategic Business InformationDatabase, "Iraq: 9 Million Palm Trees Lost in Wars," December 13, 2000; copyright©Info-Prod(Middle East) Ltd., 2000. 54. (back) FAOSTATS, FAO, United Nations. 55. (back) Library of Congress, FRD, Iraq:A Country Study , "The Economy -- Cropping and Livestock," p.162. 56. (back) FAOSTATS, FAO, United Nations. 57. (back) Ahmad, Mahmood. "AgriculturalPolicy Issues and Challenges in Iraq" Short- and Medium-term Options," from Iraq's EconomicPredicament , Kamil Mahdi, Editor. Ithaca Press, copyright©Kamil Mahdi, 2002, pp. 179-180. 58. (back) For a discussion of Security Councilresolutions and requirements on Iraq, see CRS Issue Brief IB92117, Iraq: Weapons Programs,U.N. Requirements, and U.S. Policy . 59. (back) For a discussion of Security Councilresolutions related to the Oil-For-Food Program in Iraq, see CRS Report RL30472 , Iraq: Oil-For-FoodProgram, International Sanctions, and Illicit Trade ; and United Nations, Office of the Iraq Program -- Oil forFood; "About theProgram: In Brief." http://www.un.org/depts/oip/background/inbrief.html 60. (back) Parker, John, Michael Kurtzig, andTom Bickerton. "Iraq Faces Embargo," Agricultural Outlook , ERS, USDA, September 1990, pp.16.; and USDA "PSD online database." 61. (back) U.S. General Accounting Office. Iraq's Participation in U.S. Agricultural Export Programs , NSIAD-91-76, November 1990, p. 2. 62. (back) U.S. Bureau of the Census,International Data Base (IDB), Iraq, Oct. 10, 2002. 63. (back) A later section, "Agricultural Situationin Northern Iraq: 1991-2002," describes the agricultural sector in the 3 governorates of Kurdish-controlled northernIraq during the post-Gulf War period. 64. (back) Gazdar, Haris, and Athar Hussain,"Crises and Response: A Study of the Impact of Economic Sanctions in Iraq" Short- and Medium-term Options,"from Iraq's Economic Predicament , Kamil Mahdi, Editor, Ithaca Press, copyright©Kamil Mahdi,2002, pp. 31-83. 65. (back) Ibid., p. 56-57. 66. (back) Ibid., p. 59. 67. (back) Ahmad (2002), p. 194 68. (back) IPR Strategic Business InformationDatabase, "Iraq: 9 Million Palm Trees Lost in Wars," December 13, 2000; copyright©Info-Prod(Middle East) Ltd., 2000. 69. (back) Agence France Presse, "War, embargotake their toll on Iraq's palm trees," Baghdad, Iraq, December 4, 1994; copyright©Agence FrancePresse 1994. 70. (back) Agence France Presse, "Iraqi date trade,pride of the nation, reeling under U.N. sanctions," Basra, Iraq, February 11, 2003;copyright©Agence France Presse 2003. 71. (back) The problem for dates is even moreacute than simply reclaiming lost market share. Demand for dates in international markets is likelyquite inelastic -- i.e., not very price responsive. Therefore, any significant increase in supplies of dates oninternational markets is likelyto lead to substantially greater declines in the international market price. 72. (back) Gazdar and Hussain (2002), p. 62. 73. (back) These data should be viewed withcaution. Although they are from FAOSTAT, they reflect the data officially reported by the Iraqigovernment to the FAO. Rising usage rates may be more a reflection of declining area to which fertilizer is applied,rather than increasingwidespread availability. 74. (back) Ahmad (2002), p. 191. 75. (back) British Broadcasting Corporation(BBC), BBC Monitoring Middle East, "Iraq: Irrigation Ministry Official Says Current Drought WorstSince 1920s," June 8, 1999; Copyright©1999 BBC. 76. (back) The Economist , "Diggingfor defeat: Iraq," May 2, 1998, Vol. 348, No. 8066, p.44. 77. (back) Ibid. 78. (back) Ibid., p. 44. 79. (back) United Nations Development Program(UNDP), Iraq Country Office, 1999-2000 Report, June 2000, p. 8. 80. (back) Ibid. 81. (back) USDA, PSD database, April 2003. Note that during 1960-69 annual cereal production per capita averaged 249 kilograms (kg). Thisfell to 177 kg/capita/year in the 1970s, and 130 in the 1980s, but had regained ground to 155 during the 1990-94period. 82. (back) U.N. Office of the Iraq Program,Oil-for-Food, Fact Sheet; http://www.un.org/depts/oip/background/fact-sheet.html 83. (back) Individual calorie needs vary with age,sex, activity level, and a number of other factors. World Health Organization (WHO), Energyand protein requirements , Technical report Series 724, report of a joint FAO/WHO/UNU expert consultation,Geneva, 1985, pp. 76-78. 84. (back) Graham-Brown, Sarah. "HumanitarianNeeds and International Assistance in Iraq after the Gulf War," from Iraq's EconomicPredicament , Kamil Mahdi, Editor. Exeter Arab and Islamic Studies Series, Ithaca Press,copyright©Kamil Mahdi, 2002, p.283. 85. (back) For a discussion of the targetednutrition program in northern Iraq see the discussion below under "Nutritional Status Improves," orsee WFP, Office of the Iraq Program, Oil-for-Food, Background brief -- Nutrition; http://www.un.org/depts/oip/sector-nutrition.html 86. (back) Ibid., p. 283-4. 87. (back) The Iraqi government had refused toagree to an earlier offer by the U.N. Security Council to establish a similar OFFP (Resolution 706;Aug. 15, 1991). For more information on the U.N. Oil-For-Food Program and trade during the decade of the 1990ssee CRS Report RL30472 , Iraq: Oil-For-Food Program, International Sanctions, and Illicit Trade . 88. (back) U.N. Office of the Iraq Program,Oil-for-Food, Fact Sheet. 89. (back) Kamil Mahdi (2002b), p. 338. 90. (back) The official exchange rate has beenfixed at U.S. $1 = 0.311 ID since 1983. However, this official rate bears no relationship with thecurrency's true value. The black market rate has shown considerable variation over the past decade, often in relationto the U.N. sanctionsstatus and international petroleum prices. During 1996 the dinar rose from its lowest value of ID3,000 per U.S.dollar to ID1,000, reportedlyin anticipation of the adoption and implementation of the OFFP. [Ahmad (2002), p.174.] In March 2003, the blackmarket rate wasestimated to be U.S. $1 = 2,700 ID. [ The Economist , Economist Intelligence Unit, Country Report: Iraq,April 2003 Updater.] 91. (back) According to Gazdar and Hussain(2002; p.49), the food basket's market value was 19,048 ID in May 1996. The food basket's valuetemporarily hit a low of 5,866 ID in June 2002 as cited in U.N., Office of the Iraq Program, "The HumanitarianProgram in Iraq Pursuantto Security Council Resolution 986 (1995)," 12 November 2002, p. 13. 92. (back) WFP, Emergency Report No. 26, Iraqsection, paragraph (c), June 27, 2003. 93. (back) U.N. Office of the Iraq Program,Oil-for-Food, Humanitarian Imports, "Status of ESB account on 31 Dec.2002." http://www.un.org/depts/oip/background/basicfigures2.html . 94. (back) WFP, Office of the Iraq Program,Oil-for-Food, Background brief -- Nutrition. 95. (back) Preliminary, unpublished findings ofa 2002 U.N. survey of children under the age of five. WFP, Office of the Iraq Program, Oil-for-Food, Backgroundbrief -- Food Basket; http://www.un.org/depts/oip/food-facts.html . 96. (back) Ibid. 97. (back) WFP, Office of the Iraq Program,Oil-for-Food, Background brief -- Nutrition. 98. (back) Most of the information in this sectionrelevant to the agricultural sector of northern Iraq (unless otherwise indicated) is fromLeezenberg's chapter "Refugee Camp or Free Trade Zone? The Economy of Iraqi Kurdistan since 1991," from Iraq's EconomicPredicament , Kamil Mahdi, Editor. Exeter Arab and Islamic Studies Series, Ithaca Press,copyright©Kamil Mahdi, 2002, pp. 289-319. 99. (back) UN Security Council, Resolutions: http://www.un.org/Docs/sc/unsc_resolutions.html 100. (back) U.S. Department of Defense(DOD), European Command, Operation Norther Watch, Chronology of Significant Events. http://www.defendamerica.mil/iraq/iraq_nofly.html 101. (back) Ahmad (2002), p. 187. 102. (back) Leezenberg (2002), p., 303. 103. (back) CRS Report RL30472 , p. 3. 104. (back) Ibid., p. 5. 105. (back) Leezenberg (2002), p. 314. 106. (back) Ibid., p. 311. 107. (back) World Bank, WDI 2003. 108. (back) Kamil Mahdi, "Iraq's AgrarianSystem: Issues of Policy and Performance," Chapter 9 from Iraq's Economic Predicament , KamilMahdi, Editor. Exeter Arab and Islamic Studies Series, Ithaca Press, copyright©Kamil Mahdi, 2002, p. 337. 109. (back) During calendar 1997. Return to CONTENTS section of this Long Report. | Iraq's agricultural sector represents a small but vital component of Iraq's economy. Over the past several decades agriculture's role in the economy has been heavily influenced by Iraq'sinvolvement in military conflicts, particularly the 1980-88 Iran-Iraq War, the 1991 Gulf War, andthe 2003 Iraq War, and by varying degrees of government effort to promote and/or controlagricultural production. Rapid population growth coupled with limited arable land and a general stagnation in agricultural productivity has steadily increased dependence on imports to meet domestic food needssince the mid-1960s. Prior to the 1991 Gulf War, Iraq was a major trading partner with the U.S. Iraqbenefitted from substantial USDA agricultural export credit during the 1980s to purchase largequantities of U.S. agricultural commodities. By the mid-1980s Iraq was the major destination forU.S. rice exports. Iraq was also an important purchaser of U.S. wheat, corn, soymeal, and cotton. After the 1991 Gulf War, U.S. agricultural export credit to Iraq was ended and USDA was left with$2 billion in unpaid credit. U.S. agricultural trade with Iraq remained negligible through 2002. Present-day Iraqi agriculture and trade have been heavily shaped by the 1990 U.N. sanctions and the Iraqi government's response to them. From 1991 to 1996, prior to the startup of the U.N.'sOil-For-Food program (OFFP), Iraq's agricultural imports averaged $958 million or less than halfof the pre-war level. Under the OFFP, the value of Iraq's agricultural imports rebounded to average$1.5 billion (during the 1997-2002 period). In early 2003, just prior to the U.S. -- Iraq War, the country's agricultural sector remained beset by the legacy of past mis-management, unresolved disputes over land and water rights, and thelingering effects of a severe drought during 1999-2001. Clearly, Iraq will be dependent on importsfor fully meeting domestic food demand for several years to come. In the near term, food aidshipments are likely to play a major role in determining the share of Iraq's agricultural imports, andmay influence the evolution of future commercial imports. This report is an extension of CRS Report RS21516 , "Iraq's Agriculture: Background and Status." It provides a brief description of Iraq's agro-climatic setting and the history of agriculturalpolicy, production, and trade leading up to the period just prior to the 2003 Gulf War; it reviewsissues likely to affect the long-term outlook for Iraq's agricultural production and trade; and itprovides several tables of historical data relevant to understanding the evolution of Iraq's agriculturalproduction and trade. This report will be updated as events warrant. For detailed discussion on thestatus of humanitarian aid efforts, see CRS Report RL31833 , Iraq: Recent Developments inHumanitarian and Reconstruction Assistance . For discussion on the U.N. Oil-For-Food Programand trade during the decade of the 1990s see CRS Report RL30472 , Iraq: Oil-For-Food Program,International Sanctions, and Illicit Trade . |
Since 1946, Congress has approved, on four occasions, legislation to regulate lobbyist contacts with Members of Congress. In each instance, the legislation was designed to require individuals and companies who lobby Members of Congress to register with the House of Representatives and the Senate and disclose receipts and expenditures related to lobbying. Initial registration and disclosure provisions, contained in the Legislative Reorganization Act of 1946, required lobbyists to register with Congress and disclose receipts and expenditures. In 1995, the Lobbying Disclosure Act repealed the 1946 act and created a system of detailed reporting and registration thresholds. In 1998, technical amendments to the 1995 law were passed. In 2007, the Honest Leadership and Open Government Act amended disclosure and reporting requirements to require quarterly, instead of semi-annual reporting. The Federal Regulation of Lobbying Act, for the first time, established requirements for individuals lobbying Congress to register with and report to the House of Representatives and the Senate. Included as part of the Legislative Reorganization Act of 1946, the Lobbying Act did not impose restrictions on lobbying activities. Instead, it merely required individuals who lobby Congress to register with the House and Senate and disclose certain activities. Perhaps most importantly, the Lobbying Act also imposed the requirement that all registration and disclosure statements be made under oath. Fines and possible jail time were established for incorrectly reporting lobbying contacts. The Lobbying Act established the first registration thresholds for individuals lobbying Members, committees, and congressional staff. Section 308 of the act required individuals to register if they contacted Congress about legislation. The section also detailed the information required from the lobbyists: Any person who shall engage himself for pay or for any consideration for the purpose of attempting to influence the passage or defeat of any legislation by the Congress of the United States shall, before doing anything in furtherance of such object, register with the Clerk of the House of Representative and the Secretary of the Senate and shall give to those offices in writing and under oath, his name and business address, the name and address of the person by whom he is employed, and in whose interest he appears or works, the duration of such employment, how much he is paid and is to receive, by whom he is paid or is to be paid, how much he is to be paid for expenses, and what expenses are to be included. Following registration with the House and Senate, the lobbyist was responsible for filing quarterly disclosure statements "detailing money received and expended, persons to whom funds were paid and the purposes of the funding, the names of any publications in which he has caused any articles or editorials to be published, and the proposed legislation he sought to influence. In addition, the registrant was bound to report the names and addresses of persons who made contributions to him of $500 or more." Since the Federal Regulation of Lobbying Act regulated conduct and activities bearing on First Amendment rights, the Supreme Court narrowly interpreted its reach and breadth, and applied the registration provisions only to those whose "principal purpose" was directly lobbying Members of Congress. This narrow interpretation excluded many persons and organizations who spent substantial time and funds on "lobbying," but for whom such lobbying was not necessarily the principal purpose of the organization, person, or entity. The Lobbying Disclosure Act (LDA) of 1995 repealed the Lobbying Act portion of the Legislative Reorganization Act of 1946. LDA also provided specific thresholds and clear definitions of lobbying activities, lobbying contacts, and who is a lobbyist, compared with the 1946 act. In reporting the LDA, the House Judiciary Committee summarized the need for new lobbying provisions: The Act is designed to strengthen public confidence in government by replacing the existing patchwork of lobbying disclosure laws with a single, uniform statute which covers the activities of all professional lobbyists. The Act streamlines disclosure requirements to ensure that meaningful information is provided and requires all professional lobbyists to register and file regular, semiannual reports identifying their clients, the issues on which they lobby, and the amount of their compensation. It also creates a more effective and equitable system for administering and enforcing the disclosure requirements. The LDA not only required that lobbyists attempting to influence Congress register with the Clerk of the House and the Secretary of the Senate, but that they file semi-annual reports on the nature of their lobbying contacts. See the Appendix for a list of definitions applicable to the LDA, as amended by the HLOGA. Pursuant to LDA Section 4, lobbyists must register with the Clerk of the House and Secretary of the Senate no more than 45 days after the lobbyist first makes a lobbying contact or is employed to make a lobbying contact if the "total income for matters related to lobbying activities on behalf of a particular client (in the case of a lobbying firm) does not exceed and is not expected to exceed $5,000" or the "total expenses in connection with lobbying activities (in the case of an organization whose employees engage in lobbying activities on its own behalf) do not exceed or are not expected to exceed $20,000." Section 4 further required that each registration contain the following six items: 1. the registrant's name, address, business telephone number, principal place of business, and a general description of his or her business or activities. 2. the registrant's client's name, address, principal place of business, and a general description of its business or activities. 3. the name, address, and principal place of business of any organization, other than the client, that contributes more than $10,000 toward the registrant's lobbying activities in a semi-annual reporting period, as described in 2 U.S.C. § 1604(a), and has a major role in planning, supervising, or controlling lobbying activities 4. the name, address, principal place of business, amount of any contribution of foreign entities (if any) that hold at least 20% equitable ownership in the client, directly or indirectly plans, supervises, controls, directs, finances, or subsidizes the activities of the client, or is an affiliate of the client and has a direct interest in the outcome of lobbying activities and contributes more than $10,000 to the registrant's lobbying activity. 5. a statement on the general issue areas the registrant expects to engage in lobbying activities on behalf of the client and, if possible, specific issues that have already been addressed or are likely to be addressed. 6. the names of the registrant's employees who have acted or whom will act as a lobbyist on behalf of the client and if that person has been a covered executive or legislative branch official in the past two years (after December 19, 1995). A registered lobbyist who has multiple clients must file a separate registration form for each client. A registered lobbyist who makes multiple contacts for the same client only needs to register once. A lobbying organization that employs more than one lobbyist must submit a single registration form for each client listing all lobbyists working on behalf of that client. When a registered lobbyist is no longer employed by a client or lobbying organization or does not anticipate further lobbying contacts for a specific client, the lobbyist can file a registration termination form with the Clerk and the Secretary. Once a lobbyist or lobbying firm is registered with the Clerk and the Secretary, the LDA required the filing of semi-annual reports within 45 days of the end of a semi-annual reporting period, with a separate report filed for each client of a registered lobbyist. Pursuant to Section 5 of the LDA, the report was required to contain the following information: the registrant's name, the client's name, and any changes or updates to the information provided in the initial registration; for each general issue area which the registrant lobbied on behalf of the client (1) a list of specific issues, including bill numbers and specific references to executive branch actions (when practicable) which lobbyists employed by the registrant engaged in lobbying activities; (2) a list of the congressional and executive branch contacts; (3) a list of registrant employees who acted as lobbyists on behalf of the client; and (4) a description of interests by foreign entities, if any; a good faith estimate by lobbying firms of the total amount of income generated from the client from lobbying activities on behalf of the client; ; if a registrant engaged in lobbying activities on its own behalf, an estimate of the total expenses that the registrant and its employees incurred in connection with lobbying activities. Following the disclosure by registrants, the Clerk and the Secretary are required to provide guidance to lobbyists and the lobbying community on the implementation of reporting requirements. The Clerk and the Secretary are required to review, verify and ensure the accuracy, completeness, and timeliness of the registration and disclosure statements; make a list of registered lobbyists, lobbying firms, and clients publicly available; create a computerized filing system; make all filing available for public inspection; retain registration and disclosure statements for a period of at least six years; summarize information contained in registrations and reports on a semi-annual basis; notify lobbyists or lobbying firms in writing of non-compliance; and notify the United States Attorney for the District of Columbia of non-compliance by a lobbyist or a lobbying firm if the registrant has been notified in writing and has failed to provide an appropriate response within 60 days. The Honest Leadership and Open Government Act (HLOGA) of 2007 amended the LDA. HLOGA further refined thresholds and definitions of lobbying activities, changed the frequency of reporting for registered lobbyists and lobbying firms, added additional disclosures, created new semi-annual reports on contributions, and added disclosure requirements for coalitions and associations. The HLOGA did not specifically amend the LDA's registration requirements. The Clerk and the Secretary, however, were for the first time required to make registration and disclosure forms available, in a searchable and sortable format, on the Internet, for public inspection. The HLOGA amendments to the LDA made several changes to disclosure requirements. Under the LDA, lobbyists and lobbying firms were required to submit forms disclosing activities on a semi-annual basis (as discussed above under " Disclosure " of the Lobbying Disclosure Act). The HLOGA amendments created quarterly, instead of semi-annual, reporting periods and shortened the deadline for submission from 45 days to 20 days after the filing period ends. The amended text reads as follows: No later than 20 days after the end of the quarterly period beginning on the first day of January, April, July, and October of each year in which a registrant is registered under section 4 [2 USCS § 1603], or on the first business day after such 20 th day if the 20 th day is not a business day, each registrant shall file a report with the Secretary of the Senate and the Clerk of the House of Representatives on its lobbying activities during such quarterly period. A separate report shall be filed for each client of the registrant. The threshold for filing quarterly reports was also lowered, requiring lobbyists and lobbying firms to file reports of work when total income from lobbying exceeded $2,500 (formerly $5,000) and where total expenses used in connection with lobbying exceeded $10,000 (formerly $20,000) for any given quarterly reporting period. In addition to the amendments concerning quarterly reports of lobbying activity, Congress amended the LDA to create a new semi-annual reporting requirement for campaign and presidential library contributions by lobbyists and lobbying firms. These reports are due within 30 days of the end of a semi-annual reporting period. These semi-annual contribution reports are to contain the following information: the name of the person (including employer) or organization; the names of all political committees established or controlled by the person or organization; the name of each federal candidate or officeholder, leadership PAC, or political party committee, to whom aggregate contributions equal to or exceeding $200 were made by the person or organization, or a political committee established or controlled by the person or organization, and the date and amount of each such contribution made; the date, recipient, and amount of funds contributed or disbursed during the semiannual period by the person or organization or a political committee established or controlled by the person or organization; the name of each Presidential library foundation, and each Presidential inaugural committee, to whom contributions equal to or exceeding $200 were made by the person or organization, or a political committee established or controlled by the person or organization, within the semiannual period, and the date and amount of each such contribution within the semiannual period; a certification by the person or organization filing the report that the person or organization has read and is familiar with those provisions of the Standing Rules of the Senate and the Rules of the House of Representatives relating to the provision of gifts and travel; and has not provided, requested, or directed a gift, including travel, to a Member of Congress or an officer or employee of either House of Congress with knowledge that receipt of the gift would violate rule XXXV of the Standing Rules of the Senate or rule XXV of the Rules of the House of Representatives. The Clerk of the House and the Secretary of the Senate have collected registration and disclosure data since the passage of the LDA in 1995. Using these data, it is possible to analyze registration and disclosure trends under the LDA and changes made by the HLOGA amendments. The following sections examine registration and disclosure data filed under the LDA between 2001 and 2007, and between 2008 and 2010 following the passage of the HLOGA amendments. All data are presented from the Clerk's lobbying disclosure website. The LDA requires the Clerk and the Secretary to use a single, computer based system for lobbyists and lobbying firms to file registration and disclosure forms. The Clerk and the Secretary, however, use different search engines and display the data differently. Data from the Clerk are utilized because they provide distinctions between paper and electronically filed reports. The distinction between report submission methods shows compliance with the LDA requirements for electronic submissions and the rate of online filing prior to the passage of the HLOGA amendments. Tracking these numbers is important because it enables a comparison of lobbying registration and disclosure before and after the HLOGA amendments. Analyzing the registration, termination, and disclosure data before and after the HLOGA amendments allows a systematic examination of the amendments impact on the lobbying community. If the goal of the HLOGA was to more closely regulate lobbyists by requiring additional disclosure, the data constitute an opportunity to examine the law's impact. Since 2001, almost 50,000 individuals and firms have registered, as lobbyists under the LDA. During that time, the number of individuals and firms that registered has varied annually. While no specific pattern has developed, it appears that with the exception of 2001, more new registrations registered in the first session of a Congress (e.g., 2003, 2005, 2007, and 2009) than in the second session (e.g., 2004, 2006, 2008, and 2010). In addition to registering with the Clerk and the Secretary, lobbyists and lobbying firms are also required to amend registration forms when changes are made to their status, clients, contact information, or other identifying information. Figure 1 shows the total number of new registrants per year and number of registration amendments filed per year before and after the enactment of the HLOGA amendments. Immediately prior to the HLOGA amendments, the number of registrants amending their forms declined from a peak of 1,279 in 2002 to a low of 599 in 2007. Under the HLOGA, the number of registration amendment forms increased to 981 in 2008. The number of registration amendments decreased slightly (884) in 2009 and returned to 2007 levels in 2010 (587). The reason for the variation in registration amendments does not appear to follow a particular pattern. Instead, it appears that the filing of registration amendments might be governed by lobbyists' need to make changes based on hiring and firing of staff and recruitment of new clients. The HLOGA amendments to LDA, for the first time, required electronic filing to the Clerk and the Secretary. The Clerk and the Secretary, however, have allowed lobbyists and lobbying firms to file registration forms electronically since 2002, when 0.38% of all registrations were filed electronically. Since 2009, 100% of all registrations were filed electronically. Figure 2 shows the number of registrations filed electronically, on paper, and in total since 2001. Electronic submission of registration forms began to increase in 2005, when 10.7% of new registrants filed electronically. While filing electronically was not required prior to the HLGOA amendments, the number of registrations filed electronically increased significantly in 2006 and 2007. In 2006, the number of electronic registrations eclipsed paper registrations for the first time (82.2% of all registrations were filed electronically). By 2007, the number of registrations had again increased with 94.7% of lobbyists and lobbying firms filing electronically. Following the enactment of HLOGA, 99.9% of registrations were filed electronically in 2008, and 100% were filed electronically in 2009 and 2010. A lobbyist or lobbying firm that has gone out of business or is no longer representing a client is required to file a registration termination report with the Clerk and the Secretary. Under LDA, termination reports were filed on a semi-annual basis. Figure 3 shows the number of registration termination reports filed during the mid-year reporting period (June 30), during the year-end reporting period (December 31), and the total number of terminations for the year (from 2001 to 2010). Since 2001, the number of terminations has increased every year except for 2007 and 2010 when there was a slight decline in total terminations from the previous year. Overall, between 2001 and 2007 there appeared to be only a slight increase in terminations at year's end, compared with the mid-year reporting period. The difference may have existed because lobbyists and lobbying firms adjust clients and staff more at the end of congressional sessions. The difference could also be tied to the number of registrations. As more lobbyists and lobbying firms register with the Clerk and the Secretary, more termination forms may be submitted. Pursuant to the HLGOA amendments, termination reports were changed from semi-annual reports to quarterly reports. Figure 4 shows the quarterly termination reports filed between 2008 and 2010. The trend toward a greater number of year-end terminations evident under the LDA continues under the HLOGA amendments. The number of terminations in the fourth quarter (an average of 1,651) is higher than for any of the previous three quarters. The first quarter (an average of 1,491) has the second-highest number of terminations. The number of registration terminations filed with the Clerk and the Secretary in the second quarter (an average of 1,200) and the third quarter (an average of 1,134) of between 2008 and 2010 were relatively consistent. The difference in terminations in the fourth quarter of 2008 and the first quarter of 2009 may exist because, as previously stated, lobbyists and lobbying firms change clients and staff more frequently at the beginning and end of a Congress rather than during the sessions. Alternately, the increase in registration terminations could reflect the change in administration from a Republican to a Democratic White House. Since the LDA covers both legislative and executive branch officials, lobbyists and lobbying firms could adjust staffing levels to reflect changes in administration priorities and policy. Under the LDA, lobbyists and lobbying firms were required to file semi-annual reports disclosing certain information about clients, issues lobbied, government officials lobbied, an estimate of income generated from each client, and an estimate of total expenses incurred in connection with lobbying activities. Since 2001, the number of disclosure reports filed has increased from a low of 12,853 disclosures in 2001 to a high of 19,178 in 2007. Although this could indicate an overall increase in lobbying activity, without additional data for the period under the HLOGA amendments, a definitive conclusion cannot be made. In most years, the number of year-end reports was slightly greater than the number of mid-year reports. This may reflect an increase in lobbying activity towards the end of a congressional session when additional efforts might be needed to ensure the passage of important legislation. Figure 5 shows the number of mid-year and year-end reports filed by lobbyists and lobbying firms between 2001 and 2007. Pursuant to the HLOGA amendments, disclosure reports were changed beginning in 2008 from semi-annual reports to quarterly reports. For this reason, Figure 5 does not contain a similar accounting of disclosure reports for 2008 and 2009. To reflect the reporting change, Figure 6 shows the volume of quarterly disclosure reports filed between 2008 and 2010. In 2008, the number of disclosure reports filed from one quarter to the next decreased from 18,615 during the first quarter to 16,372 in the fourth quarter. In 2009, the number of disclosure reports filed each quarter was slightly less than for 2008 for the first and second quarter and higher for the third and fourth quarters. Contrasted with an average of 18,270 mid-year and 17,937 year-end disclosure statements filed between 2005 and 2007 under the LDA, the decline in filings in the fourth quarters of 2008 and 2010 appears to be incongruous with the previous data. Data for 2008 and 2010 represent the end of a Congress. It is possible that the number of disclosures filed in the fourth quarter of 2008 and 2010 was a result of decreased lobbying activity. As a Congress completes its legislative agenda, the need to lobby Members declines. The impact of the HLOGA on the registration, termination, and disclosure of lobbyists and lobbying firms is mixed. In the three years since the HLOGA amendments were implemented, it appears the registration trends that existed between 2001 and 2007 continue under the HLOGA amendments. For termination, overall trends also continue, with an increase in terminations in the fourth quarter of 2008 and the first quarter of 2009. Since the first quarter of 2009, the number of terminations has stabilized and roughly mirrors the 2008 numbers. Overall, while terminations in 2008 and 2009 are greater than anytime between 2001 and 2007, the pattern of increased terminations in congressional election years, followed by a slight decline the following year, continues. The most significant change in reporting occurred for the filing of disclosure statements. Instead of filing two reports per year on lobbying activity, lobbyists, and lobbying firms are required to report four times per year. Collecting the data in quarters instead of semi-annual periods appears to have uncovered a reporting trend that was otherwise obscured under the semi-annual system. For 2008 and 2010, the data shows an overall decline in disclosure reports for the fourth quarter. The data suggest that lobbyists and lobbying firms make more contacts and engage in a greater percentage of their lobbying activity in the first three quarters of the year than at the end of a congressional session. The year-end report data from 2001 to 2007, which included both third and fourth quarter activity, may have been motivated by third quarter activity that was previously included in year end reports. It is possible, however, that the 2008 and 2010 upticks in reporting reflect the transition to a new presidential administration coupled with the beginning of a new Congress. For 2009, the volume of disclosure reports does not easily fit with the volume of reports for 2008 and 2009. Fourth quarter lobbying activity, as shown by the number of disclosure reports continues at a high level. This may reflect the continuation of Congress's legislative agenda from the first to the second session. In the 111 th Congress, many issues that were initiated during the first session continued through an after-Thanksgiving session and into the second session. Lobbying for those provisions continued throughout that period. Pursuant to the Lobbying Disclosure Act, as amended by the Honest Leadership and Open Government Act of 2007 (Chapter 26, Title 2, United States Code ), the following definitions are applicable to the registration and disclosure process. | On September 14, 2007, President George W. Bush signed S. 1, the Honest Leadership and Open Government Act of 2007 (P.L. 110-81), into law. The Honest Leadership and Open Government Act (HLOGA) amended the Lobbying Disclosure Act (LDA) of 1995 (P.L. 104-65, as amended) to provide, among other changes to federal law and House and Senate rules, additional and more frequent disclosure of lobbying contacts and activities. This report focuses on changes made to lobbying registration, termination, and disclosure requirements and provides analysis of the volume of registration, termination, and disclosure reports filed with the Clerk of the House of Representatives and the Secretary of the Senate before and after the HLOGA's passage. This report does not analyze the content of these reports. Under the LDA, as amended by the HLOGA, the Clerk and the Secretary manage the collection of registration, termination, and disclosure reports made by lobbyists and lobbying firms. Prior to the HLOGA, lobbyists and lobbying firms were required to submit semi-annual reports to the Clerk and the Secretary. The HLOGA amendments to the LDA modified reporting requirements to require quarterly filing of disclosure and termination reports. These forms are available for public inspection from the Clerk's and Secretary's websites. The filing of registration, termination, and disclosure reports under the HLOGA amendments has continued at approximately the same pace as under the LDA. Examining data for filings between 2001 and 2007 under the LDA, and for 2008 through 2010 under the HLOGA amendments, reveals that the number of new registrations has remained mostly consistent under the HLOGA amendments. The termination reports filed by lobbyists and lobbying firms no longer representing a client have also remained constant following the implementation of the HLOGA amendments. Only disclosure reports, now filed quarterly, show a change between 2007 and 2010. Under the HLOGA amendments, the number of disclosure reports filed in the fourth quarter between 2008 and 2010 has decreased from filings between 2001 and 2007. For further analysis on the Honest Leadership and Open Government Act and its other provisions, including amendments to House and Senate gift rules, travel restrictions, and campaign contributions, see CRS Report RL34166, Lobbying Law and Ethics Rules Changes in the 110th Congress, by [author name scrubbed]; CRS Report RL31126, Lobbying Congress: An Overview of Legal Provisions and Congressional Ethics Rules, by [author name scrubbed]; CRS Report RS22566, Acceptance of Gifts by Members and Employees of the House of Representatives Under New Ethics Rules of the 110th Congress, by [author name scrubbed]; CRS Report RL34377, Honest Leadership and Open Government Act of 2007: The Role of the Clerk of the House and the Secretary of the Senate, by [author name scrubbed]; and CRS Report R40091, Campaign Finance: Potential Legislative and Policy Issues for the 111th Congress, by [author name scrubbed]. |
The prevention and control of domestic crime has traditionally been a responsibility of state and local governments, with the federal government playing more of a supportive role. As crime rates continued to increase throughout the 1960s, 1970s, and 1980s, the federal government increased its involvement in domestic crime control efforts. It did so primarily through a series of grant programs to encourage and assist states and communities in their efforts to control crime, as well as through the expansion in the number of offenses that could be prosecuted in the federal criminal justice system. Over a 10-year period (1984-1994), Congress enacted five major anti-crime bills and increased appropriations for federal assistance to state and local law enforcement agencies. As a result, the Federal Bureau of Investigation (FBI) had seen an expansion of its role in fighting domestic crime as Congress began to add more crimes to the federal criminal code that were previously under the sole jurisdiction of state and local governments. Within the past several years, however, some federal assistance to state and local law enforcement has declined, and the FBI has refocused its resources on countering terrorism as federal law enforcement efforts since September 11, 2001 (9/11), have focused primarily on protecting the nation against terrorist attacks. A major policy question facing Congress is, What should be the role of the federal government in crime control? More specifically, what should its role be in controlling violent crime, combating fraud, setting drug control policy, and overseeing Department of Justice (DOJ) grant programs? As mentioned, the prevention and control of domestic crime has conventionally been under the purview of state and local governments. However, as the violent crime rate increased in the 1960s, 1970s, and 1980s, and some questioned the ability of state and local law enforcement to combat the growing problem with limited resources at their disposal, the federal government began to take a more direct role in crime control. The following section discusses the trends in the nation's violent and property crime rates over the past two decades. The FBI's Uniform Crime Report (UCR) program compiles data from monthly reports transmitted directly to the FBI from approximately 17,000 local police departments or state agencies. Of interest to lawmakers are the two indices of crimes that are the basis of the UCR. The FBI collects data on the number of offenses known to police, the number and characteristics of persons arrested, and the number of "clearances" for eight different offenses, collectively referred to as Part I offenses. Part I offenses include murder and nonnegligent manslaughter, forcible rape, robbery, aggravated assault, burglary, larceny-theft, motor vehicle theft, and arson. Within the Part I offenses, crimes are categorized as either violent or property crimes. Violent crimes include murder and nonnegligent manslaughter, forcible rape, robbery, and aggravated assault. Property crimes include burglary, larceny-theft, motor vehicle theft, and arson. The FBI also collects data on the number of arrests made for 21 other offenses, known as Part II offenses. The UCR collects crime data from the various state and local law enforcement agencies and presents it in a variety of formats in the UCR. The data on which the crime rates are derived are offenses reported to the police (as opposed to arrests made by police or cases cleared by the police). Based on analysis of the UCR data, the national violent crime rate began to increase sharply in the 1960s. The increase continued throughout the 1970s and into the early 1990s, peaking in 1991. By the mid-1990s, however, the violent crime rate began to decline, as illustrated in Figure 1 . The violent crime rate continued to decline into the new millennium, and despite slight increases in 2005 and 2006, it declined once again in 2007. This decline continued through 2009, with the violent crime rate at its lowest level since the mid-1970s. Similar to the general decline in the national violent crime rate since the mid-1990s, the national property crime rate has trended downward as well, as illustrated in Figure 2 . The property crime rate began to steadily decline in the early 1990s, increased slightly in 2001, and then continued to decline through 2009. Despite the declining crime rates, Congress has continued to debate measures that may further decrease both violent and non-violent crime as well as provide assistance to state and local criminal justice systems. Following is a discussion of selected crime-related issues that were of concern for the 111 th Congress. The national violent crime rate has generally decreased since the mid-1990s. However, interest in combating violent crimes across the United States has remained. Although policy makers have been concerned with all forms of violent crimes, the selected issue areas discussed below were of interest to the 111 th Congress. One of the primary questions spanning these issues was, What should be the federal government's role in combating various crimes? Another general issue was whether Congress has provided the best regulatory, investigative, and prosecutorial tools to counter violent crime around the country. Current law defines hate crimes to include any crime against either person or property, in which the offender intentionally selects the victim because of the victim's actual or perceived race, color, religion, national origin, ethnicity, gender, gender identity, disability, or sexual orientation. Although hate crimes may fall under the categories of both violent and property crimes, policy makers tend to focus more attention on those hate crimes that may be classified as violent crimes. Current federal hate crime law also prohibits the use of force, or threat of force, to injure, intimidate, or interfere with any persons for reasons related to their race, color, religion, or national origin, while they are engaged in certain federally protected "civil rights" activities. In 2009, there were 6,604 reported incidents of hate crimes. For statistical purposes, a crime is labeled a hate crime if there is sufficient evidence to lead a reasonable person to conclude that the offender's actions were motivated, in whole or in part, by his or her bias. One issue the 111 th Congress faced was whether federal jurisdiction over hate crimes should be broadened by adding federal penalties for hate crimes that currently fall under the jurisdiction of state, tribal, local, and municipal authorities. Although some argue that greater federal involvement would ensure that hate crimes are systematically addressed, others contend that additional federal penalties for hate crimes would be redundant and largely symbolic, as penalties for those crimes already exist under state law. Another issue was whether the definition of hate crimes should be broadened to include crimes motivated by additional biases, such as a bias toward gender identity. The Matthew Shepard and James Byrd, Jr. Hate Crimes Prevention Act, Division E of P.L. 111-84 , among other things, includes gender identity in the list of bias-motivated hate crimes. In addition to questioning whether federal hate crime jurisdiction should be broadened, another issue that Congress considered was whether there should be greater federal assistance to state and local law enforcement in not only investigating and prosecuting hate crimes, but in categorizing and reporting them as well. Finally, Congress also considered whether to include crimes against the homeless population in the crime data collected by the Federal Bureau of Investigation. Similarly to hate crimes, gang crimes may be classified as both violent crimes and property crimes. In discussing gang crimes, however, policy makers have tended to focus attention on strategies to curb violent gang crimes rather than gang-related property crimes. According to a survey of law enforcement agencies on the characteristics of youth gangs conducted by the National Youth Gang Center (NYGC), gang activity is pervasive in both urban and rural America. According to the NYGC, an estimated 774,000 gang members and 27,900 gangs were active across the United States in 2008. Of the cities, suburban areas, towns, and rural counties surveyed, about 32.4% experienced gang problems in 2008. Policy makers have long considered solutions to youth gang violence that include a combination of prevention, intervention, and suppression efforts. However, as gang violence increases, some are calling for different approaches to the issue. For example, policy makers in the 111 th Congress considered whether to create new or expand on existing grant programs to provide funding for research on gang prevention. They also considered grant programs that could provide funding for gang-specific investigations and prosecutions. Also, the 111 th Congress debated whether or not it would be necessary or beneficial to include gang-specific provisions in the Racketeer Influenced and Corrupt Organization (RICO) Act in order to aid in prosecuting gang members for specified gang crimes. Congress did not choose to expand federal authority to prosecute juveniles, including gang members, as adults. Another issue that the 111 th Congress considered was whether to amend the federal criminal code to update the definition of a gang as well as criminalize specified gang crimes. The Government Accountability Office (GAO), for instance, reports that a uniform definition of "gangs" across federal investigative agencies may enhance coordination of gang-related data collection across agencies. Statistics on crime and mortality are often used in the gun control debate. For instance, in 2009, 67% of homicides with a known cause were firearm-related. Congress has continued to debate the efficacy and constitutionality of federal regulation of firearms and ammunition, with advocates arguing both for and against greater gun control. Proposals to legislatively restrict the public availability of firearms have raised various crime-related questions, including whether increased regulation of firearm commerce or ownership might significantly affect the rates of violent crimes such as homicide, assault, and robbery. There were several firearm-related issues that the 111 th Congress considered. One was the federal government's role in legislating on individuals' rights to carry concealed weapons. A second issue was whether background check records for approved firearm transactions should be retained to enhance terrorist screening. Another issue revolved around whether there should be further regulations on certain firearms previously defined in statute as "assault weapons" or on certain long-range .50 caliber rifles. Yet another issue Congress considered was whether to require background checks for private firearm transfers at gun shows. Policy makers have been concerned with the prevalence and types of fraud committed across the country. In response, the 111 th Congress passed the Fraud Enforcement and Recovery Act of 2009 (FERA), in part to address mortgage, securities, commodities, and financial fraud, among other things. The broad policy issue cross-cutting various types of fraud and theft was whether the federal response has or can effectively keep pace with the evolving nature of these crimes. As the nature of these crimes changes, how can policy makers provide the necessary resources and update the criminal statutes to allow for effective investigation and prosecution of these crimes? Identity theft is the fastest growing type of fraud in the United States, and the Federal Trade Commission (FTC) estimates that identity theft costs consumers about $50 billion annually. In 2009, about 11.1 million Americans were reportedly victims of identity theft—an increase of about 12% over the approximately 9.9 million who were victimized in 2008. In addition, identity theft is often interconnected with various other criminal activities, ranging from credit card and bank fraud to immigration and employment fraud. Consequently, the 111 th Congress debated the federal government's role is in preventing identity theft and its related crimes, relieving the effects of identity theft on its victims, and providing the criminal justice system with effective tools to investigate and prosecute identity thieves. In preventing personal information from falling into the hands of identity thieves, one issue that the 111 th Congress confronted was whether it is the federal government's role to regulate the availability of personally identifiable information (social security numbers, in particular) in the public, as well as in the private, sector. One policy option considered was to provide specific agencies with the rulemaking authority to set standards for the sale of personally identifiable information in the private sector. Policy makers also considered prohibiting the use of personally identifiable information on government documents, such as Medicare identification cards, and Congress passed the Social Security Number Protection Act of 2010 ( P.L. 111-318 ) that prohibits the display of social security numbers on government-issued payment checks. Another issue at hand was that in the instance of a data breach, should there be more strict requirements regarding the reporting of the data breach? For instance, policy makers considered whether to require the reporting of data breaches to law enforcement or to individuals whose personal information may have been compromised. Another issue that the 111 th Congress considered in attempt to punish or deter identity thieves was whether the list of predicate offenses for aggravated identity theft should be expanded to include additional crimes commonly facilitated by identity theft. It has been estimated that organized retail crime (ORC) may cost the retail industry over $30 billion dollars each year. In addition to the lost income to retailers, ORC can pose both economic and health risks to society; states suffer lost tax revenue, and individuals may face health risks from consuming stolen items such as baby formula or over-the-counter medication that have not been stored properly by ORC thieves. Stolen goods are resold in both national and international, physical and Internet-based marketplaces. Although there is little debate that ORC is a federal issue—thieves cross state lines to commit crimes and store goods, and they resell the illegally obtained items without regard for district lines—the debate arises over the federal government's role in combating it. In particular, the 111 th Congress questioned whether there are currently effective investigative and prosecutorial tools in place to combat ORC or whether the criminal code should be amended to include specific provisions criminalizing it. Another question debated was whether the federal government should play a role in regulating online marketplaces to ensure that law enforcement is able to obtain information to investigate potentially fraudulent sellers. The National Drug Intelligence Center (NDIC) has indicated that illicit drugs—particularly their trafficking and abuse—remain a significant threat to American society. Drugs are involved in other violent and non-violent crimes; as of 2009, about 53% of the total federal prison population had been convicted and sentenced for drug-related offenses. Policy makers have been concerned with combating drug crimes and sentencing offenders. Questions remain, however, whether current drug policies are effective in reducing domestic production, trafficking, and use of illicit drugs. Drug trafficking organizations (DTOs) pose economic and social threats to the United States, and according to the NDIC, Mexican DTOs are now the largest drug trafficking threat. The NDIC estimates that Mexican DTOs maintain drug distribution networks, or supply drugs to distributors, in at least 230 U.S. cities. Some areas of the country have experienced higher incidences of drug trafficking than others, and currently 14% of U.S. counties are designated as High Intensity Drug Trafficking Areas (HIDTAs). The HIDTA Program provides additional federal resources to areas plagued by drug trafficking and promotes multilateral coordination among drug control organizations. Policy makers in the 111 th Congress questioned whether to designate (via legislation) more counties as part of HIDTAs. Other policy options debated for including additional areas with an increased prevalence of drug trafficking into the HIDTA program included adjusting the criterion for inclusion into the HIDTA program or adjusting the unit of inclusion into the program. Policy makers remained concerned that escalating drug-related violence in Mexico along the U.S.-Mexico border may spill over in to the U.S. For example, there have been anecdotal reports of increased drug-related violence, such as kidnappings related to drug smuggling (also related to other crimes such as human smuggling). Issues facing the 111 th Congress included whether to authorize additional funding for increased law enforcement initiatives along the Southwest border as well as whether to direct the formulation of border task forces specifically to address drug-related violence. In addition, Congress considered whether to increase penalties for the manufacture, possession, distribution, or trafficking of illegal substances. Judges have discretion in sentencing defendants unless the offense carries a mandatory sentence, as specified in the law. While some view this as an opportunity for federal judges to take into consideration the circumstances unique to each individual offender, thus handing down a sentence that better fits the offender, others fear that such discretion may result in unwarranted disparity and inconsistencies in sentencing across judicial districts such as those that led to the original enactment of federal sentencing guidelines in 1984. With respect to sentencing, several issues confronted the 111 th Congress. As discussed below, one issue was whether Congress should eliminate or reduce the disparity in federal sentences for crack and powder cocaine violations. Another issue was whether the federal prison system should allow for early release for certain prisoners under certain circumstances. Mandatory minimum sentencing laws require offenders to be imprisoned for a specified period of time for committing certain types of crimes. The intent of mandatory minimum sentencing is to punish the most serious offenders by incarcerating them for long periods. Proponents contend that mandatory minimums decrease crime, serve as deterrents, and ensure certainty in the criminal justice system. Critics, however, argue that the laws are disproportionately applied to non-violent, minority offenders. One overarching issue facing Congress was whether the mandatory sentences imposed on offenders are the most appropriate sentences. While the debate over mandatory minimum sentences tends to focus on non-violent, drug offenses, it is especially apparent with the crack-versus-powder cocaine sentencing disparities. Congress, through the Violent Crime Control and Law Enforcement Act of 1994, directed the U.S. Sentencing Commission (the Commission) to study the difference in penalties for powder and crack cocaine offenses. In 1995, 1997, 2002 and 2007, the Commission reported to Congress on the disparity in penalties for crack and powder cocaine offenses. In the first report, the Commission called for Congress to equalize the quantities between crack and powder cocaine that trigger a mandatory minimum penalty. However, in their 1997, 2002, and 2007 reports, the Commission recommended that the five-year and 10-year "trigger" quantities for crack cocaine be raised, but not to the level of powder cocaine. While the penalties remained in place at the federal level, some states have begun to take measures to ameliorate the discrepancies in state law. In November 2007, the Commission enacted a retroactive amendment lowering the recommended penalties for crack cocaine offenses, but it does not impact the mandatory minimum penalties that are in current law. The 111 th Congress passed the Fair Sentencing Act of 2010 ( P.L. 111-220 ), reducing the statutory 100:1 ratio in crack/powder cocaine quantities that trigger the mandatory minimum penalties under 21 U.S.C. § 841(b)(1) to a ratio of 18:1. It also removes the mandatory minimum five-year sentence for simple possession of crack cocaine. As Congress addresses issues related to the incarceration of non-violent drug offenders and increased overcrowding in federal prisons, one option that has been receiving considerable attention is early release. In 1984, parole was eliminated in the federal criminal justice system, pursuant to the Sentencing Reform Act of 1984. As a result, the majority of federal inmates are serving their sentences in full. One question raised in the 111 th Congress was whether there should be some form of early release for federal prisoners. Another consideration for the 111 th Congress involved the mechanism by which early release should be determined; possible options included expanded good time credit or credit from employment or service while in prison. A second issue that confronted the 111 th Congress surrounded juvenile prisoners sentenced to life in prison without the possibility of parole. Some have argued that juveniles committing adult crimes should receive the same sentences as adults committing the same crimes. Others, however, have argued that juveniles should not be sentenced to life in prison without the possibility of parole for a variety of reasons, including the cognitive differences between adults and juveniles. Because it ordinarily defers to state juvenile authorities, the federal government has a limited role in administering juvenile justice. However, the federal government has used grant programs, such as those authorized by the Juvenile Justice and Delinquency Prevention Act, in order to influence the states' juvenile justice systems. In this light, policy makers have deliberated whether to incentivize a system that includes the possibility of early release. One policy option that the 111 th Congress considered was whether to utilize grant monies as incentives for states to establish a review board that could evaluate cases of juveniles sentenced to life in prison and make decisions regarding early release. Department of Justice (DOJ) grant programs and appropriations is a perennial issue of oversight and legislation for Congress. While some programs provide assistance to state and local law enforcement, others provide assistance to other aspects of justice administration around the country. Many of these grant programs have experienced decreases in funding. One overarching issue that the 111 th Congress considered was the adequacy of funding provided for justice assistance programs. Yet another aspect of these grant programs that Congress considered was their scope, including whether the number of grant programs should be changed or their purpose areas altered. The COPS program was created by Title I of the Violent Crime Control and Law Enforcement Act of 1994. It aims to increase community policing in part by awarding grants to state, local, and tribal law enforcement agencies for hiring and training new officers as well as for several non-hiring purposes, including developing crime-prevention technology and strategy. The 109 th Congress passed legislation that reauthorized the COPS program through FY2009. In addition to reauthorizing the program, this legislation also consolidated the COPS program into a single grant program. Prior to this, the COPS program consisted of several different subgrant programs. Several COPS-related issues were before the 111 th Congress. One was whether to reauthorize the COPS program, as the most recent authorization expired at the end of FY2009. Another issue was whether to increase funding levels for the program. The 111 th Congress provided supplemental funding for COPS in addition to its annual appropriation; Congress included a $1 billion appropriation for COPS hiring grants in the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ). A third issue was whether the COPS program should be restructured or maintained. Several bills were introduced in the 111 th Congress that would have modified the COPS program, reauthorized appropriations for the program, or both. Three of these bills— H.R. 1139 , S. 167 , and H.R. 1568 —would have reauthorized appropriations for the COPS program. In addition, H.R. 1139 and S. 167 would have, among other things, changed COPS from a single-grant to a multi-grant program and made the COPS Office an exclusive component of the Department of Justice (DOJ). H.R. 3154 and S. 1424 would have required the Attorney General to award grants to units of local government with high violent crime rates so they could increase the size of their police forces. H.R. 1139 was the only one of the five bills discussed above to receive any legislative action; the bill was passed by the House, but no action was taken by the Senate. In addition to the $1 billion COPS received under the ARRA, Congress appropriated $550.0 million for COPS for FY2009 under the Omnibus Appropriations Act, 2009 ( P.L. 111-8 ) and $791.6 million for FY2010 under the Consolidated Appropriations Act, 2010 ( P.L. 111-117 ). As more focus is being placed on young offenders, some have questioned the way in which the United States treats this population in the nation's criminal justice systems. Over the past 30 years, the juvenile justice system has generally shifted from a focus on rehabilitation to a greater focus on holding juveniles accountable for their actions. In a larger sense, this is the underlying tension that drives the national debate surrounding the juvenile justice system: rehabilitation versus retribution. This debate has been in focus again because authorization for the various Juvenile Justice Delinquency and Prevention Act (JJDPA) provisions expired in FY2007 and FY2008. The last time the JJDPA was reauthorized in 2002, Congress restructured many of the grant programs aimed at preventing juvenile delinquency; a large number of smaller grant programs were repealed, and most of their purpose areas were consolidated into one large block grant requiring accountability and graduated sanctions. Many of the programs that were repealed, however, continue to receive annual appropriations even as the overall juvenile justice appropriation has decreased by about 25% since FY2002. A core issue in the larger juvenile justice debate is whether rehabilitation should be the driving theme in the handling and processing of young offenders through the criminal justice system, or whether a more punitive approach that emphasizes young offenders' responsibility for the crimes they commit should be the focus. In addition, when considering the possible reauthorization of the JJDPA, the 111 th Congress also debated the adequacy of existing grant programs and whether new grant programs should be enacted. While the crime rates have generally tended to decrease in recent years, certain jurisdictions have seen an uptick in their crime rates, especially the violent crime rate. In an effort to address the issue, in part, some have called for the establishment of a grant program that would provide funding to states and localities to establish or maintain programs that provide protection or assistance to witnesses involved in homicide, serious violent felony, or serious drug cases. H.R. 1741 , the Witness Security and Protection Grant Program Act of 2010, would have, among other things, created a grant program to provide funding to state, tribal, and local governments to establish or maintain witness protection programs for witnesses in cases involving homicide, a serious felony or drug offense, or gangs or organized crime. The bill was passed by the House and referred to the Senate by the Judiciary Committee. The full Senate did not consider the bill. Partly in response to the United States having the highest reported incarceration rate in the world, legislation was introduced in the 111 th Congress that would have established a commission to undertake a comprehensive review of the U.S. criminal justice system. The National Criminal Justice Commission Act of 2010 ( H.R. 5143 , S. 714 )—passed by the House—would have, among other things, established a 14-member commission to evaluate costs, practices, and policies of federal and state criminal justice systems around the country. Upon completion of the review, the commission would have been charged with providing recommendations to Congress regarding potential policy changes to reduce incarceration rates, decrease prison violence, improve prison administration, utilize proven strategies to reduce criminal behavior, bolster reintegration of ex-offenders, reevaluate criminalization of and treatment for selected drug-related crimes, improve treatment for mental illness, and enhance law enforcement response to criminal organizations. | States and localities have traditionally been responsible for preventing and controlling domestic crime. As crime rates continued to increase throughout the 1960s, 1970s, and 1980s, the federal government increased its involvement in crime control efforts. Over a period of 10 years (1984-1994), Congress passed five major anti-crime bills and increased appropriations for federal assistance to state and local law enforcement agencies. Since the 9/11 terrorist attacks, federal law enforcement efforts have been focused on countering terrorism and maintaining homeland security. Amid these efforts, however, Congress has continued to address many traditional crime-related issues. After peaking in the early 1990s, violent and property crime rates have generally tended to decrease. Despite this decline, policy makers have remained concerned with combating the various types of crime that still exist around the country. This report aggregates various issues surrounding federal crime control into five broad themes: violent crime control, combating fraud and theft, drug control, sentencing reform, and state and local justice assistance. Within these themes, the report examines more specific issues that confronted the 111th Congress. Issues discussed under the umbrella of violent crime control include hate crimes, gangs, and gun control. Issues related to the federal government's efforts to combat fraud and theft include identity theft and organized retail crime. A perennial drug control issue discussed is that of drug trafficking. Congress also considered sentencing reform issues such as disparities in crack and powder cocaine sentencing as well as early prison release. With respect to state and local justice assistance, issues regarding the adequacy of federal assistance grants to state and local law enforcement—via the Community Oriented Policing Services (COPS) Program—and the proposal of a new witness protection grant program as well as juvenile justice are discussed. |
This report summarizes current research and development priority-setting issues—in terms of spending priorities, topical or field-specific priorities, and organizational arrangements to determine priorities. Federal R&D funding priorities have shifted over time, reflecting presidential preferences, congressional appropriations, and national priorities. Defense R&D predominated in the 1980s but decreased to about 50% of total federal R&D in the 1990s, reflecting Clinton Administration policies. In non-defense R&D, space was important in the 1960s as the nation sought to compete with the Soviet Union in the space race; energy R&D joined space as a priority during the 1970s; and since the 1980s, health R&D funding has grown as the cohort of aged population increases and the promise of life sciences and biotechnology affects national expectations. Defense and counterterrorism R&D funding have been increased since the 9/11 terrorist attacks. Together, Department of Defense (DOD) and National Institutes of Health (NIH) funding total about 77% of the FY2007 R&D request. (See Figure 1 and the Appendix table.) R&D budgets are developed over an 18-month period before a fiscal year begins. Often advisory committees, influenced by professional scientific groups, recommend R&D priorities to agencies, which use this information, internally generated information, and the White House's Office of Management and Budget (OMB) and Office of Science and Technology Policy (OSTP) guidance to determine priorities. Agencies and OMB negotiate funding request levels during the preparation of the budget before it is sent to Congress. After standing committees recommend budget levels for matters within their jurisdiction to the budget committees, Congress is to pass a budget resolution, which sets spending levels and recommends levels for each budget function that appropriations committees use in setting discretionary (302b) spending allocations for each appropriations subcommittee. The resolution also gives outyear projections based on budget and economic assumptions. Each of the appropriations subcommittees is to report approved funding levels for agencies within their jurisdiction; appropriations bills, which give agencies spending authority, are to be sent to the floor, usually beginning in the summer. For FY2005, R&D appropriations totaled about $131.8 billion of budget authority, about 54% going to defense R&D. Non-defense R&D funding was increased about 0.2%. The largest increases went to R&D in NIH and DOD; smaller increases were made for R&D budget authority at the Department of Agriculture (USDA), the Department of Homeland Security (DHS), the Department of Transportation (DOT), the National Aeronautics and Space Administration (NASA), and NIH. FY2005 congressional action reduced the National Science Foundation's (NSF) budget by 0.3% below the FY2004 level. Congress appropriated less than the FY2004 level for R&D in the Department of Education and the Environmental Protection Agency (EPA). In the Department of Commerce (DOC), the President sought again to eliminate the Advanced Technology Program (ATP), whose R&D was funded at $134.0 million in FY2004. Congress increased R&D funding for the National Oceanic and Atmospheric Administration (NOAA) by 10%, and funded ATP R&D at $114.0 million, about 15% less than in FY2004. (See the Appendix table.) For FY2006, Congress enacted R&D budget authority of about $134.8 billion, $2.2 billion more than in FY2005. More than 90% of the increase went to DOD research, development, testing, and evaluation (RDT&E), largely for weapons development, and the rest to NASA, largely for space exploration. DOT received a 14% increase for R&D. Other agencies' R&D budgets were reduced or flat if inflation is considered. Congress also enacted a 1% across-the-board cut for all discretionary R&D, in effect lowering enacted appropriations amounts. Of the major R&D support agencies, FY2006 appropriations action reduced R&D funding below the FY2005 level for NIH, USDA, and DOE. (See the Appendix table.) For FY2007, R&D was requested at almost $137 billion of budget authority, about 1.8% more than enacted in FY2006. The request sought to double funding over 10 years (for a total of about $50 billion) for three key federal agencies that support basic research in physical sciences and engineering, that is for NSF, the Department of Energy's (DOE) Office of Science (for advanced energy research), and for the NIST laboratories, as part of the American Competitiveness Initiative (ACI) introduced in the 2006 State of the Union address to enhance U.S. innovation. Also, funding for NASA R&D would have been increased by about 8% largely for a development program called Constellation Systems to develop human space vehicles to replace the Space Shuttle. Cuts would have been made in NASA research programs in aeronautics, life sciences, and other research activities. Continuing previous emphases, the budget would have slightly increased over FY2006 support in real dollar terms for defense development. NIH funding would have been flat and R&D funding for all other agencies would have been decreased from FY2006 enacted levels. Over the next five years, the Administration's budget projected reducing budget deficits by cutting discretionary spending, so that while NASA and the three ACI-emphasized agencies would have continued to receive increases, other R&D funding agencies would have been subject to real dollar cuts after adjusting for expected inflation rates. (See the Appendix table.) The ACI initiative would also have made the R&D tax credit permanent, and increased support for mathematics and science education teacher training and curricula. For FY2007, two appropriations bills were signed before adjournment—for DOD and DHS. The rest of the government is operating on a continuing resolution through February 2007, but which incoming Appropriations Committee chairmen say they will seek to continue throughout FY2007, thereby funding all other R&D activities at FY2006 levels. FY2007 appropriations action increased support for defense development and decreased homeland security R&D funding. (See the Appendix table.) Current priority-setting debates focus on the functions and size of federal R&D funding as a part of national R&D and on how to balance priorities in the portfolio of federal non-defense R&D, especially between health and nonhealth R&D. The NSF projects that national (public + private) R&D expenditures will total $312.1 billion for FY2004, the latest year for which data are available, and about 51% more than in 1990. Federal R&D expenditures as a part of the total have also risen, to $93.4 billion (mostly to fund work performed in non-governmental sectors), but have declined significantly as a part of the total from 46% in 1983 to about 30% in 2004. The United States performs over twice as much R&D as the second largest funding nation, Japan. However, in terms of the ratio of R&D expenditures to gross domestic product (GDP), the United States ranks sixth, at 2.7%, following Israel, Sweden, Finland, Japan, and Iceland. Funding patterns figure prominently in priority-setting debates. Industry is the largest supporter and performer of the nation's R&D; universities and colleges are the second-largest performer. It is estimated that industry funded 64% of all U.S. R&D performed in 2004 and conducted 70%; industry funded about 89% of the R&D it conducted. The amount of R&D supported by various industries varies; most industrial R&D is for near-term applied work and product or prototype development. In 2004, industrial R&D expenditures supported 82% of the nation's development work and provided 36% of national research expenditures (exclusive of development), largely for applied research. Industry allocated 5% of its R&D expenditures to basic research, and supported 17% of the nation's total basic research. Federal support for development, which totaled about 34% of federal R&D, goes largely for defense R&D performed by industry. The federal government is the largest supporter of the nation's basic and applied research (i.e., research per se ), and supplied 49% of total national basic research expenditures in 2004. The federal government was the single largest supporter of the nation's basic research, funding 62% of national basic research expenditures, largely in universities, and, thus, is the largest supporter of the nation's scientific knowledge base. About 42% of total federal research dollars goes to universities and 22% to mission-oriented work in intramural federal agency laboratories, largely at DOD, NIH, and USDA. Universities and colleges conducted 55% of nationally funded basic research; the federal government funded about 65% of this university-performed basic research. According to a recent NSF report, "The share of academic R&D support provided by industry peaked at 7.4% in 1999 and declined every year thereafter, reaching 4.9% in 2004." One of the major reasons for this shift, according to NSF, was that "...U.S. companies increasingly choose to work with foreign rather than U.S. universities, encouraged by the more favorable [intellectual property] IP rights that foreign universities offer and the strong incentives for joint industry-university research that foreign governments provide." OMB's historical trend data indicate that in constant dollar terms, federal R&D funding declined from about 18% of total federal discretionary outlays in FY1965 to about 16% today. In part because of economic pressures and budgetary caps, during the years FY1991 to FY2002, federal R&D funding was below the previous constant-dollar high of FY1990. Subsequently, as a result of congressional action, constant-dollar R&D appropriations started to eclipse the FY1993 level beginning with FY2001. However, concerns that had been raised about the declines in federal R&D funding have not abated because of a return to deficit spending, and likely future reductions in discretionary R&D spending. As constrained federal R&D budgets focus more on defense, homeland security, and biomedical R&D, fewer resources may be available for other areas of R&D. National defense-related R&D outlays constituted 55% of federal R&D outlays in FY2000 and are requested at an amount which would constitute 59% in FY2007. (It should be noted that recommendations have been made to improve the types and quality of econometric and research and development data used in making science policies, especially the information developed by NSF. ) As shown in the preceding funding data, federal government support for R&D serves primarily the objectives of defense and homeland security, biomedical research, basic research knowledge generation, and enhancement of academic research capacity (which some call the "seed corn" of future scientific and technological development). Only a small percentage of federal non-defense R&D spending supports industrial R&D and innovation directly. Some observers contend that federal research support should be funded at increasingly higher levels to generate knowledge as a public good. Some contend that other actions should be taken to enhance the U.S. ability to advance scientifically; to enhance the stature of U.S. academic institutions; to increase scientific literacy, the number of science and engineering personnel, and research capacity in an increasingly competitive global environment where countries like China, India, Korea, and Japan are challenging U.S. output in knowledge generation and innovative industrial production capabilities. For instance, these issues and proposals to deal with them were discussed in Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future, a report released in 2005 by a National Academies committee in response to congressional requests by members of the Senate Committee on Energy and Natural Resources and the House Committee on Science; in an American Electronics Association report, Losing the Competitive Advantage? The Challenge for Science and Technology in the United States , 2005; and at the "The National Summit on Competitiveness: Investing in U.S. Innovation," December 6, 2005, a meeting of industrial, academic, and governmental leaders. Although there is controversy about it, some observers theorize that innovation and technological development are as important or more important than labor and capital as macro-economic drivers of economic growth. Some contend that industrial R&D and innovation benefit indirectly from federal investments in basic research and academic science and that such funding should be increased. For example, President Bush's FY2002 budget supported the view that "More than half of the Nation's economic productivity growth in the last 50 years is attributable to technological innovation and the science that supported it" (p. 29). In 2006, the Commerce Department's Bureau of Economic Analysis (BEA), using data from NSF surveys, released calculations that "... suggest ... R&D accounted for a substantial share of the resurgence in U.S. economic growth in recent years...." That is, researchers said, "...the Bureau determined R&D contributed 6.5 percent to economic growth between 1995 and 2002." BEA will produce an R&D satellite account and likely will incorporate R&D into GDP estimates around 2013. The President's FY2006 budget reported "Basic research is the source of tomorrow's discoveries and new capabilities and this long-term research will fuel further gains in economic productivity, quality of life, and homeland and national security." Some observers say that data are inadequate to support the notion that basic research knowledge leads to technological innovation as a crucial determinant of economic growth. Because of the lack of credible data and disagreement among experts, policymakers do not know exactly how much increased federal research support would enhance growth and which R&D fields or programs warrant funding in order to promote technological innovation. As a result, some say that federal policy for industrial innovation, and its likely byproduct, economic growth, should focus more on improving the climate for industrial R&D, such as by tax incentives, altered regulatory policies, and wider liability protections. The benefits of federal R&D investments are likely to be discussed in the context of long-term economic projections of deficits, decreasing outyear federal R&D budgets, and reductions in domestic discretionary spending. There are other related issues. For instance, will federal, state, and industrial policies to increase support for academic research—but often for short-term applied studies—overwhelm traditional academic research which traditionally has tended toward the conduct of basic research studies? Could state-supported funding supplant federal funding in some areas, as evidenced by initiatives in California and other states to fund stem cell research and biotechnology R&D? Other issues of debate focus on diversifying priorities for fields of support. There are also issues of organizing the government to fund and generate research knowledge, modifying funding mechanisms, and enhancing accountability for federal R&D investments. For instance, a 2005 report of the Center for Strategic and International Studies, entitled Waiting for Sputnik: Basic Research and Strategic Competition , stressed the need to increase federal basic research funding and discussed options, such as redirecting funds from development and testing of defense technologies; dedicating at least a minimum percentage of R&D funding for basic research in physical sciences; making basic research funding an entitlement, not discretionary; increasing tax credits for increased industrial support of academic basic research; establishing independent consortia for basic research supported by both government and private resources; creating a special class of Treasury bonds dedicated to basic research; or creating a loan-guarantee program for third party bonds (issued by states, for example) to finance basic research (pp. 29-31). Among the legislative responses in the first session of the 109 th Congress to the various expert reports and recommendations were: outlining of a "Democratic Innovation Agenda," by House Minority Leader Nancy Pelosi (to increase funding for NSF and physical sciences research, and to create research centers of excellence); introduction of the "National Innovation Act of 2005," S. 2109 , a bipartisan bill, which would have doubled NSF funding, created a Presidential Council on Innovation, and encouraged agencies to devote 3% of their R&D budgets to high-risk research (associated bill H.R. 4654 ); introduction of a package of several innovation enhancing bills, including Democratic leadership proposals, H.R. 4434 to increase the number of U.S. mathematics and science teachers; H.R. 4435 to create an energy-related Advanced Project Agency; and H.R. 4596 to increase basic research funding and support high-risk, high-payoff research. Arguments have been made to give more attention to education. The U.S. Commission on National Security 21 st Century, in Road Map for National Security: Imperative for Change, The Phase III Report , 2001, concluded that threats to the nation's scientific and educational base endanger U.S. national security. It recommended doubling the federal R&D budget by 2010 and improving the competitiveness of less capable U.S. academic R&D institutions. A 2006 National Science Board report, America ' s Pressing Challenge-Building A Stronger Foundation , published by the NSF in conjunction with release of the NSF's Science and Engineering Indicators, 2006 , called for a series of "drastic changes within the Nation's science and mathematics classrooms," to avoid "... raising generations of students and citizens who do not know how to think critically and make informed decisions based on technical and scientific information." The Council on Competitiveness, in a December 2004 report, Innovate America, included proposals to increase to an average of 3% the amount of federal agency budgets for basic research, to improve the regulatory climate for corporations, to increase federal investment in selected areas of applied research, and to improve science and engineering education. A National Academy of Engineering report, Trends in Federal Support of Research and Graduate Education , 2001, recommended that the Administration and Congress should evaluate federal research funding by field, assess implications for knowledge generation and industrial growth, and increase budgets for underfunded disciplines. Similar recommendations were made in New Foundations for Growth: The U.S. Innovation System Today and Tomorrow , released by the National Science and Technology Council on January 10, 2001. A new report, "Measuring the Moment: Innovation, National Security, and Economic Competitiveness. Benchmarks of our Innovation Future II," was released in November 2006. It reviews risk factors for U.S. technological competitiveness. During the second session of the 109 th Congress, the President's "American Competitiveness Initiative" (ACI) emphasized funding for basic physical sciences and engineering research at NSF, NIST, and DOE's Office of Science to enhance U.S. innovative capacity and ability to compete internationally. (This is described above in the section on the FY2007 budget.) ACI would also support additional training in mathematics and science education at the pre-college level and training for part-time science and math teachers. Several bills were introduced in the second session of the 109 th Congress to address these issues, including S. 3936 , the National Competitiveness Investment Act; the bipartisan-supported "Protecting America's Competitive Edge" (PACE) Acts; that is, S. 2197 , focusing on the DOE and creation of an Advanced Research Projects Agency-Energy (reported amended, ( S.Rept. 109-249 ) on April 24, 2006) from the Senate Committee on Energy and Natural Resources; S. 2198 , focusing on education, on which hearings were held; and S. 2199 (regarding an R&D tax credit for industry). S. 2398 , proposed an Advanced Research Projects Administration – Energy. The House Science Committee held hearings on March 9, 2006 regarding the energy advanced research projects agency. Democratic members of the House Science Committee have critiqued the President's proposals contending that additional programs warrant funding. On June 22, 2006, the House Science Committee reported H.R. 5358 , the Science and Mathematics Education for Competitiveness Act ( H.Rept. 109-524 ); H.R. 5356 , the Early Career Research Act ( H.Rept. 109-525 ); and H.R. 5357 , the Research for Competitiveness Act. H.R. 4734 and S. 3502 would have given urgency to initiating education programs similar to national defense education acts of the past, which focused on improving education to deal with space and defense challenges posed by the former Soviet Union. Important questions are what should be the balance among fields of federally supported research, and specifically, since health/life sciences research has in recent years received priority, should more non-defense R&D funding go to support other fields of science? Some critics are concerned that the emphasis on health R&D may presage a scarcity of knowledge in physical sciences, math, and engineering. They maintain that funding should be increased for all R&D fields, and others cite the need to allocate more federal funding to nonhealth R&D. As shown in Figure 1 , health sciences R&D has grown as a priority for about the last 20 years. Over the period FY1995 to FY2007 as requested, R&D funding in constant dollars, will have increased at NIH by 103% compared to DOD, 65%; NSF, 48%; USDA, 6%; DOE, 11%; and NASA, 1%. R&D funding decreased in constant dollars for EPA and the Departments of the Interior, Transportation, and Commerce. For FY2007 as requested, it is estimated in terms of constant dollars that federally funded health-related R&D, primarily at NIH, would receive over 54% of the federal non-defense R&D budget. In terms of constant dollar funding by field, federal obligations for life sciences increased from $13.4 billion in FY1994 to an estimated $29.3 billion in FY2004, or about 119%, while at the same time, between those years funding for physical sciences increased 7%; mathematics and computer sciences, 83%; and engineering, 40%. The issue of whether the National Science Foundation should support social and behavioral sciences research was addressed in the 1950s shortly after the agency was established and also again in the 1980s during the first Reagan Administration. Questions were raised about whether these fields were scientific and if support for these topics would detract from support for chemistry, physical sciences, life sciences and mathematics. NSF started to support the social sciences under its "permissive authority" to support "other sciences" and, in 1968, was given explicit authority to support these fields (P.L. 90-407), although some Members of Congress continued to question this function in NSF. In September 2005, Senator Kay Bailey Hutchison, chairman of the Senate Commerce Subcommittee on Science and Space that has authorizations jurisdiction for NSF, and a member of the Senate Appropriations Subcommittee on Commerce, Justice, Science, and Related Agencies that appropriates funds for NSF, again questioned the propriety of NSF's support for social sciences research and recommended that NSF "focus firmly" on "the hard sciences,"—biology, chemistry, and physics, and not direct additional resources to support social sciences research. She reiterated her concerns in 2006, specifically raising questions about the appropriateness of some specific NSF social sciences awards and about whether the social sciences should benefit from the doubling in NSF's research budget proposed in President Bush's ACI initiative or whether such doubling should be limited to the other fields of science NSF supports. According to news reports, a draft of S. 2802 would have limited NSF's budget increase to support physical sciences research but subsequently after amendment, a compromise was reached with language that would not restrict NSF funding for areas of research that the agency deems to be consistent with its mandate (Sec. 305 d.) The bill was reported on July 19, 2006. There are various perspectives on the issue of balance, focusing on both types and fields of R&D supported. Funding for biomedical research has been a priority in recent years. In 1998, an amendment to S.Con.Res. 86 , the FY1999 Senate budget resolution, expressed the sense of the Senate that the NIH budget should double within the next five years, which occurred by FY2003, although the budget has started to decrease from FY2003 in terms of constant dollars. Critics allege that other fields of science have received inadequate federal attention as a result of the health science emphasis. Partially in reaction, P.L. 107-368 , the NSF authorization bill for FY2003, authorized increases for NSF (which supports all areas of research) that would double its budget by 2008. NSF funding has not been appropriated consistently at a rate to meet this target. Some professional groups argue for increased federal health sciences funding and others contend that more balance or support for other fields is needed. For instance, 32 Nobel laureates and industrialists wrote to President Bush in April 2003, urging more balance and increased funding for physical sciences, mathematics, and engineering in the 2005 budget. In response to language in appropriations reports, in November 2004, the NIH and NSF held a conference on "Research at the Interface of the Life and Physical Sciences: Bridging the Sciences," to identify opportunities, challenges, and issues at the interface of the life and physical sciences that could result in major advances and to develop approaches for bridging the separate fields. The President's Council of Advisors on Science and Technology (PCAST) released Assessing the U.S. R&D Investment , January 2003, that recommended targeting physical sciences and engineering to bring "them collectively to parity with the life sciences over the next 4 budget cycles" in order to better balance budget allocations. The Alliance for Science and Technology Research in America supports increased R&D funding for all fields. Legislation was enacted during the 109 th Congress to make permanent the Research and Experimentation (R&D) tax credit that had expired on December 31, 2005. It provides credits (and incentives) for industrially funded R&D support in industry and universities. The credit is intended to spur innovative research that companies might not pursue because of the lack of immediate market rewards. The Administration has sought to have the credit made permanent. There is analysis indicating that if the credit were extended for a year and expanded, the cost to the Treasury could be about $10 billion and that instead the credit should focus more on supporting basic and applied research and less on product development which is claimed by some companies under the credit. H.R. 4297 , a tax reconciliation measure passed by the House and amended and passed in the Senate, would have extended the credit through the end of 2007. Conferees did not include language dealing with the tax credit. H.R. 5970 , a tripartite tax bill which passed in the House, included the R&D tax credit. Final Senate action did not occur. In the final days of the Congress, both the House and Senate enacted H.R. 6111 , which extended the credit for two years and widened eligibility for the credit. NSF funds research across all disciplines and is the main federal source for most non-health related academic research. P.L. 107-368 , the NSF authorization bill for FY2003, authorized increases in NSF's budget by 15% for each of FY2003, FY2004, and FY2005, which according to the sponsors, would "put the NSF on the track to double its budget within five years" (FY2008), similar to the NIH doubling track. Another objective was to increase federal support for science fields which in recent years have not experienced the larger percentage increases which have gone to biomedical R&D. The law also required increased oversight of NSF facilities programs; a report was prepared by the National Science Board (NSB). Congress appropriated about $4.1 billion in budget authority for NSF's FY2004 R&D funding, almost 5% more than FY2003, and about $1.0 billion less than envisioned in the authorization act. For FY2005, congressional action reduced NSF's budget authority below the FY2004 level. The President requested an FY2006 R&D budget increase of almost 3% largely for facilities support. Appropriations action increased NSF's FY2006 R&D budget authority by about 1.6%, and up to the level enacted for FY2004. The FY2007 request would have increased NSF's R&D budget by 8.3% over the FY2006 level. Although final appropriations action was not completed for FY2007, both House floor action and Senate Appropriations Committee action would have increased NSF's budget over FY2006, with the House level slightly more than the Senate. See the Appendix table. P.L. 107-368 also required the NSB, which governs NSF together with the Director, to report on how NSF's increased funding should be used. In a 2003 report, Fulfilling the Promise: A Report to Congress on the Budgetary and Programmatic Expansion of the National Science Foundation (NSB-2004-15), the Board recommended meeting unmet needs by funding NSF annually at $18.7 billion, including about $12.5 billion for R&D, and outlined priorities for support. Because the budget levels recommended in that report had not been attained, the National Science Board released a final report in January 2006, 2020 Vision for the National Science Foundation (NSB 05-142), which identified four main investment principles, attainment goals, and enabling strategies. Prominent among groups which in the past recommended increased funding for NSF is the Coalition for National Science Funding (CNSF), which represents many universities and professional science associations. Homeland security R&D funding has grown from about 2.5% of the FY2002 federal non-defense R&D budget to about 6.8% of the FY2007 request for non-defense R&D budget authority. See Table 1 for trends based on data compiled by the American Association for the Advancement of Science (AAAS). Homeland security R&D funding is becoming an increasingly significant issue in priority-setting discussions. OMB's term "combating terrorism" R&D includes homeland security R&D and overseas combating terrorism R&D. An appendix to OMB's FY2007 Analytical Perspectives budget request volume includes data on homeland security funding, but these data do not clearly identify R&D funding. The largest FY2007 programs are in NIH largely for bioterrorism R&D and for containment facilities. This is followed in size by the requests for DHS, DOD, NSF, USDA, EPA, NASA, DOE, and the DOC's NIST. P.L. 107-296 , the Homeland Security Act of 2002, mandated DHS to coordinate federal agency homeland security R&D programs. The law also consolidated some federal homeland security R&D programs in DHS. DHS's R&D funding has almost quintupled since FY2002 but in FY2007 appropriations action, Congress reduced DHS R&D funding about 22% below the FY2006 amount (AAAS data, see the appendix table). DHS is emphasizing support of development over research, with the result that basic and applied research in DHS would be reduced by about 20% for FY2007. Some observers recommend more centralized R&D priority-setting in Congress and in the executive branch. Others say that congressional jurisdiction for R&D, split as it is among a number of committees and subcommittees, prevents examination of the R&D budget as a whole. This means that R&D funding can serve particular local or program interests, but may not be appropriate for a national R&D agenda. But opponents see value in a decentralized system in which budgets are developed, authorized, and appropriated separately by those most familiar with the needs of specific fields of R&D—the department or agency head and the authorizing and appropriations subcommittees with jurisdiction. Other issues center on interagency initiatives, R&D policy coordination, developing a technology assessment capacity, earmarking, and R&D funding accountability. In a 1995 report, Allocating Federal Funds for Science and Technology , the National Academies recommended that Congress consider the R&D budget as a unified whole before its separate parts for each agency are considered by individual congressional committees. It recommended that R&D budget request data be reconfigured as an S&T budget, excluding defense development, testing and evaluation activities, to denote basic and applied R&D and the creation of new knowledge. Since the FY2002 budget request, OMB has used a modified version of this format and has identified a "Federal Science and Technology (FS&T) budget table," which, for FY2007, includes less than half of total federal R&D spending but also some non-R&D funding, such as education and dissemination of information. Table 5-2 of Analytical Perspectives projected a decrease in FS&T funding of about 1% from FY2006 to FY2007 as requested. Continued use of this alternative format may pave the way for congressional consideration of a realigned and unified S&T budget. S.Amdt. 2235 to the Senate budget resolution ( S.Con.Res. 86 ) for FY1999 expressed the sense of the Senate that for FY2000-2004, all federal civilian S&T spending should be classified under budget function 250. In 2004, Senator Jeff Bingaman said: "It would be valuable to have joint hearings across the relevant committees in the Senate on the overall shape of our S&T spending. It might be worth considering whether the functional nature of the budget itself should be revised to put the entire federal S&T budget in one place, so that there is much more transparency as to what the real trends are...." Executive Order 12881, issued by President Clinton, established the National Science and Technology Council (NSTC) with cabinet-level status. Located in the Executive Office of the President, it recommends agency R&D budgets to help accomplish national objectives, advises OMB on agency R&D budgets, and coordinates presidential interagency R&D initiatives. Beginning with the FY1996 budget request, NSTC identified interagency R&D budget priorities. The FY2007 budget presented agency funding for two interagency R&D initiatives whose reporting is required by statute, "Networking and Information Technology R&D," requested at $3.1 billion, a 2% decrease from the estimated FY2006 amount, and "Climate Change Science Program," requested at $1.7 billion, a level flat with the FY2006 estimate. Another priority interagency initiative was nanotechnology, requested at $1.3 billion, a 2% decrease from the FY2006 amount. Other FY2007 interagency R&D initiatives included combating terrorism R&D and hydrogen R&D. In a joint OMB/OSTP annual memorandum, the Administration announced FY2008 interagency priorities that "should receive special focus in agency budget requests." These are: homeland security, energy security, advanced networking and high-end computing, national nanotechnology initiative, understanding complex biological systems, and environment. In addition the statement gave details on two "areas requiring special agency attention and focus though the NSTC," that is stewardship for federal scientific collections and developing a "'new science of science policy'" to understand the "linkages between R&D investments and economic and other variables that lead to innovation, competitiveness, and societal benefits." The 2001 National Science Board (NSB) report, Federal Research Resources: A Process for Setting Priorities (NSB 01-160) recommended a "continuing advisory mechanism" in Congress and the executive branch and strengthening the OMB/OSTP relationship to coordinate R&D priorities. It said that federal R&D funding should be viewed as a five-year planned portfolio, rather than as the sum of the requirements and programs of departments. AAAS President Mary Good, recommended creating a cabinet-level post for S&T to help achieve balance in R&D and coordinate federal R&D and handle research policy issues. The aforementioned Commission on National Security recommended empowering the President's science advisor to establish "functional budgeting," to identify non-defense R&D objectives that meet national needs, strengthen the OSTP, NSTC and PCAST, and improve coordination with OMB to enhance stewardship of national R&D. The congressional science policy report, Unlocking Our Future , 1998, spearheaded by Representative Vernon Ehlers, called for balance in the federal research portfolio and said that while OMB can fulfill the coordination function in the executive branch, "no such mechanism exists in the Congress. ... [I]n large, complex technical programs, ... committees should ... consider holding joint hearings and perhaps even writing joint authorization bills" (p. 7). The aforementioned NSB report also recommended that Congress develop "an appropriate mechanism to provide it with independent expert S&T review, evaluation, and advice" (p. 16). Some believe that this could pertain to reestablishing the Office of Technology Assessment (OTA), which was active between 1972 and 1995 as a congressional support agency. It prepared in-depth reports and discussed policy options about the consequences of applying technology. Sometimes congressional committees used these reports to set R&D priorities in authorizations and appropriations processes. OTA was eliminated as part of the reductions Congress made in a FY1996 appropriations bill. Proponents of "resurrecting" OTA or variants of it cite the need for better congressional support for S&T analysis. The OTA is still authorized, but funds would have to be appropriated for it. The pros and cons of reviving OTA or re-creating a similar body have been examined since its termination and several proposals were introduced during the 107 th Congress and 108 th Congresses to address this issue. Since 2002, at congressional direction, the Government Accountability Office (GAO) has conducted three pilot technology assessments, Technology Assessment: Using Biometrics for Border Security , GAO-03-174, 2002, Cybersecurity for Critical Infrastructure Protection , GAO-04-321, and Protecting Structures and Improving Communications During Wildland Fires , GAO-05-380, and has one underway on port security. During the 109 th Congress, the House Science Committee held a hearing on July 25, 2006 on S&T advice in Congress, which, in part, addressed the issue of re-creating an OTA-like agency. Issues under debate relating to restoring a technology assessment capability have included questions about the need for assessments, funding arrangements, the utility of GAO's assessment reports, and options for institutional arrangements, including conducting technology assessments simultaneously with conducting R&D. There is controversy about congressional designation of R&D funding for specific projects, also called earmarking. When using this practice, Congress, in report language or law, directs that appropriated funds go to a specific performer or designates awards for certain types of performers or geographic locations. Typically an agency has not included these awards in its budget request and often such awards may be made without prior competitive peer review. The Administration seeks to discourage earmarking, saying that it distorts agency R&D priorities and seldom is an effective use of taxpayer funds. Supporters believe the practice helps to develop R&D capability in a wide variety of institutions, that it compensates for reduced federal programs for instrumentation and facilities, and that it generates R&D-generated industrial and economic growth in targeted regions. OMB did not publish funding data on R&D earmarks in the FY2007 budget request, although it had done so in the past. It reported that AAAS-accumulated data show that $2.4 billion was appropriated for earmarked R&D for FY2006, an increase of 13% over the estimate for FY2005. This would constitute 1.7% of total federal R&D funding for FY2006. According to AAAS, FY2006 R&D earmarks were mainly for projects in DOD, DOE, USDA, NASA, DOC (NIST), and DOT, in that order. Although appropriations action is still not finished, AAAS estimates that FY2007 R&D earmarks will total about the same amount as in FY2006. Although such action is controversial, attempts were made in the 109 th Congress to make "earmarking" more transparent. For instance, on September 26, 2006, President Bush signed S. 2590 , the Federal Funding Accountability and Transparency Act, into law ( P.L. 109-282 ). It requires OMB to create by January 1, 2008 a website containing information about federal awards, to be updated within 30 days after the award is made. Although one of the stated purposes of the legislation is to enable the public to use the on-line database to identify congressional "earmarks," it is unclear how the database will serve users, since the data systems that will be used to obtain information, called Federal Assistance Award Data System (FAADS) and Federal Procurement Data System (FPDS), do not collect data on earmarks. OMBWatch , a private group, also created its own website http://www.FedSpending.org , intended to provide the same kind of information. Some of the entries do identify whether the grant was congressionally directed. On September 14, 2006 the House agreed to a rule change drafted by House Rules Committee Chairman David Dreier, H.Res. 1000 , which mandates disclosure of earmark sponsors in tax and spending legislation. Reportedly, the Senate is working on a similar rules change. Critics argue that this new requirement will not change the practice of earmarking and may not reveal all earmarks since it does not apply to all tax provisions, to manager's amendments offered on the floor, and to some earmarks inserted into conference reports. In July 2006, Senator Tom Coburn sent a survey to 110 universities asking them whether they received research earmarks in the past six years, if they hired lobbyists to obtain the earmarks, and the impacts of the money on their campuses and on science. This has, reportedly, caused considerable concern among Members of Congress who support earmarks and among many universities who view earmarks as an acceptable way to obtain funding. Dr. Coburn's office released the 90 responses received as of October 10, 2006. His office said an analysis is forthcoming. The Government Performance and Results Act of 1993 (GPRA), P.L. 103-62 , is intended to produce greater efficiency, effectiveness, and accountability in federal spending and to ensure that an agency's programs and priorities meet its goals. It also requires agencies to use performance measures for management and, ultimately, for budgeting. Recent actions have required agencies to identify more precisely R&D goals and measures of outcomes. As underscored in The President ' s Management Agenda, since FY2001 the Bush Administration has emphasized the importance of performance measurement, including for R&D. In a memorandum dated June 5, 2003, signed jointly by the directors of OSTP and OMB regarding planning for the FY2005 R&D budgets, the Administration announced it would expand its effort to base budget decisions on program performance (OMB M-03-15). OMB referred to this memorandum again in the FY2007 R&D budget guidance, which reiterated the importance of performance assessment for R&D programs (Joint OMB/OSTP M-05-18). According to Section 5 of Analytical Perspectives, FY2007 , agencies were required to use OMB criteria to measure research outcomes, focusing on three investment criteria—relevance, quality, and performance. R&D performed by industry is to meet additional criteria relating to the appropriateness of public investment and to identification of decision points to transition the activity to the private sector. The Administration has assessed some R&D programs with the Program Assessment Rating Tool (PART), which uses the OMB/OSTP R&D investment criteria and other measures. PART results for 102 R&D programs evaluated over the past four years were used when making budget decisions. OMB's Analytical Perspectives volume reported that of these, at least 29 programs were effective and 41 were moderately effective. Commentators have pointed out that it is particularly difficult to define priorities for most research and to measure the results quantitatively, since research outcomes cannot be defined well in advance and often take a long time to demonstrate, possibly precluding use of performance measures to recommend budget levels for most R&D. Some observers say that many congressional staff are not yet comfortable with using performance measurement data to make budget decisions and prefer to use traditionally formatted budget information, which focuses on inputs, rather than outputs. Congress may increase attention to the use of R&D performance measures in authorization and appropriations actions especially as constraints grow on discretionary spending. In June 2005, OMB sent Congress draft legislation to authorize results commissions to evaluate programs and recommend restructuring or termination of those deemed ineffective. The NAS's most recent report advising on use of performance measures for research is Implementing the Government Performance and Results Act for Research: A Status Report, 2001 . As for congressional interest, the House Science Committee's science policy report, Unlocking Our Future , 1998, commonly called the Ehlers report, recommended that a "portfolio" approach be used when applying GPRA to basic research. The House adopted a rule with the passage of H.Res. 5 (106 th Congress) requiring all "committee reports [to] include a statement of general performance goals and objectives, including outcome-related goals and objectives for which the measure authorizes funding." (Budget authority in millions of dollars) | This report summarizes current research and development (R&D) priority-setting issues—in terms of expenditures; agency, topical, or field-specific priorities; and organizational arrangements to determine priorities. Federal R&D funding priorities reflect presidential policies and national needs. Defense R&D predominated in the 1980s, decreasing to about 50% of federal R&D in the 1990s. In non-defense R&D, space R&D was important in the 1960s as the nation sought to compete with the Soviet Union; energy R&D was a priority during the energy-short 1970s, and, since the 1980s, health R&D has predominated in non-defense science. This Administration's R&D priorities include weapons development, homeland security, space launch vehicles, and, beginning in 2006, more support for physical sciences and engineering. For FY2007, R&D was requested at almost $137 billion of budget authority, about 1.8% more than enacted in FY2006. The request would have increased funding for physical sciences and engineering programs in the National Science Foundation, the Department of Energy's Office of Science, and National Institute of Standards and Technology laboratories as part of the President's American Competitiveness Initiative (ACI) to enhance innovation. Funding for the National Aeronautics and Space Administration's R&D would have increased by about 8% largely to develop human space vehicles. For FY2007, two appropriations bills were signed; the rest of the government is operating on a continuing resolution through February 2007, but likely to continue throughout FY2007, funding domestic agencies at FY2006 levels. Appropriations action increased support for defense development and decreases homeland security R&D funding. The latest estimated expenditure for national (public and private) R&D is $312.1 billion for FY2004. Federal R&D expenditures, at $93.4 billion, have grown, but have declined to 30% of total national R&D spending. During the 109th Congress, some proposals to increase incentives for industrial R&D included H.R. 1454, H.R. 1736, S. 14, S. 627, S. 2199, and S. 2720. H.R. 6111, passed in both Houses, extended the R&D tax credit for two years and widened eligibility for the credit. The FY2007 budget would have emphasized three interagency R&D initiatives: networking and information technology; climate change science; and nanotechnology. Proposals to coordinate R&D include a continuing priority-setting mechanism; a cabinet-level S&T body; functional R&D budgeting; and reestablishment of a technology assessment function. The Administration opposes R&D earmarking, estimated at $2.4 billion in budget authority for FY2006. Although the Administration is using the Government Performance and Results Act and the Program Assessment Rating Tool for R&D budgeting, some critics say better data and concepts are needed before performance budgeting can be used to identify R&D priorities. |
The Workforce Innovation and Opportunity Act (WIOA; P.L. 113-28 ), which succeeded the Workforce Investment Act of 1998 ( P.L. 105-220 ), is the primary federal legislation that supports workforce development. WIOA was e nacted to bring about increased coordination and alignment among federal workforce development and related programs. WIOA replaced WIA in the 113 th Congress after passing the Senate on June 25, 2014, by a vote of 95-3 and the House on July 9, 2014, by a vote of 415-6, and being signed into law on July 22, 2014. Most of its provisions went into effect on July 1, 2015. P.L. 113-128 authorizes appropriations for WIOA programs from FY2015 through FY2020. WIOA includes five titles: Title I—Workforce Development Activities—authorizes job training and related services to unemployed or underemployed individuals and establishes the governance and performance accountability system for WIOA; Title II—Adult Education and Literacy—authorizes education services to assist adults in improving their basic skills, completing secondary education, and transitioning to postsecondary education; Title III—Amendments to the Wagner-Peyser Act—amends the Wagner-Peyser Act of 1933 to integrate the U.S. Employment Service (ES) into the One-Stop system authorized by WIOA; Title IV—Amendments to the Rehabilitation Act of 1973—authorizes employment-related vocational rehabilitation services to individuals with disabilities, to integrate vocational rehabilitation into the One-Stop system; and Title V—General Provisions—specifies transition provisions from WIA to WIOA. Workforce development programs provide a combination of education and training services to prepare individuals for work and to help them improve their prospects in the labor market. In the broadest sense, workforce development efforts include secondary and postsecondary education, on-the-job and employer-provided training, and the publicly funded system of job training and employment services. This report focuses on the workforce development activities that the federal government supports through WIOA, which are designed to increase the employment and earnings of workers. This includes activities such as job search assistance, career counseling, occupational skills training, classroom training, or on-the-job training. The primary focus of this report is on Title I of WIOA, which authorizes programs to provide job search, education, and training activities for individuals seeking to gain or improve their employment prospects, and which establishes the One-Stop delivery system. In addition, Title I of WIOA establishes the governing structure and the performance accountability for all programs authorized under WIOA. The programs and services authorized under Title I are covered in detail in this report, while the programs and services authorized under Titles II and IV are not discussed in this report. Title III, which amends the Wagner-Peyser Act of 1933, is discussed briefly in this report because of the integral role that the Employment Service (ES) plays in the One-Stop system. Title II of WIOA is the Adult Education and Family Literacy Act (AEFLA). AEFLA supports educational services, primarily through grants to states, to help adults become literate in English and develop other basic skills necessary for employment and postsecondary education, and to become full partners in the education of their children. Title III amends the Wagner-Peyser Act of 1933, which authorizes the Employment Service (ES), to make the ES an integral part of the One-Stop system amended by WIOA. Because the ES is a critical part of the One-Stop system, it is discussed briefly in this report even though it is authorized by separate legislation. Title IV of WIOA amends the Rehabilitation Act of 1973 and authorizes funding for vocational rehabilitation services for individuals with disabilities. Most programs under the Rehabilitation Act are related to the employment and independent living of individuals with disabilities. Following a brief history of federal workforce development programs, this report provides a discussion of the provisions and characteristics of WIOA Title I programs and services. Next, there is a description of the One-Stop delivery system and Workforce Development Boards (WDBs), previously called Workforce Investment Boards (WIBs). This section includes an overview of the Employment Service. Following that, the report covers the services provided by the state formula grant programs and the national programs authorized under Title I of WIOA. The section on Title I concludes with a discussion of funding and performance accountability. Appendix A provides a glossary of selected key terms in WIOA. The tables in Appendix B provide future authorization levels for programs authorized under Titles I, II, III, and IV of WIOA. The first substantial federal training programs in the postwar period were enacted in the Manpower Development Training Act (MDTA; P.L. 87-415 ) in 1962, although federal "employment policy," broadly defined, had its origin in New Deal era programs such as Unemployment Insurance (UI) and public works employment. Starting with MDTA, there have been four main federal workforce development programs. The MDTA provided federal funding to retrain workers displaced because of technological change. Later in MDTA's existence, the majority of funding went to classroom and on-the-job training (OJT) that was targeted to low-income individuals and welfare recipients. Funding from the MDTA was allocated by formula to local communities based on factors of population and poverty. Grants under MDTA were administered through regional DOL offices and went directly to local service providers. The Comprehensive Employment and Training Act (CETA; P.L. 93-203 ), enacted in 1973, made substantial changes to federal workforce development programs. CETA transferred more decision-making authority from the federal government to local governments. Specifically, CETA provided funding to about 470 "prime sponsors" (sub-state political entities such as city or county governments, consortia of governments, etc.) to administer and monitor job training activities. Services under CETA—which included on-the-job training, classroom training, and public service employment (PSE)—were targeted to low-income populations, welfare recipients, and disadvantaged youth. At its peak in 1978, the PSE component of CETA supported about 755,000 jobs and accounted for nearly 60% of the CETA budget. CETA was amended in 1978 in part to create private industry councils (PIC) to expand the role of the private sector in developing, implementing, and evaluating CETA programs. The composition of PICs included representatives of business, labor, education, and other groups. In 1982, changes to federal workforce development policy were made by enactment of the Job Training Partnership Act (JTPA, P.L. 97-300 ). Major changes implemented under JTPA, which provided classroom and on-the-job training to low-income and dislocated workers, included service delivery at the level of 640 "service delivery areas," federal funding allocation first to state governors and then to PICs in each of the service delivery areas (unlike CETA, which provided allocations directly to prime sponsors), prohibition of the public service employment component, and a new emphasis on targeted job training and reemployment. With a new emphasis on training (rather than public employment), JTPA required that at least 70% of funding for service delivery areas be used for training. Although this percentage was dropped to 50% in the 1992 amendments to JTPA, the emphasis on training remained. The Workforce Investment Act of 1998 (WIA; P.L. 105-220 ) replaced JTPA and continued the trend toward service coordination by establishing the One-Stop system through which state and local WIA training and employment activities were provided and in which certain partner programs were required to be colocated. WIA replaced PICs with Workforce Investment Boards (WIBs), which were responsible for the design of services for WIA participants. In addition to these changes, WIA enacted changes that included universal access to services (i.e., available to any individual regardless of age or employment status), a demand driven workforce system responsive to the demands of local area employers (e.g., the requirement that a majority of WIB members must be representatives of business), a work-first approach to workforce development (i.e., placement in employment was the first goal of the services provided under Title I of WIA as embodied in the "sequence of services" provisions), and the establishment of consumer choice for participants who were provided with Individual Training Accounts (ITAs) to choose a type of training and the particular provider from which to receive training. Title I of WIOA authorizes programs and activities that support job training and related services to unemployed and underemployed individuals. Title I programs are administered by the U.S. Department of Labor (DOL), primarily through its Employment and Training Administration (ETA). WIOA authorizes appropriations for WIOA programs from FY2015 through FY2020. In FY2015, programs and activities authorized under Title I of WIOA were funded at $4.8 billion, comprising 53% of all WIOA appropriations. Title I funding includes $2.6 billion for state formula grants for youth, adult, and dislocated worker training and employment activities; $1.7 billion for the Job Corps program; and $500 million for national programs. Title I of WIOA authorizes several state and national programs to provide employment and training services and continues the One-Stop system as a means of delivering and coordinating workforce development activities. This section of the report provides details of the WIOA Title I state formula grant program's structure, services supported, allotment formulas, and performance accountability provisions. In addition, it provides a program overview for national grant programs. At the outset it is worth highlighting elements of WIOA that collectively are intended to comprise a "workforce development system." WIOA is designed to be a demand driven workforce development system. This system is supposed to provide employment and training services that are responsive to the demands of local area employers. The demand driven nature of WIOA is manifested in elements such as Workforce Development Boards (WDBs), a majority of whose members must be representatives of business, and in the requirement for local plans to identify existing and emerging in-demand industry sectors and occupations. WIOA emphasizes coordination and alignment of workforce development services , through provisions such as a required Unified State Plan for core programs and a comm on set of performance indicators across most programs authorized by WIOA. In addition, WIOA requires regional planning across local areas. WIOA provides local control to officials administering programs under it. Under the state formula grant portion of WIOA, which accounts for nearly 60% of total WIOA Title I funding, the majority of funds are allocated to local WDBs (after initial allotment from ETA to the states) that are authorized to determine the mix of service provision, eligible providers, and types of training programs, among other decisions. The WIOA system provides central points of service through its system of One-Stop centers . The concept of a One-Stop center is to provide a single location for individuals seeking employment and training services, thus making the process of locating and accessing employment services more efficient and seamless. WIOA requires certain programs to be "partners" in the One-Stop center, either by physical colocation or other accessible arrangements. Notably, WIOA requires the colocation of Employment Service offices with One-Stop centers. WIOA provides universal access to its career services to any individual regardless of age or employment status, but it also provides priority of service for career and training services to low-income and skills-deficient individuals. WIOA emphasizes sector partnerships and career pathways workforce development strategies by requiring local WDBs to lead efforts to develop career pathways strategies and to implement industry/sector partnerships with employers. WIOA provides consumer choice to participants. As explained later in this report, participants determined to be eligible for training services are provided with Individual Training Accounts (ITAs), with which they may choose a type of training and the particular provider from which to receive training. WIOA implements a performance accountability system based on primary indicators with state-adjusted levels of performance resulting from negotiations between each state and the Secretary of Labor and revised based on a statistical adjustment model. The performance accountability system applies across all titles of WIOA. Because the initial point of contact for WIOA participants is frequently at a One-Stop center, it is worthwhile to explain the "One-Stop delivery system" established by WIOA before describing the services available at and accessible through the One-Stop centers. WIOA continues the central role of One-Stop centers that was established in WIA of 1998 to provide access to employment and training services. WIOA continues the requirements of WIA for each state to establish a One-Stop delivery system to provide "career services" and access to "training" services (see "Local Activities" in the next section for a description of these services provided for in Title I); provide access to programs and activities carried out by One-Stop partners (see below); and provide access to all workforce and labor market information, job search, placement, recruitment, and labor exchange services authorized under the Wagner-Peyser Act. WIOA requires the colocation of the Employment Service with One-Stop centers (colocation was optional under WIA). Each local workforce investment area in a state is required to have at least one physical comprehensive One-Stop center in which the aforementioned programs and services are accessible. Services may be colocated or available through a network of affiliated sites or One-Stop partners linked electronically. As noted, one of the characteristics of the WIOA One-Stop system is the establishment of a central point of service for those seeking employment, training, and related services. To this end, WIOA requires that certain partner programs provide access to career services in the One-Stop system and allows additional programs to operate in it. The required partner programs are listed in Table 1 . In addition to the required partner programs listed in Table 1 , WIOA specifies that One-Stop centers may incorporate other partner programs, including employment and training programs administered by the Social Security Administration (e.g., Ticket to Work); employment and training programs carried out by the Small Business Administration; any employment and training activities required of recipients under the Supplemental Nutrition Assistance Program (SNAP, formerly known as the Food Stamp program) and work programs for those recipients who are able-bodied adults without dependents; the Client Assistance Program authorized under section 112 of the Rehabilitation Act of 1973; programs authorized under the National and Community Service Act of 1990 (e.g., AmeriCorps); and other appropriate government or private-sector programs. Because the Employment Service (ES), which is authorized by the Wagner-Peyser Act of 1933 (29 U.S.C. 49 et seq. ), is the central component of most states' One-Stop delivery systems, it is discussed briefly here, as ES services are universally accessible to job seekers and employers. Reflecting this central role, WIOA requires ES offices to be colocated with One-Stop centers and prohibits standalone ES offices. Although the ES is one of 19 required partners in the One-Stop delivery system, its central mission—to facilitate the match between individuals seeking work and employers seeking workers—makes it critical to the functioning of the workforce development system under WIOA. The two major categories of activities performed by the ES are the administration of State Grants and National Activities. Services provided by the ES State Grants include labor exchange services (e.g., counseling, job search and placement assistance, labor market information); program evaluation; recruitment and technical services for employers; work tests for the state unemployment compensation system; and referral of unemployment insurance claimants to other federal workforce development resources. As noted, WIOA amends the Wagner-Peyser Act to make the ES a central part of the workforce development system under the One-Stop system by requiring colocation of services. To this end, one of the key functions played by the ES is to deliver many of the "career services" established by WIOA, since Wagner-Peyser Act-funded ES services are available at all comprehensive One-Stop centers and many affiliated sites. ES staff often are the first to assist individuals seeking employment assistance and refer individuals to other programs in the One-Stop system of partners. States provide labor exchange services through three tiers of service delivery: Self-Service. These services, which are typically electronic databases of job openings, are accessed without staff assistance. Not only are these services available to job seekers and employers without ES staff assistance, but typically customers can access these electronic resources away from the local One-Stop center and outside normal business hours (e.g., via the Internet); Facilitated Self-Help. Resources of this type are typically available in local One-Stop offices and include access to self-service tools (e.g., computers, resume-writing software, fax machines, photocopiers, and Internet-based tools). The resource-room staff interacts with the customers to facilitate usage of the resources. Staff-Assisted Service. These services are provided to customers both one-on-one and in groups. One-on-one services for job seekers often include assessment, career counseling, development of an individual service plan, and intensive job search assistance. One-on-one services for employers may include taking a job order or offering advice on how to increase job seeker interest in a job opening. Group services for job seekers include orientation, job clubs, and workshops on such topics as resume preparation, job search strategies, and interviewing. Group services for employers may include workshops on such topics as state UI laws or use of labor market information. Other staff-assisted services that benefit both job seekers and employers include screening and referring job seekers to job openings. Staff-assisted services must be provided in at least one physical location in each workforce investment area. The vast majority of funds (97%) for Employment Service activities are allotted to states on the basis of each state's relative share of the following two factors: civilian labor force (CLF) and total unemployment. Specifically, two-thirds of the ES state funding is allotted on the basis of the relative share of CLF and one-third on the basis of the relative share of total unemployment. The remaining 3% of total funding is distributed to states with civilian labor forces below 1 million and to states that need additional resources to carry out ES activities. Of the total allotment to states, 90% may be used for labor exchange services such as job search and placement assistance, labor market information, and referral to employers. The remaining 10% (Governor's Reserve) of the state allotment may be used for activities such as performance incentives and services for groups with special needs. As the local administrative agent of WIOA programs and activities, local WDBs are authorized to designate or certify, as well as terminate, One-Stop operators. To be eligible to serve as a One-Stop operator, an entity must be designated or certified through a competitive process and must be one of the following (or consortia of these): an institute of higher education; an Employment Service state agency; a nonprofit organization; a for-profit entity; a government agency; and/or other interested entities. WIOA precludes elementary or secondary schools from eligibility to serve as One-Stop operators, but allows nontraditional public secondary schools and area career and technical education schools to compete for certification. The local WDB is required to enter into a memorandum of understanding (MOU) with all One-Stop partners that describes the operation of the One-Stop delivery system in the local area. Specifically, the MOU must enumerate the services to be provided, specify the division of operating costs among partners, describe methods of referral of individuals to partner programs, describe the methods to ensure accessibility to services, and indicate the duration of the memorandum and the procedures to amend the memorandum. A key component of the MOU is the system for funding infrastructure costs of One-Stop centers. Unlike its predecessor, WIA, WIOA provides greater detail on funding One-Stop infrastructure costs, which include nonpersonnel costs such as rent and utilities. Specifically, WIOA provides for a "local" method and a "state" method. The local method of infrastructure funding occurs through the inclusion of an agreement in the MOU between the chief elected local officials, the local WDB, and the One-Stop partners on the relative share of infrastructure cost coverage by each party. In the absence of consensus on a local method of funding, the state method is used for each program year in which a local agreement does not exist. The state method directs each required One-Stop partner program to contribute a portion of its administrative funds, up to a statutory cap set in WIOA, to the governor. The state WDB then develops an allocation formula that the governor uses to disburse infrastructure funding to local areas. WIOA amends the state and local governance structure for programs that form the workforce development system under WIOA in part through changes to the state and local Workforce Development Boards (previously Workforce Investment Boards under WIA). This section provides information on state and local WDB membership requirements and functions. For both the state and local WDBs, WIOA specifies the composition, but does not specify the number, of board members. In addition, WIOA maintains the WIA-established requirement that the majority of board members, as well as the board chairs, be representatives of private business. State WDBs, appointed by the governor of each state, and local WDBs, appointed by the chief local elected official(s) in local workforce development areas, consist of representatives from the required categories in Table 2 : WIOA changed the State WDB membership requirements from a minimum of 61 under WIA to 33 under WIOA and changed the local WDB membership requirements from a minimum of 51 under WIA to 19 under WIOA. These shifts are primarily due to reducing the required representatives from One-Stop partner programs. The minimum number of WDB representatives is not specified in WIOA; rather, the minimum number is derived by the combination of requirements for a business majority, a workforce representation of at least 20%, and a number of other required members. The chief elected local official for each local workforce development area appoints local WDB members in accordance with criteria established by the governor and state WDB. In areas with multiple units of local government, the relevant chief officials may establish an agreement for appointing WDB members and carrying out WIOA responsibilities. In the absence of such a voluntary agreement, the governor may appoint members to a local WDB. Finally, while the local elected official appoints members to a local WDB, the governor must certify one local WDB once every two years. In addition, the governor is authorized to decertify local WDBs for fraud, failure to function, or nonperformance. The state WDB is responsible for assisting the governor in the following activities: development and implementation of a Unified State Plan; review of statewide policies, programs, and recommendations that would align workforce programs to support a streamlined workforce development system; development and continuous improvement of statewide workforce activities, including coordination and nonduplication of One-Stop partner programs and strategies to support career pathways; designation of local workforce investment areas and identification of regions; development of formulas for within-state distribution of adult and youth funds; development and updating of state performance accountability measures; identification and dissemination of best practices of workforce development policy; development of strategies to improve technology in facilitating access to and delivery of One-Stop services; preparation of annual reports to DOL on performance measures; and development of the statewide workforce and labor market information system. The local WDB performs multiple functions in carrying out the programs and services authorized under WIOA, including the following: development of a local plan for workforce investment activities; analysis of regional labor market conditions, including needed knowledge and skills for the regional economy; engagement of regional employers to promote business participation on the WDB and to coordinate workforce activities with needs of employers; development and implementation of career pathways; identification and promotion of proven and promising workforce development strategies; development of strategies to use technology to increase accessibility and effectiveness of the local workforce system; oversight of all programs for youth, adult, and dislocated workers; negotiation of local performance measures with the governor; selection of One-Stop operators and eligible providers of training; coordination of WIOA workforce development activities with local education providers; development of a budget and administration of funding to service providers; assistance in development of a statewide employment statistics system; and assessment of accessibility for disabled individuals at all local One-Stop centers. A major, if not the major, responsibility of state and local WDBs is the development of plans. Plans describe multi-year approaches that communicate to DOL the state and local WDB workforce development goals and strategies to achieve those goals. WIOA requires that states submit a unified state plan (USP) to the Secretary of Labor every four years, no later than 120 days before the end of the four-year period covered by the prior USP. The initial USP for WIOA is required to be submitted by states 120 days prior to the start of the second full program year after WIOA's enactment. States must submit USP modifications at the end of the first two years of the four-year USP period but may also submit modifications at any other time. Unified State Plans, which were optional under WIA, must outline the workforce strategies for the six core WIOA programs—adult, dislocated worker, and youth programs (Title I of WIOA), the Adult Education and Family Literacy Act (AEFLA; Title II of WIOA), the Employment Service program (amended by Title III of WIOA), and the Vocational Rehabilitation State Grant Program (amended by Title IV of WIOA). The contents of USPs are organized around "strategic planning elements" and "operational planning elements." Strategic planning elements consist of an overall vision and goals for preparing a skilled workforce, including analysis of existing and emerging industries and occupations and the human capital required in those industries and occupations; analysis of the current labor market and workforce; analysis of the capacity of the state to meet skills needs of the workforce and employment needs of employers; a description of the goals for indicators of performance and a plan for assessing system effectiveness; and a strategy for aligning core programs to achieve the strategic plan. Operational planning elements consist of activities to implement the strategic plan and the functions of the state WDB. These elements include a description of how the entities carrying out the core programs will align and coordinate with other parts of the workforce and economic development systems; a description of the state operating systems, such as assessment procedures and priority of service provisions; a description of how activities are carried out for specifically authorized programs in WIOA; and assurances that the state has policies and procedures to comply with the requirements of WIOA. Under WIOA, states also have the option of submitting a Combined State Plan (CSP). A CSP is combination of a USP, which covers the core programs, and one or more of the One-Stop partner programs (see Table 1 ). WIOA requires that local WDBs submit a comprehensive four-year plan to the governor. Local WDBs must submit local plan modifications at the end of the first two years of the four-year planning period. In general, a local plan documents how a local WDB will support the state strategy specified in the USP. Highlights of the contents of a local plan include descriptions of how local WDBs will develop strategic planning elements (see elements in " Unified State Plan " section above); align workforce development programs; expand access to career pathways and recognized postsecondary credentials; develop and implement a service mix that will best meet the workforce needs of local employers; coordinate workforce development activities with economic development activities; design and implement the One-Stop system in the local area; provide workforce activities authorized under Title I and coordinate these activities with other programs authorized by WIOA; negotiate local levels of performance; and provide training services in the local area. Title I of WIOA—Workforce Development Activities—authorizes job training and related employment services to unemployed or underemployed individuals and provides the governing structure for all titles of WIOA. Funds authorized under Subtitle B of WIOA ("Workforce Investment Activities and Providers") are allotted by formula and are used for workforce development activities. As stated in WIOA, the purpose of workforce systems is to "increase the employment, retention, and earnings of participants, and increase attainment of recognized postsecondary credentials by participants, and as a result, improve the quality of the workforce, reduce welfare dependency, increase economic self-sufficiency, meet the skill requirements of employers, and enhance the productivity and competitiveness of the Nation." The three state formula grant programs in Title I—youth, adults, and dislocated workers—authorize funding for employment and training activities available through the national system of One-Stop centers and provided by service providers in local communities. The majority of funding for WIOA Title I programs is provided through state formula grants. The adult and dislocated worker programs both provide employment and training services to individuals ages 18 and older. The programs are funded through formula grants allotted to states, which in turn allocate the majority of those funds to local entities. These two programs are discussed together because the services provided are the same. However, the two programs have different eligibility criteria and different allotment formulas (see " Allotment of Funds for Title I State Formula Grant Programs and Activities ," below, for the differences in allotment formulas). Any individual age 18 or older is eligible for services funded by the Adult Activities program. An individual is generally eligible for services under the provisions for dislocated workers in WIOA if the person: has been terminated or laid off, or has been notified of a termination or layoff; is sufficiently attached to the workforce, demonstrated either through eligibility for/exhaustion of unemployment compensation or through other means; and is unlikely to return to the previous industry or occupation. There is some breadth in the definition of a "dislocated worker" under WIOA. For instance, eligibility is afforded in cases of anticipated facility closings and for self-employed workers. However, the core eligibility requirement is displacement due to termination or facility closing. There is no eligibility requirement under WIOA related to the cause of the dislocation. From the perspective of the individual, however, the classification of "adult" or "dislocated" will not make a difference in the services received under WIOA. After funds are allotted from ETA to individual states by formula, the governor of each state may reserve not more than 15% of the Adult Activities state allotment, not more than 15% of the Dislocated Worker Activities state allotment, and not more than 15% of the Youth Activities allotment for "statewide workforce investment activities." This allowable 15% set-aside is often referred to as the "Governor's Reserve." Specifically, funds in the 15% reserve must be used for "required" activities and may be used for "allowable" activities. In addition, of the state allotment for dislocated worker activities, the governor of each state must also reserve not more than 25% for dislocated worker rapid response activities. In sum, not more than 15% of Adult Activities state allotments, not more than 15% of Youth Activities state allotments, and not more than 40% of Dislocated Worker Activities state allotments are reserved at the state level for statewide activities; the remainder of these three funding streams are allocated to local areas within each state. Required statewide employment and training activities, which are funded by the 15% reserve funds from each of the youth, adult, and dislocated worker state allotments, include dissemination of the state list of eligible providers of training services (including performance and program cost information for these providers) and eligible providers of youth activities; evaluations of state workforce investment programs for the purpose of "continuously improving" state activities to "achieve high-level performance" within the workforce development system and "high-level outcomes" from the workforce development system; assistance to local areas for regional planning, local coordination of activities, and development of exemplary program activities; technical assistance to local areas not meeting required performance accountability measures; assistance to local areas in establishing One-Stop delivery systems; assistance to local areas with high concentrations of eligible youth; and operation of a fiscal and management accountability system in order to report on and monitor the use of WIOA funds. Allowable statewide employment and training activities include administration of state activities; provision of incentive grants to local areas for performance; research and demonstration projects; supporting financial literacy; implementation of innovative training programs, such as layoff aversion strategies and sector and industry partnerships; and technical assistance to local areas implementing pay-for-performance strategies. From the 25% reserve from the dislocated worker state allotment, states are required to carry out rapid response activities to assist workers who have been dislocated in obtaining reemployment as quickly as possible. A dislocation event is typically defined as a permanent closure or mass layoffs at a facility or a disaster (natural or otherwise) resulting in mass job dislocation. The services funded under this reserve may include establishment of onsite contact with employers and employee representatives immediately after the dislocation event; provision of information and access to employment and training programs through the WIOA dislocated worker program; assistance in establishing a labor-management agreement to determine the employment and training needs of the affected workers; provision of emergency assistance; and provision of assistance to the affected local community to develop a coordinated response in seeking state economic development aid. Following the reservation of funds for the Governor's Reserve at the state level (for the adult and dislocated worker programs), the remaining funds are allocated to local areas to carry out "required" and "permissible" training and employment activities. At the local level, funds are required to be used for five main purposes: establishing a One-Stop delivery system; providing career services; providing training services; establishing relationships with employers; and developing industry or sector partnerships. Table 3 provides information on the required local activities for each of the two main service types of WIOA adult and dislocated worker programs. The program for adult and dislocated worker participants in WIOA is structured around two main levels of services: career services and training. On an operational level, career services are categorized as "basic" and "individualized." Basic services include services such as labor market information and job postings, while individualized services include services such as skills assessment and case management (a detailed list of career services is in Table 3 ). In WIOA service at one level is not a prerequisite for service at the next level. The workforce development system designed by WIOA is premised on universal access, such that an adult age 18 or older does not need to meet any qualifying characteristics in order to receive career services. While basic career services are available to all adults, individualized career services are to be provided as appropriate to help individuals obtain and retain employment. To be eligible to receive training, an individual, rather than being required to receive career services first, must be unlikely or unable to obtain or retain employment that leads to economic self-sufficiency; be in need of training services to obtain or retain employment that leads to economic self-sufficiency; have the "skills and qualifications" to participate successfully in training; select a training service linked to an occupation in the local area (or be willing to relocate to another area where the occupation is in demand); and be unable to obtain other grant assistance (e.g., Pell grants) for the training services. Finally, Section 134(c)(3)(E) of WIOA stipulates that for funds allocated to a local area for adult employment and training activities, priority is to be given to recipients of public assistance, other low-income individuals, and individuals who are basic skills deficient for career and training services. It is left to the discretion of the local WDB, in consultation with the state's governor, to determine this prioritization. Following the decision of a One-Stop operator to provide an individual with access to training services, the implementation of training in WIOA is built on the concept of consumer choice, which involves two main components: eligible providers of training and Individual Training Accounts (ITA). The governor and the state WDB in each state are responsible for establishing criteria and procedures for eligible providers of trainin g services to receive funding in the local workforce investment areas. The purpose of having a list of eligible providers, as opposed to the One-Stop centers contracting directly with a training provider of its choosing, is to provide choice to "customers" who are accessing WIOA services. Generally, eligible training providers include an institution of higher education (i.e., is eligible to receive federal funds under Title IV of the Higher Education Act of 1965) offering programs leading to a recognized postsecondary credential; an entity that provides apprenticeship programs registered under the National Apprenticeship Act (i.e., registered apprenticeships); or another public or private training provider. There are two types of provider eligibility: initial and continued. Training providers not previously eligible under WIOA or WIA, except registered apprenticeship programs, must apply to the governor and the local WDB (according to a procedure established by the governor) for initial eligibility of one fiscal year. In order to maintain continued eligibility, existing training providers must follow procedures established by the governor and implemented by the local WDB. Training providers that were eligible under WIA as of July 21, 2014, are subject to the continued eligibility requirements of WIOA. In addition to requiring the governor to establish continued eligibility procedures for training providers, WIOA also specifies particular information that eligible providers must submit to be considered for continued eligibility. Specifically, training providers must submit to the governor the following "appropriate, accurate, and timely" performance and cost information for participants receiving training under Title I of WIOA: percentage of program participants in unsubsidized employment in the second and fourth quarters after program exit; median earnings of program participants who are in unsubsidized employment during the second quarter after program exit; percentage of program participants who obtain a recognized postsecondary credential, or secondary school diploma or equivalent, during participation or within one year of program exit; information on the type of recognized postsecondary credentials received by program participants; information on cost of attendance, including tuition and fees, for program participants; and information on program completion rates for program participants. When an individual is deemed eligible to receive training services, that individual, in consultation with a case manager, may choose training services from a list of eligible providers (discussed above). At that point, an Individual Training Account (ITA) is established, from which payment is made to the eligible training provider for training services. Local WDBs have the authority to set limits on the type and duration of training. In addition, local WDBs may choose to set limits on the amount of an ITA, based on individual circumstances or on an across-the-board level. While training is typically carried out through the ITA model, WIOA does allow for other mechanisms to deliver training services to eligible participants. Specifically, local WDBs may provide training through a contract for services if the consumer choice requirements of WIOA are met; the services are on-the-job training, customized training, incumbent worker training, or transitional employment; the local WDB determines there are an insufficient number of training providers in a local area to meet the ITA requirements; the local WDB determines there is a local training program of "demonstrated effectiveness" to serve individuals with barriers to employment; the local WDB determines that it is "most appropriate" to contract training services to train multiple individuals in in-demand occupation or industry sectors; or the training service is a pay-for-performance contract. In addition to the formula grants for Adult and Dislocated Worker Employment and Training Activities, WIOA authorizes a formula grant program for Youth Workforce Investment Activities (although individuals ages 18 or older are also eligible for services provided through the Adult Employment and Training Activities program). WIOA, unlike its predecessor WIA, does not specify general purposes for the Youth Activities program; however, WIOA retains many of the same program elements that were in WIA, such as providing assistance to youth in achieving successful academic and employment outcomes. Eligibility for the Youth Activities program is different depending on whether the individual is an "out-of-school" youth or an "in-school" youth. An eligible out-of-school youth is not attending any school, is between the ages of 16 and 24, and is one or more of the following: a school dropout; a student who has not attended school for the most recent quarter; a recipient of a secondary school diploma who is low-income but is basic skills deficient or an English language learner; involved with the juvenile or adult justice system; homeless or in an out-of-home placement; pregnant or parenting; disabled; or a low-income individual requiring additional assistance to complete an educational program or to secure and hold employment. An eligible in-school youth is attending school, is between the ages of 14 and 21, is low-income, and is one or more of the following: basic skills deficient; an English language learner; an offender; homeless or in an out-of-home placement; pregnant or parenting; disabled; or an individual requiring additional assistance to complete an educational program or to secure and hold employment. WIOA changes the priority of service established under WIA from in-school to out-of-school youth by requiring that at least 75% of all Youth Activities formula grant funds must be used for activities for out-of-school youth (compared to 30% under WIA). WIOA youth funding is allocated to local areas to design and carry out programs that provide an objective assessment of the educational, skill, and service needs of program participants; develop service strategies for each participant; provide activities leading to attainment of a secondary school diploma or recognized postsecondary credential, preparation for postsecondary education or training, preparation for unsubsidized employment, and effective connections to employers; and implement a pay-for-performance contract strategy. Generally, local WDBs competitively award funds to local organizations and other entities to provide employment and job training services to youth. In order to support the attainment of education and career readiness for youth, local programs must provide the following 14 activities or "elements" to youth: tutoring, study skills training, instruction, and evidence-based dropout prevention and recovery strategies leading to completion of secondary school; alternative secondary school services, as appropriate; paid and unpaid work experiences that have an academic and occupational education component, including summer employment opportunities and pre-apprenticeship programs; occupational skill training, as appropriate; education offered with training for a specific occupation or cluster; leadership development opportunities; supportive services; adult mentoring for the period of participation and a subsequent period, for a total of not less than 12 months; follow-up services for not less than 12 months after the completion of participation, as appropriate; comprehensive guidance and counseling, which may include drug and alcohol abuse counseling and referral, as appropriate; financial literacy education; entrepreneurial skills training; labor market and employment information; and activities to prepare youth to transition to postsecondary education and training. Although local WDBs must make all 14 program elements available to youth, each individual youth does not need to participate in all elements. However, local areas must spend at least 20% of the allocated funds to provide both in-school and out-of-school youth with paid and unpaid work experiences that have an academic and occupational education component. Funding for the state and local workforce investment activities authorized under Title I—Adult Activities, Dislocated Worker Activities, and Youth Activities—is allotted by formula from ETA to states. The funding streams for each of the three sets of activities are allotted by a three-factor formula based on each state's relative share of each formula factor. A state's relative share of any formula factor is calculated by dividing the factor population (e.g., number of unemployed individuals) in the state by the factor population in the United States as a whole. After the allotments are made to states, within-state allocations are made based on formulas as well (see below for details). Finally, WIOA allows, with the governor's approval, local WDBs to transfer up to 100% of the local fund allocation between Adult and Dislocated Worker Activities. This is an increase from the maximum of 20% transfer allowed under WIA. Funds for adult employment and training activities are allotted to states on the basis of the following factors: one-third of the funds are allotted on the basis of each state's relative share of total unemployment in areas of substantial unemployment (ASU); one-third of the funds are allotted on the basis of each state's relative share of excess unemployment; and one-third of the funds are allotted on the basis of each state's relative share of economically disadvantaged adults. Key features of the state formula allocation for WIOA Adult Activities include the following: A reservation for the outlying areas of not more than 0.25% of the total Adult Activities appropriation (this is reserved prior to state allocations). A minimum grant amount equal to 0.25% of the total allotment to all states in a given program year. For example, in PY2015 the state minimum allotment under the adult funding stream was $1,931,641, which is 0.25% of the total allotted to all states ($772,656,517). "Hold harmless" and "stop gain" provisions such that individual states will not experience large swings in year-to-year funding for this stream. Specifically, a state may not receive less than 90% of its relative share of prior-year funding nor more than 130% of its relative share of prior-year funding. After funds are allotted from ETA to individual states by formula, the governor of each state can reserve not more than 15% of the Adult Activities state allotment for statewide "employment and training activities." Specifically, funds in the 15% reserve must be used for "required" activities and may be used for "allowable" activities (see the " Structure—Statewide Activities " section, above, for Adult and Dislocated Worker activities). The remainder of the Adult Activities funding stream is allotted to local workforce investment areas within the state on the basis of either the same three-factor formula used for state allotments but with substitution of local area relative share of state total; or the same three-factor formula used for state allocations for at least 70% of the allocation and a state-derived formula using measures of excess poverty and unemployment within the state for the remaining allocation. Finally, the within-state allocation requirements include a "hold harmless" provision for local areas, such that a local area must receive an allocation percentage of not less than 90% of the average allocation percentage of that area for the two preceding fiscal years. Funding for the dislocated worker program in WIOA consists of two parts: the National Reserve and state formula grants. From total funding appropriated for the Dislocated Workers Activities program in a fiscal year, WIOA Section 132(a)(2)(A) specifies that 20% is to be used for a National Reserve account, which provides for National Dislocated Worker Grants (NDWG) and other services for dislocated workers. The remaining 80% of the Dislocated Worker allotment is for state formula grants and is allotted to states on the basis of the following factors: one-third of the funds are allotted on the basis of each state's relative share of total unemployment; one-third of the funds are allotted on the basis of each state's relative share of excess unemployment; and one-third of the funds are allotted on the basis of each state's relative share of long-term unemployment. Unlike the dislocated worker funding formula in WIA, the WIOA dislocated workers' formula adds provisions for minimum and maximum allotments. Similar to the adult and youth formula grants, starting in PY2016 the Dislocated Worker formula grant program will include "hold harmless" and "stop gain" provisions such that individual states will not experience large swings in year-to-year funding for this stream. Specifically, a state may not receive less than 90% of its relative share of prior year funding nor more than 130% of its relative share of prior year funding. Unlike the Adult and Youth formula grants, however, WIOA does not include a small-state minimum for the Dislocated Worker formula grants. After funds are allotted from ETA to individual states by formula, the governor of each state must reserve not more than 15% of the Dislocated Worker Activity state allotment for statewide "employment and training activities." In addition, of the state allotment for Dislocated Worker Activities, the governor of each state must also reserve not more than 25% for rapid response activities. In sum, not more than 40% of dislocated worker state allotments are reserved at the state level for statewide activities. The remainder of the Dislocated Worker Activities funding stream must be allocated to local areas based on a state-developed formula that takes into account the following data: insured unemployment (i.e., individuals receiving unemployment insurance benefits); unemployment concentrations; plant closings and mass layoffs; declining industries; farmer-rancher economic hardship; and long-term unemployment. Finally, WIOA adds a "hold harmless" provision to the within-state allocation requirements for local areas, such that a local area must receive an allocation of not less than 90% of the average allocation percentage of that area for the two preceding fiscal years. Under WIA, there was no hold harmless provision for local area allocations. Funds for youth employment and training activities are allotted from ETA to states on the basis of the following factors: one-third of the funds are allotted on the basis of each state's relative share of total unemployed in areas of substantial unemployment (ASU); one-third of the funds are allotted on the basis of each state's relative share of excess unemployed; and one-third of the funds are allotted on the basis of each state's relative share of economically disadvantaged youth. Key features of the state formula allotment for WIOA Youth Activities include the following: A reservation equal to 4% of the amount by which Youth Activities appropriations exceed $925 million to support youth migrant and seasonal farmworker workforce activities. A reservation of not more than 1.5% of the total Youth Activities appropriation for youth Native American workforce activities. A reservation for outlying areas of 0.25% of the total Youth Activities appropriation. A minimum grant amount equal to 0.25% of the total allocation to all states in a given program year. For example, in PY2015, the state minimum allotment under the youth funding stream was $2,037,653, which is 0.25% of the total allotted to all states ($815,061,036). "Hold harmless" provisions such that individual states will not experience large swings in year-to-year funding for this stream. Specifically, a state may not receive less than 90% of its relative share of prior-year funding nor more than 130% of its relative share of prior-year funding. After funds are allotted from ETA to individual states by formula, the governor of each state must reserve not more than 15% of the Youth Activities state allotment for statewide youth activities or "employment and training activities" for adults and dislocated workers. The remainder of the Youth Activities funding stream is reallocated to local areas within the state on the basis of either: the same three-factor formula used for state allocations but with substitution of local area relative share of state total; or an allocation formula to local areas equal to not less than 70% of the funds they would have received using the unemployment and poverty factors, with the remaining portion of funds allocated on the basis of a formula that incorporates additional factors relating to excess youth poverty in urban, rural, and suburban local areas and excess unemployment above the state average in these areas. Finally, the within-state allocation requirements include a "hold harmless" provision for local areas, such that a local area must receive an allocation of not less than 90% of the average allocation percentage of that area for the two preceding fiscal years. The purpose of Job Corps is to provide disadvantaged youth with the skills needed to obtain and hold jobs, enter the Armed Forces, or enroll in advanced training or higher education. Job Corps participants must be ages 16 through 24, low-income, and facing one or more of the following barriers to education and employment: (1) basic skills deficient; (2) a school dropout; (3) homeless, a runaway, a foster child, or aged out of foster care; (4) a parent; or (5) an individual who requires additional education, career and technical education or training, or workforce preparation skills to be able to obtain and retain employment that leads to economic self-sufficiency. In addition to receiving academic and employment training, young people also engage in social and other services to promote their overall well-being. The program has enrolled approximately 41,000 to 54,000 participants annually in recent years. Funds for the Job Corps program are appropriated annually to DOL, which administers the program and contracts with private organizations to run centers (see next section). Currently, 126 Job Corps centers operate throughout the country and are mostly operated for DOL by private companies through selective competitive contracting processes. Of the 126 centers, 27 sites are known as Civilian Conservation Corps Centers, which are jointly operated by DOL and the Department of Agriculture or the Department of the Interior. Programs at these sites focus on conserving, developing, or managing public natural resources or public recreational areas. Most Job Corps centers are located on property that is owned or leased long term by the federal government. Job Corps centers may be operated by a federal, state, or local agency; an area career and technical education school, or residential vocational school; or a private organization. Authorization for new Job Corps centers is specified in appropriations law. DOL initiates a competitive process seeking applicants that are selected based on their ability to coordinate activities in the workforce system for youth, their ability to offer career and technical training opportunities that reflect local employment opportunities, past performance, proposed costs, and other factors. Center operators must meet or exceed performance indicators if their contracts are to be renewed. In addition, center operators considered "high-performing," as defined under WIOA, may be considered in any competitive selection process carried out to operate the center. This enables such centers to compete in any procurement that is underway, including any procurement that has been set aside for a small business. Centers may also be subject to closure if they are low-performing. Students may participate in the Job Corps program for up to two years, though some may stay longer under specified circumstances. While at a Job Corps center, students receive the following services and assistance: academic, employment, and social skills training; work-based learning, which includes career and technical skills training and on-the-job training; and counseling and other residential support services, including transportation, child care, recreational activities, and living and other allowances. Job Corps centers provide services both onsite and offsite, and they contract some of these services. Centers rely on outreach and admissions contractors to recruit students to the program. These contractors may include a One-Stop center, community action organizations, private for-profit and nonprofit businesses, labor organizations, or other entities that have contact with youth. Contractors seek out potential applicants, conduct interviews with applicants to identify their needs and eligibility status, and identify youth who are interested and likely Job Corps participants. Similarly, centers rely on placement agencies—organizations that enter into a contract or other agreement with Job Corps—to provide placement services for graduates and, to the extent possible, former students. Services such as vocational training are sometimes provided by outside organizations. In addition to state formula grant programs and Job Corps, WIOA authorizes a number of competitive grant-based programs to provide employment and training services to special populations. This competitive grant program provides comprehensive workforce investment activities—academic, occupational, and literacy—to assist Indian, Alaska Native, and Native Hawaiian participants preparing to enter, reenter, or retain unsubsidized employment leading to self-sufficiency and to promote economic and social development of Native American communities. In addition, supplemental services are provided to Indian, Alaska Native, and Native Hawaiian youth on or near Indian reservations and in Oklahoma, Alaska, or Hawaii. The Secretary of Labor distributes funding authorized under WIOA Section 166 every four years through a competitive grant process or through contracts or cooperative agreements with Indian tribes, tribal organizations, Alaska Native entities, Indian-controlled organizations, or Native Hawaiian organizations. This competitive grant program, also referred to as the National Farmworker Jobs Program, provides training and related services (including housing services), and technical assistance, to disadvantaged migrant and seasonal agricultural workers and their dependents. The goal of the Migrant and Seasonal Farmworker Program is to enhance the ability of the eligible population to obtain or retain unsubsidized employment or to stabilize unsubsidized employment. The program was first authorized by the Economic Opportunity Act of 1964. The Secretary of Labor distributes funding authorized under WIOA Section 167 every four years through a competitive grant process or through contracts with entities with an understanding of the problems faced by the migrant and seasonal farmworker population and a familiarity with the area served. Section 168 of WIOA requires that the Secretary of Labor provide three types of technical assistance. First, the Secretary must provide general technical assistance, such as training, coordination, and staff development, to support activities such as the replication of programs of demonstrated effectiveness, the training of state and local WDBs, and the transition from WIA to WIOA. Authorized technical assistance may be implemented through competitive grants or cooperative agreements or contracts. Second, from the Dislocated Worker National Reserve (a statutorily required reservation of 20% from the Dislocated Worker Employment and Training Activities grant program allotment), the Secretary of Labor must reserve no more than 5% (of the National Reserve) to provide technical assistance to states that do not meet the performance accountability measures for dislocated workers. Third, the Secretary is required to establish a system through which states may share information on promising and proven workforce development practices. Section 169 of WIOA authorizes the Secretary of Labor to conduct three categories of evaluation and research activities. First, the Secretary, through grants, contracts, or cooperative agreements, must provide continuing evaluation of WIOA programs and activities. Evaluations are required to use "appropriate and rigorous methodology and research designs" that address the general effectiveness and impact of WIOA-authorized programs. Second, the Secretary is required every two years to publish a plan that describes the Department of Labor's priorities for research, studies, and multistate projects in the subsequent five-year period, with the following parameters: research projects must contribute to solving employment and training problems identified in the planning process; studies may include a range of topics on employment and training but the Secretary is required to conduct studies on career pathways for health care providers or providers of early education and child care and on equivalent pay for men and women; and multistate projects may include addressing specialized employment and training needs of particular subpopulations, industry-wide skill shortages, or dissemination of best practices. Third, from the Dislocated Worker National Reserve (a statutorily required reservation of 20% from the Dislocated Worker Employment and Training Activities grant program allotment), the Secretary of Labor must use no more than 10% (of the National Reserve) to carry out demonstration and pilot projects, multiservice projects, and multistate projects related to dislocated worker employment and training needs. From total funding appropriated for the Dislocated Worker Employment and Training Activities program in a fiscal year, WIOA Section 132(a)(2)(A) specifies that 20% is to be used for a National Reserve account, which provides for National Dislocated Worker Grants (NDWG) and other services for dislocated workers. Specifically, WIOA Section 132(a)(2)(A) provides that the 20% reservation is to be used for four purposes: reservation for outlying areas for Dislocated Worker Employment and Training Activities (WIOA Section 132(b)(2)(A)); dislocated worker technical assistance (WIOA Section 168(b)); dislocated worker projects (WIOA Section 169(c)); and National Dislocated Worker Grants (WIOA Section 170). The majority of the National Reserve funding is used for NDWG activities. These NDWGs are awarded primarily to states and local WDBs to provide services for eligible individuals, including dislocated workers, civilian employees of the Departments of Defense or Energy employed at an installation that is being closed within 24 months of eligibility determination, employees or contractors with the Department of Defense at risk of dislocation due to reduced defense expenditures, or certain other members of the Armed Forces. Services include job search assistance and training for eligible workers. In addition, NDWG funding may be used to provide direct employment ("disaster relief employment") to individuals for a period of up to 12 months for work related to a disaster. YouthBuild is a competitive grant program that provides funding to support disadvantaged youth in developing occupational and educational skills. Specifically, the purpose of the YouthBuild grant program is to enable disadvantaged youth to obtain the education and employment skills necessary to achieve economic self-sufficiency in occupations in demand and post-secondary education and training opportunities; provide disadvantaged youth with opportunities for meaningful work and service to communities; foster the development of employment and leadership skills and a commitment to community development among youth in low-income communities; expand the supply of permanent affordable housing for homeless individuals and low-income families by utilizing the energy of disadvantaged youth; and improve the quality and energy efficiency of community and public facilities. Services include a range of education and workforce investment activities, including instruction, occupational skills training, alternative education, mentoring, and training in the rehabilitation or construction of housing. Notably, any housing unit that is rehabilitated or reconstructed as part of a YouthBuild-funded project may be available only for rental by, or sale to, homeless individuals or low-income families, or for use as transitional or permanent housing to assist homeless individuals achieve independent living. In addition to construction activities, programs offered within a YouthBuild program can support career pathway training targeted toward other high-demand occupations and industries. An individual is eligible for the YouthBuild program if he or she is between the ages 16 and 24, a member of a low-income family, a youth in foster care, a youth offender, an individual with a disability, a child of an incarcerated parent, or a migrant youth, and a school dropout. However, youth who do not meet the income or dropout criteria may also be eligible, so long as they are basic skills deficient despite having earned a high school diploma, GED, or the equivalent; or they have been referred by a high school for the purpose of obtaining a high school diploma. A maximum of 25% of participants may qualify for eligibility according to these latter criteria. Section 116 of WIOA sets forth state and local "performance accountability measures" that apply "across the core programs to assess the effectiveness of States and local areas in achieving positive outcomes for individuals served by those programs." The WIOA performance accountability system is designed around the "primary indicators" of performance for the "core programs" and takes effect starting in PY2016 (July 1, 2016–June 30, 2017). The performance accountability system in WIOA consists of two main components—indicators of performance and levels of performance. Performance indicators are the objective variables on which states and localities must report and are specified in statute, while performance levels are the numerical score for indicators and are negotiated between states, localities, and the Departments of Labor and Education. Under WIOA, "primary indicators of performance" consist of the required measures described in Section 116(b)(2)(A) and any additional indicators identified by individual states. The six primary indicators of performance in WIOA are the percentage of program participants who are in unsubsidized employment during the second quarter after exit from the program; the percentage of program participants who are in unsubsidized employment during the fourth quarter after exit from the program; the median earnings of program participants who are in unsubsidized employment during the second quarter after exit from the program; the percentage of program participants who obtain a recognized postsecondary credential (or secondary school diploma or equivalent) during participation or within one year after program exit; the percentage of program participants who are in an education or training program that leads to a recognized postsecondary credential or employment and who are achieving measurable skill gains toward such a credential or employment; and the indicators of effectiveness in serving employers established by the Secretaries of Labor and Education. Programs that use the primary indicators of performance are listed in Table 4 below. In addition to the indicators listed in Table 4 , states may identify additional indicators of performance and identify these in the state plan required under Section 102. For each of the primary indicators of performance described above, each state is required to establish a "state adjusted level of performance" in the state plan. That is, the indicators are identified in WIOA Section 116, but the levels are determined through negotiation between states and the Secretaries of Labor and Education. In the state plan, states must identify the expected (adjusted) level of performance for each of the primary indicators for the first two program years of the state plan, which covers four program years. These agreed-upon levels then become the "state adjusted level of performance" that is incorporated into the plan. The negotiation between governors and the Secretaries that leads to an agreement on adjusted levels of performance must be based on the following four factors: the relative levels across states; the application of an objective statistical model developed by the Secretaries of Labor and Education that helps make adjustments for actual economic conditions and characteristics of program participants; the impact of agreed-upon levels on promoting "continuous improvement" in performance and ensuring "optimal return on investment"; and the extent to which the adjusted levels of performance assist states in meeting performance goals set by the Secretaries of Labor and Education. As part of the process for determining adjusted levels of performance, WIOA requires the development and use of a statistical adjustment model. The objective statistical model is intended to assist states in setting performance levels and in revising state adjusted levels of performance by taking into account the differences among states in actual economic conditions and the characteristics of participants served. In practice, this means an individual state sets its performance goals based on the relative (to other states) economic conditions and characteristics of participants and revises its performance levels at the end of a program year based on the actual economic conditions and characteristics of participants served. Glossary of Selected WIOA Terms Areas of Substantial Unemployment (ASU) —This concept is used in the Title I state formula grants for Youth and Adult Activities. As defined in Sections 127(b)(2)(B) and 132(b)(1)(B)(v)(III), an ASU is "any area that is of sufficient size and scope to sustain a program of workforce investment activities carried out under this subtitle and that has an average rate of unemployment of at least 6.5 percent for the most recent 12 months." States submit potential ASU designations and DOL approves ASUs once each fiscal year. Additional guidance from the Employment and Training Administration defines an ASU as a "contiguous area with a current population of at least 10,000 and an average unemployment rate of at least 6.5 percent for the 12-month reference period." If a state has a statewide unemployment rate of at least 6.5%, the entire state will be designated as an ASU for allocation purposes. Economically Disadvantaged —This concept is used in one of the factors for the Title I state formula grants for Youth and Adult Activities. For the state formula grants for Youth Activities, "disadvantaged youth" is defined (in Section 127(b)(2)(C)) as an "individual who is age 16 through 21 who received an income, or is a member of a family that received a total family income, that, in relation to family size, does not exceed the higher of the poverty line or 70 percent of the lower living standard income level." Similarly, a "disadvantaged adult" is defined (in Section 132(b)(1)(B)(v)(IV)) in the same way as a disadvantaged youth with the exception that the individual is age 22 through 72. Excess Unemployment —This concept is used in one of the factors for the Title I state formula grants for Youth, Adult, and Dislocated Worker Activities. For the state formula grants for Youth and Adult Activities, excess unemployment is defined (in Sections 127(b)(2)(D) and 132(b)(1)(B)(v)(VI)) as the higher of "the number that represents the number of unemployed individuals in excess of 4.5 percent of the civilian labor force in the state" or "the number that represents the number of unemployed individuals in excess of 4.5 percent of the civilian labor force in areas of substantial unemployment in such state." For the state formula grant for Dislocated Worker Activities, excess unemployment is defined (in Section 132(b)(2)(B)(iii)) as "the number that represents the number of unemployed individuals in excess of 4.5 percent of the civilian labor force in the state." For example, in a state with a civilian labor force of 100,000 and an unemployment rate of 8.0% (which would equal 8,000 unemployed individuals), the "excess unemployment" would be 3,500 (8.0% - 4.5% = 3.5%; 3.5% of 100,000 is 3,500). Long-Term Unemployment —This concept is used in one of the factors for the Title I state formula grants for Dislocated Worker Activities. For these grants, long-term unemployment is defined (in Section 132(b)(2)(B)(ii)(III)) as the number of individuals in a state who have been unemployed (as measured by the Bureau of Labor Statistics) for at least 15 weeks. Relative Number/Share —This concept is used in the state formula grants for Youth, Adult, and Dislocated Worker Activities. Each formula consists of three equally weighted factors. The factors themselves are based on the concept of the "relative number" or "relative share" of that factor compared to the analogous number in all of the states. An example from the Dislocated Worker Activities formula—based on the factors of regular unemployment, excess unemployment, and long-term unemployment—will demonstrate this. In the PY2015 state formula allotments for Dislocated Workers, Nevada had the following factor values: Regular Unemployment = 112,565; Excess Unemployment = 50,878; and Long-Term Unemployment = 64,000. For each of these factors, Nevada's "relative share" was calculated by dividing the number of individuals in Nevada by the number of individuals in all states. For example, Nevada's relative share of regular unemployment was 1.10% (112,565/10,231,705); its share of excess unemployment was 1.58% (50,878/3,212,642); and its share of long-term unemployment was 1.25% (64,000/5,128,900). Multiplying each of these individuals by 1/3 and summing the results would give Nevada a total share of 1.31% ((1.10%*1/3) + (1.58%*1/3) + (1.25%*1/3)). Finally, multiplying Nevada's share, 1.31%, by the total Dislocated Worker state funding for all states ($1,012,728,000) yields $13,272,377, which Nevada received in PY2015. Authorized and Appropriated Funding for Programs Authorized Under WIOA Table B-1 , Table B-2 , Table B-3 , and Table B-4 below show the authorized level of appropriations for every program authorized in WIOA. Unlike its predecessor, the Workforce Investment Act, which authorized "such sums as may be necessary" for its programs, WIOA sets specific authorization levels for FY2015 through FY2020. Actual appropriations are included in the tables too for each year they are available, as they may differ from the levels authorized. | The Workforce Innovation and Opportunity Act (WIOA; P.L. 113-128), which succeeded the Workforce Investment Act of 1998 (P.L. 105-220) as the primary federal workforce development legislation, was enacted in July 2014 to bring about increased coordination among federal workforce development and related programs. Most of WIOA's provisions went into effect July 1, 2015. WIOA authorizes appropriations for each of FY2015 through FY2020 to carry out the programs and activities authorized in the legislation. Workforce development programs provide a combination of education and training services to prepare individuals for work and to help them improve their prospects in the labor market. They may include activities such as job search assistance, career counseling, occupational skill training, classroom training, or on-the-job training. The federal government provides workforce development activities through WIOA's programs and other programs designed to increase the employment and earnings of workers. WIOA includes five titles: Workforce Development Activities (Title I), Adult Education and Literacy (Title II), Amendments to the Wagner-Peyser Act (Title III), Amendments to the Rehabilitation Act of 1973 (Title IV), and General Provisions (Title V). Title I, whose programs are primarily administered through the Employment and Training Administration (ETA) of the U.S. Department of Labor (DOL), includes three state formula grant programs, multiple national programs, and Job Corps. Title II, whose programs are administered by the U.S. Department of Education (ED), includes a state formula grant program and National Leadership activities. Title III amends the Wagner-Peyser Act of 1933, which authorizes the Employment Service (ES). Title IV amends the Rehabilitation Act of 1973, which authorizes vocational rehabilitation services to individuals with disabilities. Title V includes provisions for the administration of WIOA. The WIOA system provides central points of service via its system of around 3,000 One-Stop centers nationwide, through which state and local WIOA employment and training activities are provided and certain partner programs must be coordinated. This system is supposed to provide employment and training services that are responsive to the demands of local area employers. Administration of the One-Stop system occurs through Workforce Development Boards (WDBs), a majority of whose members must be representatives of business and which are authorized to determine the mix of service provision, eligible providers, and types of training programs, among other decisions. WIOA provides universal access (i.e., an adult age 18 or older does not need to meet any qualifying characteristics) to its career services, including a priority of service for low-income adults. WIOA also requires Unified State Plans (USPs) that outline the workforce strategies for the six core WIOA programs—adult, dislocated worker, and youth programs (Title I of WIOA), the Adult Education and Family Literacy Act (AEFLA; Title II of WIOA), the Employment Service program (amended by Title III of WIOA), and the Vocational Rehabilitation State Grant Program (amended by Title IV of WIOA). Finally, WIOA adopts the same six "primary indicators of performance" across most of the programs authorized in the law. This report provides details of WIOA Title I state formula program structure, services, allotment formulas, and performance accountability. In addition, it provides a program overview for national grant programs. It also offers a brief overview of the Employment Service (ES), which is authorized by separate legislation but is an integral part of the One-Stop system created by WIOA. |
The Social Security Administration (SSA) is responsible for administering two federal entitlement programs that provide income support to individuals with severe, long-term disabilities: Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). SSDI is a work-related social insurance program that provides monthly cash benefits to nonelderly disabled workers and their eligible dependents, provided the workers accrued a sufficient number of earnings credits during their careers in jobs subject to Social Security taxes. In contrast, SSI is a need-based public assistance program that provides monthly cash payments to aged, blind, or disabled individuals (including blind or disabled children) who have limited assets and little or no Social Security or other income. Both programs use the same basic definition of disability to determine eligibility; however, by virtue of design, each program serves a somewhat different population. In 2017, SSDI and SSI combined paid an estimated $199 billion in federally administered benefits to 14.5 million qualified disabled individuals and 1.5 million non-disabled dependents of disabled workers. This report discusses the rules and processes used to determine eligibility for SSDI and SSI. It also explains how benefit amounts are computed, the types of non-cash benefits available to individuals who meet SSA's disability standards, and how each program is financed. For a quick overview of SSDI and SSI, see CRS In Focus IF10506, Social Security Disability Insurance (SSDI) , and CRS In Focus IF10482, Supplemental Security Income (SSI) . Old-Age, Survivors, and Disability Insurance (OASDI), commonly known as Social Security, is a federal social insurance program established under Title II of the Social Security Act that provides workers and their families with a measure of protection against the loss of income due to the worker's retirement, disability, or death. Workers obtain insurance protection by working for a sufficient number of years in jobs where their earnings are subject to Social Security taxes and therefore are creditable for program purposes. Social Security is financed largely on a pay-as-you-go basis, which means that payroll and self-employment tax contributions from current workers, their employers, and self-employed individuals are used to make monthly benefit payments to today's beneficiaries. In 2017, an estimated 173 million people (or about 94% of all workers) worked in paid employment or self-employment covered by Social Security, and the program paid monthly benefits to approximately 62 million beneficiaries ( Figure 1 ). The SSDI component of the program, which was enacted in 1956 and implemented in 1957, provides monthly benefits to statutorily disabled workers who are under Social Security's full retirement age (FRA) and to their eligible spouses, divorced spouses, minor children, student children, and disabled adult children. The Old-Age and Survivors Insurance (OASI) component of Social Security also provides benefits to eligible disabled dependents of retired workers and to eligible survivors of deceased beneficiaries and deceased insured workers. Although these individuals are not technically disability insurance beneficiaries, they are often included in the term SSDI , because they receive Social Security benefits due to a qualifying impairment. In December 2017, the SSDI component of Social Security paid benefits to 10.4 million individuals, including 8.7 million disabled workers and 1.7 million of their dependents. That same month, the OASI component paid benefits to 1.2 million OASI disability beneficiaries. To qualify for SSDI, disabled workers must (1) be insured in the event of disability, (2) be under Social Security's FRA, (3) have a qualifying impairment (see the " Definition of Disability " section of this report), and (4) have filed an application for benefits. Workers become insured for Social Security by acquiring a certain number of quarters of coverage (QCs) during their careers in paid employment or self-employment covered by Social Security. A worker's job is considered covered if the services performed in that job or net earnings derived by the individual result in wages or net earnings from self-employment income that are taxable and creditable for insured status and benefit computation purposes. In 2018, workers receive one QC for each $1,320 in covered earnings, up to the maximum of four QCs per year, regardless of when the money is earned. Thus, if a worker earns $5,280 in covered wages or net earnings from self-employment income during the first week of January 2018, then he or she would be credited with the maximum number of QCs for the calendar year. The amount of earnings needed for one QC is adjusted annually for average earnings growth in the national economy, as measured by SSA's Average Wage Index (AWI). Requiring individuals to have earned a certain number of QCs to qualify for cash benefits ensures that such individuals contribute a minimum amount to the insurance system via payroll and self-employment taxes on each QC's worth of covered earnings. To be insured in the event of disability, known as disability insured , covered workers must be both fully insured for Social Security and meet a recency-of-work requirement. To be fully insured for SSDI, covered workers must have at least one QC for each calendar year after they turned 21 years old and before the year they became disabled. The minimum number of QCs for fully insured status is six for the youngest workers (or 1.5 years of covered work); the minimum number of QCs needed for workers aged 62 or older is 40 (or 10 years of covered work). In effect, individuals must have worked in covered employment or self-employment for about a quarter of their adult lives to be fully insured. To meet the recency-of-work requirement , disabled workers generally need QCs during the 40-quarter period immediately before the onset of the disability. In other words, individuals must have worked in covered employment or self-employment for five of the 10 years before becoming disabled. However, workers under 31 years old may meet the recency-of-work requirement with fewer QCs based on their age. In 2017, SSDI provided disability insurance coverage to 154 million workers, with about 89% of covered workers aged 21-64 insured for SSDI. An insured worker must also be under Social Security's FRA to be entitled to SSDI, which for workers born from 1943 through 1954 is age 66. FRA is the age at which unreduced Social Security retired-worker benefits are first payable. Upon attaining FRA, disabled workers are automatically transitioned from disabled-worker benefits (or SSDI) to retired-worker benefits (or OASI); however, this change generally does not affect the amount of Social Security benefits paid to them or their dependents. Under current law, Social Security's FRA increases in two-month increments for workers born from 1955 through 1959 until reaching the age of 67 for workers born in 1960 or later. SSDI is not available to workers who have already attained FRA. In addition to the disabled worker's own benefit, SSDI provides benefits to certain family members of the worker. Social Security pays benefits to family members because workers with one or more dependents are presumed to have greater financial need when they retire, become disabled, or die than similarly situated workers who are single. The OASI component also provides benefits to eligible disabled dependents of retired workers and to eligible survivors of deceased insured workers. The term deceased insured workers includes deceased individuals who received Social Security retired or disabled-worker benefits and non-beneficiary workers who were insured for Social Security at the time of their deaths. Validly married spouses of disabled workers qualify for benefits if they (1) are aged 62 or older or are any age and have an eligible child in their care who is under the age of 16 or disabled, (2) are not entitled to a retired or disabled-worker benefit equal to or larger than the spousal benefit, and (3) have filed an application for benefits. Spouses also must have been married to the worker for at least one continuous year immediately before the day on which the claimant's application is filed. This provision is known as a duration-of-marriage requirement . Divorced spouses of disabled workers may qualify if they (1) are aged 62 or older, (2) are unmarried unless the remarriage occurred after attainment of age 60 or age 50 and the claimant was entitled to disabled widow(er)'s benefits, (3) are not entitled to a retired or disabled-worker benefit equal to or larger than the spousal benefit, and (4) have filed an application for benefits. Divorced spouses must have been married to the worker for at least 10 years immediately before the date the divorce became final. Eligible minor children of disabled workers qualify for benefits if they (1) are unmarried, (2) are under the age of 18, and (3) have filed an application for benefits. An eligible child is the natural (i.e., biological) child, adopted child, stepchild, equitably adopted child, grandchild, or step-grandchild of the insured worker on whose earnings record the claim is based. For certain child claims, such as those involving stepchildren, an explicit dependency requirement must be met, which generally involves the insured worker providing evidence that the child is living with the worker or is receiving at least one-half of his or her support from the worker. Otherwise, the child is presumed to be dependent on the insured worker for his or her support. For more information on the rules governing a child's status for purposes of SSDI entitlement, see "GN 00306.001 Determining Status as Child," in SSA's policy manual, the Program Operations Manual System (POMS). Eligible student children of disabled workers qualify for benefits if they (1) are unmarried, (2) are aged 18-19, (3) are a full-time student at an elementary or secondary school, and (4) have filed an application for benefits. To be considered a full-time student, the child's scheduled attendance must generally be at the rate of at least 20 hours per week (certain exceptions apply). Benefits usually continue until the child graduates or until two months after the child attains the age of 19, whichever occurs first. (Social Security benefits for students aged 18-21 enrolled in post-secondary education [i.e., college] were phased out during the 1980s.) Eligible disabled adult children of disabled workers qualify for benefits if they (1) are unmarried, (2) are aged 18 or older, (3) have a qualifying impairment that began before they attained the age of 22, and (4) have filed an application for benefits. Disabled adult children (DACs) are also called Childhood Disability Beneficiaries (CDB) by SSA. DAC beneficiaries must meet same the disability standard as disabled workers (discussed later in this report). Although DAC beneficiaries must generally be unmarried to be entitled to benefits, the law provides that they may marry other DAC beneficiaries, along with most other types of Social Security beneficiaries. This exception does not apply if the marriage was to a minor or student Social Security beneficiary or to a SSI-only recipient. Disabled surviving spouses of deceased insured workers qualify for benefits if they (1) are at least 50 years of age but not yet 60 years of age, (2) are unmarried unless the remarriage occurred after attainment of age 50 and the claimant was disabled at the time of the remarriage, (3) are not entitled to a retired-worker benefit equal to or larger than the divorced spousal benefit, (4) have a qualifying impairment that began within seven years of the insured worker's death or within seven years of a previous entitlement to such benefits, and (5) have filed an application for benefits. The disabled surviving spouse must also have married to the worker for at least nine months. The duration-of-marriage requirement may be waived, however, if the worker was reasonably expected to live for nine months at the time of the marriage and (1) the worker's death was accidental, (2) the worker's death was in the line of duty while he or she was a member of a military serving on active duty, or (3) the claimant was married to the worker for at least nine months as a result of a previous marriage. Disabled divorced surviving spouses may qualify if they were married to the deceased insured worker for at least 10 years immediately before the date the divorce became final. As with disabled adult children, disabled widow(er)s must meet same the disability standard as disabled workers. Eligible disabled adult children of retired or deceased insured workers qualify for benefits if they (1) are unmarried, (2) are aged 18 or older, (3) have a qualifying impairment that began before they attained the age of 22, and (4) have filed an application for benefits. (The same provisions governing SSDI DAC beneficiaries also govern OASI DAC beneficiaries.) Unlike most types of Social Security beneficiaries, there is no maximum age limit for disabled adult children. In December 2016, there were 11,260 DAC beneficiaries aged 80 or older, all of whom were dependents or survivors of retired or deceased insured workers. In general, disabled workers continue to receive SSDI benefits until they (1) die, (2) attain FRA, (3) no longer meet the statutory definition of disability (i.e., medically improve), or (4) return to work (i.e., have monthly earnings that exceed certain thresholds discussed later in this report). In 2016, the SSDI termination rate —the ratio of disabled-worker terminations to the average number of disabled-worker beneficiaries during the year—was 9.3% ( Table 1 ). The majority of disabled-worker terminations in 2016 were due to attainment of FRA. With the exception of certain divorced spouses, receipt of SSDI dependents' benefits is linked to the disabled worker's entitlement to Social Security. If a disabled worker's benefits are terminated, benefits payable on his or her earnings record are also generally terminated. Dependents and survivors who no longer meet the relevant entitlement factors are terminated from the rolls as well. Initial monthly Social Security benefits are based on an insured worker's creditable, career-average earnings in Social Security-covered employment or self-employment. The Social Security benefit formula is progressive, replacing a greater share of career-average earnings for low-wage or intermittent workers than for high-wage workers. In computing the initial benefit amount, a worker's annual taxable earnings are indexed (i.e., adjusted) to reflect changes in national earnings levels over his or her career, up to the second calendar year before the year of eligibility (i.e., the year a worker attains age 62, becomes disabled, or dies). Next, years with the highest earnings in the applicable computation period are summed and then divided over the number of months in that period to produce the worker's average indexed monthly earnings (AIME). A formula is then applied to the worker's AIME to compute the primary insurance amount (PIA), which is the worker's basic benefit before any adjustments are made. In 2018, the PIA is determined using the following formula: 90% of the first $895 of AIME, plus 32% of AIME over $985 and through $5,397 (if any), plus 15% of AIME over $5,397 (if any). The dollar amounts used in this formula are adjusted annually for average earnings growth in the national economy, as measured by the AWI. The worker's PIA is subsequently adjusted to account for inflation through cost-of-living adjustments (COLAs), as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Spouses and dependent children of disabled workers each receive up to 50% of the worker's basic benefit amount (i.e., the PIA). These supplementary benefits effectively increase the worker's overall replacement rate —the ratio of benefits received to the worker's previous earnings—to account for additional expenses associated with each dependent. Benefits for dependents are less than the worker's own benefit because a family is assumed to have economics of scale. Disabled widow(er)s receive up to 71.5% of a deceased worker's PIA. Disabled adult children of retired workers receive up to 50% of the worker's PIA, and disabled adult children of deceased insured workers receive up to 75% of the worker's basic benefit. Initial benefits for survivors are higher than benefits for dependents because a family of a deceased worker experiences a complete loss of that worker's earnings, whereas a family of a retired or disabled worker is compensated partially through the worker's own Social Security benefit. Monthly benefits for retired or disabled workers and their eligible family members and for survivors of deceased insured workers are subject to family maximum provisions, which limit the total amount of benefits that can be paid on a worker's earnings record. Therefore, a dependent's or survivor's payable benefit amount may be less than the maximum share of the worker's PIA for that type of benefit. The family maximum for a disabled worker is the smaller of (1) 85% of the worker's AIME (or 100% of the PIA if larger) or (2) 150% of the PIA. If the total amount of all family benefits exceeds the maximum amount, then the benefit of each family member (other than the worker) is reduced proportionately. In December 2016, 27% of all disabled-worker families were receiving maximum family benefits. A different family maximum formula applies to OASI disability beneficiaries. Disabled workers who also receive workers' compensation (WC) or certain other public disability benefits (PDB) may have their SSDI benefits reduced. The Social Security Act contains a provision that reduces the SSDI benefits of disabled workers whose combined disability benefits from SSDI and WC/PDB exceed 80% of their average earnings prior to the onset of disability. PDBs do not include disability compensation or pension benefits administered by the Department of Veterans Affairs (VA), disability benefits based on need (e.g., SSI, state or local general assistance [GA]), disability payments made to public employees based on employment covered by Social Security (except for WC), or wholly private pensions or private disability insurance benefits. The purpose of this provision is to reduce the attractiveness of SSDI benefits for concurrently eligible individuals who could otherwise remain in the labor force. The WC/PDB offset no longer applies once the disabled worker attains FRA and converts to retired-worker benefits. In 17 states and the Commonwealth of Puerto Rico, the direction of the offset is reversed, resulting in a reduction in the WC or PDB payment instead of the SSDI benefit. In December 2016, approximately 5.2% of disabled workers were eligible for WC or PDB payments, and about 1.2% of disabled workers were subject to the WC/PDB offset. In December 2017, the average monthly SSDI benefit was $1,197 for disabled workers, which on an annualized basis was $14,364 ( Table 2 ). The average monthly benefit for SSDI dependents ranged from $335 to $499. That month, SSDI paid out over $11 billion in benefits. For OASI disability beneficiaries, the average benefit that month was $800, and total monthly benefits were $992 million. For disabled workers and disabled widow(er)s, entitlement to cash benefits begins five full consecutive calendar months after their disability onset date. This requirement is known as the five -month waiting period . The onset date is the first day that a claimant meets the definition of disability under Title II of the Social Security Act in addition to all relevant entitlement factors. If SSA establishes an onset date after the first day of the month, the five-month waiting period starts on the first day of the following month. For example, if a claimant's onset date were April 11, the waiting period would begin on May 1 and would end on September 30. Benefits would first be payable for the month of October, which is the sixth full month after the disability onset date. Because SSA pays Social Security benefits in the month following the month for which they are due, the individual would receive October's payment on one of several possible payment dates in November (i.e., the seventh month after the onset of disability). Disabled adult children are not subject to the five-month waiting period; their entitlement to benefits begins the month after their disability onset date, provided they meet all other entitlement factors. In addition, former disabled workers do not have to serve a new waiting period if they become disabled again within 60 months (or five years) after their previous entitlement to cash benefits or period of disability ended. A similar provision applies to disabled widow(er)s who become disabled again before age 60, and the new period of disability began within 84 months (or seven years) of the month they were last entitled to disabled-widow(er) benefits. Furthermore, disabled widow(er)s may count months of eligibility for SSI or federally administered state supplementary payments (discussed later in this report) toward the five-month waiting period. Under current law, there are no exceptions to the five-month waiting period for claimants with specific medical conditions, even those considered terminal. SSDI provides retroactive benefits for up to 12 months immediately before the month the disabled worker files an application, provided the worker met all other entitlement factors prior to the filing date. Because of the five-month waiting period for cash benefits, the earliest effective date for a SSDI application can be no more than 17 months before the month in which the application is filed. The retroactivity provision was established because an early study of the program found that a large share of claimants did not file for benefits in the first month for which they were eligible. Retroactive benefits should not be confused with past-due benefits , which include both retroactive benefits and benefits owed to claimants for months in which they met all relevant entitlement factors in or after the month of application. In addition to cash benefits, Social Security disability beneficiaries (i.e., disabled workers, disabled widow[er]s, and disabled adult children) qualify for health coverage under Medicare. Established under Title XVIII of the Social Security Act, Medicare is a federal social insurance program that pays for covered health care services for most individuals aged 65 or older, the majority of Social Security disability beneficiaries and railroad disability annuitants under 65 years old, and certain other individuals who have qualifying impairments. (Medicare is not provided to non-disabled dependents under 65 years old.) As with Social Security, workers earn Medicare coverage by working and paying taxes for a sufficient number of years in covered employment or self-employment. For most individuals, entitlement to Medicare is linked to entitlement to Social Security benefits. Social Security disability beneficiaries under 65 years old are provided Medicare because they generally have medical conditions that require significant health care resources. However, many beneficiaries are often unable to work enough to gain health insurance through an employer or to pay for such insurance on their own. In 2013, annual Medicare spending per disabled beneficiary under 65 years old was about $12,776. Social Security disability beneficiaries under the age of 65 are entitled to Medicare after 24 months of entitlement to cash benefits. This requirement is known as the 24-month waiting period . After factoring in the five-month waiting period for cash benefits, disabled workers and disabled widow(er)s typically become entitled to Medicare 29-full calendar months after their disability onset date (i.e., the first day of the 30 th full month following disablement). For example, if a claimant's onset date were January 11, 2016, the five-month waiting period for cash benefits would be February 2016 through June 2016, with entitlement to cash benefits beginning July 2016. The claimant would become entitled to Medicare on July 1, 2018, which is the first day of the 25 th month of disability benefit entitlement. Disabled adult children are not subject to the five-month waiting period for cash benefits and therefore generally become entitled to Medicare 24 full calendar months after the onset of disability. Due in part to the 24-month waiting period, only 68% of all disabled beneficiaries under 65 years old reported entitlement to Medicare in 2016. Social Security disability beneficiaries may count months in which they were previously entitled (or deemed entitled) to cash benefits toward the current Medicare waiting period if their previous entitlement ended within 60 months (or five years) before the month of current onset for disabled workers or 84 months (or seven years) before the month of current onset for disabled widow(er)s and disabled adult children. Disability beneficiaries who meet the criteria above and were previously entitled to Medicare do not have to serve a second waiting period for Medicare, because they received cash benefits for at least 24 months during their previous period of disability benefit entitlement and therefore have a sufficient number of months to credit toward the new waiting period. Individuals who become disabled again after the prescribed period may still be able to count months of previous disability benefit entitlement toward the Medicare waiting period if their current impairment is the same, or directly related to, the impairment that served as the basis for disability during a previous period of entitlement. In addition, disabled widow(er)s may count months of eligibility for SSI or federally administered state supplementary payments (discussed later in this report) toward the Medicare waiting period. It is worth noting that Social Security disability beneficiaries aged 65 or older are entitled to Medicare on the basis of age and thus are not subject to the 24-month waiting period. The Social Security Act specifically excludes disability beneficiaries with amyotrophic lateral sclerosis (ALS; also known as Lou Gehrig's Disease) from having to satisfy the 24-month waiting period requirement. Most disability beneficiaries with ALS become entitled to Medicare the first day of the month that entitlement to cash benefits begins, which for disabled workers and disabled widow(er)s is five full calendar months after the onset of disability. The Social Security Act also contains separate Medicare entitlement provisions for individuals with end-stage renal disease (ESRD) or certain medical conditions caused by exposure to qualifying environmental health hazards, meaning that individuals who meet the relevant entitlement factors may enroll in Medicare without having to be entitled (or deemed to be entitled) to Social Security benefits. Neither of these entitlement provisions requires eligible individuals to satisfy a 24-month waiting period requirement, although individuals with ESRD may have to satisfy a three-month waiting period requirement if they are on dialysis and do not self-dialyze on a regular basis. Social Security disability beneficiaries who meet the requirements specific to these separate entitlement provisions generally receive Medicare coverage in the month they become entitled to cash benefits. Social Security's receipts and outlays are accounted for through two legally distinct trust funds: the Federal Disability Insurance (DI) Trust Fund and the Federal Old-Age and Survivors Insurance (OASI) Trust Fund. In the federal accounting structure, a trust fund is an accounting mechanism used by the Department of the Treasury to track and report receipts dedicated for spending on specific purposes, as well as expenditures made to its beneficiaries that are financed by those receipts, in accordance with the terms of a statute that designates the fund as a trust fund. The DI trust fund records receipts and outlays associated with disabled workers and their dependents, and the OASI trust fund records receipts and outlays associated with retired workers and their dependents as well as survivors of deceased insured workers. Administrative costs are also drawn from the trust funds. Each trust fund is a separate account in the U.S. Treasury, and the two funds may not borrow from one another under current law. Social Security is financed primarily by dedicated payroll and self-employment taxes levied on the earnings of workers in jobs covered by Social Security. Federal Insurance Contributions Act (FICA) taxes are split evenly between employees and employers, while Self-Employment Contributions Act (SECA) taxes are borne fully by self-employed individuals. The overall Social Security payroll tax rate is 12.4% of a worker's earnings (6.2% for employees and employers, each), up to a maximum annual amount, which in 2018 is $128,400. Of the 12.4%, 2.37% is allocated to the DI trust fund and 10.03% is allocated to the OASI trust fund. The two trust funds are also credited with income from the taxation of a portion of some Social Security benefits and from interest earned on special-issue U.S. securities held by the trust funds for years when receipts exceeded outlays. In 2017, total receipts to the Social Security trust funds were $997 billion, with $171 billion (or 17%) credited to the DI trust fund ( Table 3 ). That same year, total outlays from the trust funds were $952 billion, with $146 billion (or 15%) coming from the DI trust fund. The trust funds held a combined balance of $2.9 trillion in U.S. securities at the end of 2017, with $71 billion (or 2%) credited to the DI trust fund. In 2017, 98% of the DI trust fund's outlays were for benefit payments, with 1.9% for administrative expenses, and 0.1% for certain transfers. In their 2017 report and under current law, the Social Security trustees project that the trust funds on a hypothetical combined basis will be able to pay benefits in full and on time until 2034. However, as noted earlier, the two trust funds are legally distinct entities. Individually, the trustees project that the DI trust fund will be depleted in 2028 and the OASI trust fund will be depleted in 2035. Upon depletion, the trustees project that continuing revenues to the DI trust fund would be sufficient to pay about 93% of benefits scheduled under law, declining to 82% by 2091. Under its June 2017 baseline and under current law, the Congressional Budget Office (CBO) projected that the trust funds on a hypothetical combined basis would be depleted in calendar year (CY) 2030, with the DI trust fund depleted in FY2023 and the OASI trust fund in CY2031. Under its April 2018 baseline, CBO now projects that the DI trust fund will be depleted in early FY2025. Upon depletion, CBO projects that continuing revenues to the DI trust fund would be sufficient to pay about 88% of benefits scheduled under law. Established under Title XVI of the Social Security Act in 1972 and implemented in 1974, SSI is a means-tested federal assistance program that provides monthly cash payments to the needy individuals and couples who are aged, blind, or disabled. The program is intended to provide a guaranteed minimum income to adults who have difficulty covering their basic living expenses due to age or disability and who have little or no Social Security or other income. It is also designed to supplement the support and maintenance of needy children who have severe disabilities. SSI is commonly known as a program of "last resort" because claimants must first apply for most other benefits for which they may be eligible; cash assistance is awarded only to those whose assets and other income (if any) are within prescribed limits. The basic federal SSI payment is the same for all recipients and is reduced by most other income that an individual receives. Some states supplement the federal payment using state funds. In December 2017, SSA issued federally administered payments to 8.2 million SSI recipients, including 1.2 million children under 18 years old, 4.8 million adults aged 18-64, and 2.2 million seniors aged 65 or older. As shown in Figure 2 , the vast majority of SSI recipients enter the program through the disability pathway. In other words, most individuals become eligible for SSI due to a qualifying impairment other than blindness. Blind or disabled SSI recipients who attain age 65 continue to be classified by SSA as blind or disabled, even though they meet the categorical requirements to be classified as aged. To avoid confusion, this report focuses primarily on blind or disabled SSI recipients under 65 years old. To qualify for SSI, a person must (1) be aged, blind, or disabled as defined in the Social Security Act, (2) have limited income and resources, (3) meet certain other requirements, and (4) have filed an application for payments. Public assistance programs usually limit eligibility to certain groups or categories of people who often have difficulty providing for themselves. Under the SSI program, an individual or couple must be aged, blind, or disabled to qualify for payments. Aged refers to individuals who are aged 65 or older. Blind refers to individuals of any age who have central visual acuity of 20/200 or less in the better eye with the use of a correcting lens or a limitation in the fields of vision so that the widest diameter of the visual field subtends an angle of 20 degrees or less (i.e., tunnel vision). Individuals are considered disabled if they meet SSI's age-specific definition of disability (see the " Definition of Disability " section of this report). In addition to meeting one of the aforementioned categories, an individual or couple must have limited income and other financial resources. Income is defined as anything one receives in cash or in kind that can be used to meet one's needs for food and shelter. Resources are cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance. Under SSI, a person's countable income and resources must be within the program's statutory limits. Because certain income and resources are disregarded (i.e., not counted), a person may have gross income or resources above the countable limits and still be eligible for the program. In addition to the person's own income and resources, the income and resources of certain ineligible family members (such as a spouse or parent) may be deemed available to meet the needs of the person, and as such, may be included in his or her countable income and resources. The limit for countable income—gross income minus all applicable exclusions—is equal to the federal benefit rate (FBR) , which is the maximum monthly SSI payment available to qualified individuals and couples who have no other income. In 2018, the FBR is $750 per month for an individual living in his or her own household and $1,125 per month for a couple living in their own household if both members are SSI eligible. The FBR is adjusted annually for inflation by the same COLA applied to Social Security benefits. Countable income is subtracted from the FBR in determining eligibility for SSI and the amount of the cash payment. In general, individuals and couples are eligible for SSI if their countable income is less than or equal to the FBR. In states that have an agreement with SSA for the agency to administer their state supplementation program (primarily California, Nevada, New Jersey, and Vermont), a person is considered eligible for SSI if his or her countable income is less than the FBR plus the amount of the applicable federally administered state supplementary payment. Under the SSI program, all income is counted unless excluded under federal law or, if provided in statute, at the discretion of the Commissioner of Social Security through agency regulations or subregulatory guidance. SSI classifies income as either earned or unearned. Earned income includes wages, net earnings from self-employment, payments for services performed in a sheltered workshop (now known as a Community Rehabilitation Program [CRP]), and certain royalties and honoraria. Unearned income refers to all income that is not earned income (i.e., income not derived from current work), such as Social Security, benefits administered by the VA, unemployment insurance (UI), benefits administered by the Railroad Retirement Board (RRB), the individual's share of the Temporary Assistance for Needy Families (TANF) grant, workers' compensation, public or private pensions, interest income, cash from family or friends, and in-kind support and maintenance (i.e., the value of non-cash benefits such as food or shelter). Certain income is disregarded in determining eligibility for and the amount of assistance provided by SSI. For example, the program excludes the following: the first $20 per month of any income (earned or unearned), other than unearned income based on need that is totally or partially funded by the federal government or by a non-governmental agency (e.g., TANF); the first $65 per month of earned income plus one-half of any earnings above $65; the first $30 per calendar quarter of infrequent or irregular earned income; the first $60 per calendar quarter of infrequent or irregular unearned income; food assistance provided under the Supplemental Nutrition Assistance Program (SNAP) and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) program; energy assistance provided under the Low Income Home Energy Assistance Program (LIHEAP); housing assistance provided by most federally funded housing programs; federal tax refunds and advanced tax credits, including the Earned Income Tax Credit (EITC) and the child tax credit (CTC); assistance based on need that is funded wholly by a state or local entity; the first $2,000 received during a calendar year as compensation for participation in a clinical trial involving research and testing of treatments for a rare disease or condition; impairment-related work expenses (IRWEs) for disabled recipients and blind work expenses (BWEs) for blind recipients; and any income used to fulfill a plan to achieving self-support (PASS). For a more detailed list of unearned income exclusions, see "SI 00830.099 Guide to Unearned Income Exclusions" in POMS. The $20 per month general income exclusion and the $65 per month earned income exclusion are not indexed to inflation and have remained at their current levels since the SSI program was enacted in 1972. SSA defines in-kind support and maintenance (ISM) as food or shelter that a person receives from someone else who pays for it. Shelter includes room, rent, mortgage payments, real property taxes, heating fuel, gas, electricity, water, sewerage, and garbage collection services. ISM is treated as unearned income subject to special rules based on a person's living arrangement. If a person lives throughout a month in another's household and receives both food and shelter from others living in the household, the FBR is reduced by one third. This reduction is known as the value of the one-third reduction (VTR) and is not rebuttable. In 2018, the VTR is $250 per month for an individual ($750 x 1/3) and $375 per month for a couple ($1,125 x 1/3). The $20 per month general income exclusion does not apply to ISM reduced under the VTR. However, if a person receives ISM but does not receive both food and shelter from the household in which the individual lives (either his or her own household or the household of another), then the FBR is reduced by the presumed maximum value (PMV) rule. The PMV is a regulatory cap on ISM designed to address situations in which an individual receives ISM but is not subject to the statutory VTR. The reduction under the PMV is equal to one-third of the FBR plus $20, which in 2018 is $270 per month for an individual ($750 x 1/3 + $20) and $395 per month for a couple ($1,125 x 1/3 + $20). Unlike the VTR, the PMV is rebuttable. If the SSI recipient can show that the value of food or shelter received is less than the PMV reduction, then SSA reduces the FBR by the actual value of food or shelter received. Some ISM is disregarded, such as federal housing assistance. According to SSA, only about 9% of SSI recipients have ISM reductions. The limit for countable resources—gross resources minus all applicable exclusions—is $2,000 for an individual and $3,000 for a couple. Individuals and couples are eligible for SSI if their countable resources are less than or equal to the applicable statutory limit at any given time. Claimants and recipients who transfer (i.e., sell or give away) resources at less than fair market value (FMV) may become ineligible SSI for up to 36 months. The look-back period for determining if a transfer was made at less than FMV is also 36 months. Unlike the FBR, the countable resource limits are not adjusted for inflation and have remained at their current levels since 1989. As with income, all resources are counted under the SSI program unless excluded federal law or, if provided in statute, at the discretion of the Commissioner of Social Security through agency regulations or subregulatory guidance. The person must have the right, authority, or power to liquidate the property (or his or her share of the property) for the asset to be considered a resource. Countable resources include the following: cash retained as of the first moment of the month following the month of receipt; bank savings or checking accounts; stocks, bonds, mutual funds, and certificates of deposit; tractors, boats, machinery, livestock, buildings, and land; individual retirement accounts (IRAs) and 401(k) plans under certain conditions; unrestricted health savings accounts (HSAs); and most types of trusts established with the assets of an individual on or after January 1, 2000. Certain resources are excluded in determining SSI eligibility. For example, the program excludes the following: the person's primary residence; household goods and personal effects; one automobile used for transportation; property essential to self-support (PESS); health flexible spending arrangements (FSAs); resources needed to fulfill a PASS; federal tax refunds and advanced tax credits for a 12-month period; all life insurance policies on a person up to a combined face value of $1,500; up to $1,500 in burial funds set aside for burial expenses of the individual or the individual's spouse; special needs trusts (SNTs) or pooled trusts (PTs) that meet the requirements of Medicaid law; and the first $100,000 in an Achieving a Better Life Experience (ABLE) account. For a more detailed list of resource exclusions, see "SI 01130.050 Guide to Resources Exclusions" in POMS. As a program of "last resort," SSI expects close family members to provide support to low-income aged, blind, and disabled individuals in determining their level of need. Specifically, the income and resources of certain ineligible family members are deemed to be available to meet the basic needs of eligible individuals, and as such, may be included in the individual's countable income or resources for purposes of determining SSI eligibility and the amount of assistance. This process, known as deeming , is used instead of determining the amount of ISM provided by a deemor (i.e., the ineligible family member whose income and resources are subject to deeming) under the VTR or PMV rule. The Social Security Act specifies that deeming applies to the following types of relationships. Spouse-to-Spouse. An eligible individual resides in the same household with his or her ineligible spouse. Parent-to-Child. An eligible child under 18 years old resides in the same household with his or her ineligible natural (i.e., biological) or adoptive parent(s) or with his or her ineligible natural parent and the spouse of a parent (i.e., a stepparent). Sponsor-to-Alien. An eligible alien has a sponsor (usually a relative) who assumes financial responsibility for him of her for purposes of the alien being lawfully admitted to the United States. In determining the amount of the deemor's income and resources available to the eligible individual, SSA first applies the basic income and resource exclusions mentioned previously. Next, the agency deducts from the income of the ineligible family member an allocation for his or her living expenses, as well as an allocation for each ineligible child under 18 years old (or under 22 years old and a student) living in the household. This allocation does not apply, however, if the ineligible family member receives public income-maintenance payments, such as TANF or VA pensions based on need. In 2018, the allocation is $375 for an ineligible spouse, $375 for each ineligible child, $750 for one ineligible parent, and $1,125 for two ineligible parents. (Different income allocation rules apply to sponsors of aliens.) Finally, SSA charges the remaining countable income of the deemor (if any) to the eligible individual's unearned income and then applies the normal income counting rules to determine SSI eligibility and the amount of the payment. Under deeming, the countable resource limits are $3,000 for an eligible individual with an ineligible spouse, $4,000 for an eligible child with one ineligible parent, $5,000 for an eligible child with two ineligible parents, $2,000 for an alien with an unmarried sponsor, and $3,000 for an alien with a married sponsor. For more information on deeming, see Virginia Commonwealth University's National Training and Data Center's page titled, "Understanding the Supplemental Security Income (SSI) Program." To qualify for SSI, individuals or couples must reside in United States, which the program defines as the 50 states, the District of Columbia, and the Commonwealth of the Northern Mariana Islands. People residing in Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, or any other territory or possession of the United State (other than the Northern Mariana Islands) are considered to be residing outside of the United States and thus are ineligible for SSI. However, residents of these territories may become eligible for SSI if they move to one of the 50 states, the District of Columbia, or the Northern Mariana Islands, establish residency there, and meet the physical presence requirement. Individuals or couples are generally ineligible for SSI for months in which they are not physically present in the United States (as defined above). A person who leaves the United States for 30 consecutive days or more is treated as remaining outside the United States until he or she has returned to and remained in the United States for a period of 30 consecutive days. The physical presence requirement does not apply to blind or disabled children of military personnel assigned to permanent duty ashore outside the United States or to certain students who are temporarily abroad. In addition to the residency requirement, a person must be a citizen or national of the United States or an eligible noncitizen. For the purposes of this report, an eligible noncitizen is an alien who (1) has been granted a qualifying legal status by the federal government (i.e., is a qualified alien ) and (2) meets certain other requirements. As a result of changes made to federal law under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA; P.L. 104-193 ) as well as legislation enacted shortly thereafter, SSI eligibility for noncitizens is limited largely to lawful permanent residents (LPRs, also known as green card holders ) with significant past work history in jobs covered by Social Security, "grandfathered aliens" who received SSI when PRWORA was enacted, certain aliens who are exempted by law from PRWORA's requirements, and refugees and asylees. Eligible noncitizens do not include aliens who are not authorized to be present in the United States (i.e., "illegal aliens"), nor do they include aliens with certain types of legal (or quasi-legal) status. For example, SSI is not available to aliens lawfully admitted to the United States on tourist visas or to beneficiaries of the Deferred Action for Childhood Arrivals (DACA) policy. Eligible noncitizens are often classified into two groups: (1) those without a time limit and (2) those subject to a seven-year limit. Eligible noncitizens without a time limit include, but are not limited to, the following categories: LPRs who (1) have satisfied a five-year waiting period requirement from the date of entry and (2) have 40 qualifying quarters of coverage from earnings based on Social Security-covered work (or can be credited with such qualifying quarters from a parent or spouse); qualified aliens who are (1) active duty military members, (2) honorably discharged veterans, or (3) the dependents of active duty military members or honorably discharged veterans; qualified aliens who are lawfully residing in the United States and were receiving SSI on August 22, 1996; qualified aliens who were lawfully residing in the United States on August 22, 1996, and who meet SSI's blindness or disability standard, regardless of the onset date; American Indians born in Canada who are admitted to the United States under certain conditions; and American Indians who are members of federally-recognized tribes and who meet certain conditions. Eligible noncitizens subject to a seven-year limit from the date their status was acquired include, but are not limited to, the following categories: refugees and asylees who meet certain conditions; Cuban/Haitian entrants and Amerasian immigrants who meet certain conditions; quailed aliens whose deportation is being withheld or whose removal has been withheld (subject to certain conditions); Iraqi or Afghan nationals who are admitted to the United States under special immigrant visa (SIV) programs; and aliens who are deemed to be victims of severe forms of human trafficking and who meet certain other conditions. In December 2016, eligible noncitizens made up 6.1% of the total SSI recipient population. About 11% of all noncitizen recipients received time-limited payments. The average federally administered payment made to all noncitizen recipients that month was $510. Roughly 71% of all noncitizen SSI recipients were aged 65 or older, and about 58% of all noncitizen recipients resided in the United States for at least 10 years before applying for SSI. Since the enactment of PRWORA, both the number and share of noncitizen SSI recipients has fallen. Residents of public institutions (such as a jail, prison, or other facility operated directly or indirectly by a governmental entity) are ineligible for SSI for any month throughout which they reside in such institution. In other words, a person is ineligible to receive SSI for any full calendar month in which they are in residence. This requirement does not apply to publicly operated community residences that serve 16 or fewer residents. It also does not apply to medical treatment facilities in which more than 50% of the cost of care is paid for by Medicaid or, in the case of a child under 18 years old, by any combination of Medicaid and private health insurance. In addition, a person is required to file for all other applicable benefits for which he or she may be eligible. Furthermore, a person must not be fleeing to avoid (1) prosecution for certain felonies, (2) custody or confinement after conviction for certain felonies, or (3) recapture because of escape from custody. Finally, a person must allow SSA to contact his or her financial institutions for purposes of determining or redetermining eligibility. In general, SSI payments are suspended for any month during which a recipient fails to meet the aforementioned eligibility requirements. After 12 consecutive months of payment suspension, most recipients are terminated from the SSI rolls and must file a new application. In 2016, the SSI termination rate—the ratio of the number of terminations to the average number of SSI recipients during the year for a given age group—was 7.7% for children and 10.0% for working-age adults ( Table 4 ). In 2016, the majority of SSI terminations for children were due to excess income or no longer meeting the applicable definition of disability. For working-age adults that year, most terminations were due to excess income or death. In 2018, the federal benefit rate (FBR) is $750 per month for an individual living in his or her own household and $1,125 per month for a couple living in their own household. On an annualized basis, the FBR in 2018 is $9,000 for an individual and $13,500 for a couple. Individuals and couples with no countable income receive the maximum SSI payment; those with countable income below the applicable FBR have their SSI payment reduced so that their own income plus the reduced SSI payment equals at least the FBR. In this way, the FBR acts as an income floor, providing a minimum level of support in 2018 equal to at least 74% of the federal poverty level (FPL) for an individual and 82% of FPL for a couple. As noted earlier, the FBR is adjusted annually for inflation by the same COLA applied to Social Security benefits. The COLA effective for SSI payments at the start of 2018 was 2.0%, which raised the FBR for an individual from $733 to $750 per month and the FBR for a couple from $1,103 to $1,125 per month. Some states complement federal SSI payments with state supplementary payments (SSPs) that are made solely with state funds. SSPs are intended to help individuals whose basic needs are not met fully by the FBR. States may provide SSPs to all SSI recipients, or they may limit payments to certain recipients, such as blind individuals or residents of domiciliary-care homes. Currently, 43 states and the District of Columbia have optional state supplementation programs . Most states are required to continue to operate mandatory minimum supplementation programs for certain individuals who were converted to SSI in 1974 from the former federal-state cash assistance programs for the aged, blind, and disabled. North Dakota, the Northern Mariana Islands, and West Virginia do not operate any supplementation programs. States may self-administer their supplementation programs or contract with SSA for the agency to issue SSPs to eligible recipients on the states' behalf. In states that contract with SSA to administer their supplementation programs, SSI recipients receive a single payment composed of the federal SSI payment and the SSP. In states that self-administer their supplementation programs, SSI recipients receive separate payments for SSI and SSP. States that elect federal administration of their supplementation program reimburse SSA for the cost of the SSPs that the agency makes to eligible recipients on behalf of the state. Since FY1994, SSA has charged participating states for the cost of administering their program by assessing a user fee on each SSP made by the agency based on a fee schedule prescribed in federal law. SSA administers optional SSPs for all (or nearly all) SSI recipients in California, New Jersey, Nevada, and Vermont. The agency also administers optional SSPs for a small number of SSI recipients in special living arrangements (e.g., domiciliary care homes, medical treatment facilities) in the following areas: Delaware, the District of Columbia, Hawaii, Iowa, Michigan, Montana, Pennsylvania, and Rhode Island. In December 2017, almost 1.5 million individuals received a federally administered SSP from SSA, approximately 84% of whom lived in California. All other SSI recipients live in states that (1) self-administer SSPs for their living arrangement, (2) do not provide SSPs for their living arrangement, or (3) do not operate an optional supplementation program at all. SSA stopped publishing data on SSI recipients who receive state-administered SSPs in 2011. Of the 44 areas that operated optional supplementation programs in 2017, only 22 provided SSPs to SSI recipients living in their own household, which is the most frequent type of living arrangement for SSI recipients. As noted earlier, certain income is disregarded in determining SSI eligibility and the amount of assistance. For example, the program excludes the first $20 per month of any income (earned or unearned) and the first $65 per month of earned income plus one-half of any earnings above $65. After the application of the $20 general income exclusion, the offset for unearned income is $1 for $1; in other words, the SSI payment is reduced by one dollar for each dollar of unearned income. For earned income above $65 (or $85 if the individual has no unearned income), the offset is $1 for $2; that is, the SSI payment is reduced by one dollar for every two dollars of earned income. Income used for certain expenses is also excludable. Table 5 shows an example of how a SSI payment is calculated for an individual living in his or her own household who receives a $361 monthly SSDI benefit and has earnings of $289 each month. The $20 general income exclusion is first applied to unearned income, meaning that only $341 of the SSDI benefit is countable. Next, the $65 earned income exclusion is applied to the $289 in earnings; the remaining $224 in earnings is counted on a 50% basis (i.e., a $1 for $2 offset). Finally, earned and unearned countable income are summed and then subtracted from the $750 FBR, which results in a monthly SSI payment of $297. Individuals are ineligible for a monthly SSI payment if their countable income reduces the FBR to $0. The amount of gross income a person can have so that countable income equals the applicable FBR is known as the income breakeven point . The dollar amount of the breakeven point in 2018 depends on the type of other income that an individual or couple receives. If a person has only unearned income, the unearned income breakeven point is $770 per month for an individual and $1,145 for a couple (i.e., the applicable FBR plus the $20 general income exclusion). However, if the person has only earned income, the earned income breakeven point is $1,585 per month for an individual and $2,335 for a couple (i.e., 2 x the applicable FBR plus the combined $85 earned income exclusion). Depending on the composition of other income, a person who receives both earned and unearned income in 2018 faces a breakeven point somewhere between $770 and $1,585 per month for an individual and between $1,145 and $2,335 per month for a couple. However, most people who receive SSI have no other income, and of those recipients who do, only about 3% have any earnings from work in a given month. Residents of public institutions are generally ineligible for SSI payments, because the institution provides for their basic needs. However, residents of medical treatment facilities in which more than 50% of the cost of their care is paid for by Medicaid (or in the case of a child under 18 years old, by any combination of Medicaid and private health insurance) are eligible for a reduced SSI payment of no more than $30 per month (or $60 per month for couples in certain situations). The reduced SSI payment, which is also known as a personal needs allowance , is used to pay for small comfort items not provided by the facility. Any countable income reduces the $30 payment for institutionalized individuals; however, the full FBR is used in determining their eligibility for SSI ($750 per month for an individual in 2018). The reduced SSI payment is not indexed to inflation and has remained at its current level since July 1988. In December 2016, 1.5% of SSI recipients received institutional care in an approved medical facility. As shown in Table 6 , the average SSI payment in December 2017 was $542, which on an annualized basis was $6,504. That month, SSA made about $4.7 billion in payments. These amounts include federally administered SSPs but exclude state-administered SSPs. Payments are generally lower for seniors because some of them receive Social Security, which is counted as unearned income against the FBR (or the FBR plus the amount of the applicable federally administered SSP). Payments for children are typically higher because they often do not have income of their own. Unlike SSDI benefits, SSI payments are not subject to a waiting period requirement. SSI payments begin (1) the first day of the month following the date the application is filed, or (2) the first day of the month following the date the individual becomes eligible for payments. It is important to note that SSI recipients are not eligible for retroactive payments for months in which they met all other eligibility criteria prior to the month of application. Retroactive benefits are only available under the Social Security program. However, claimants may be owed past-due payments for months in which they met all eligibility requirements after the month they filed an application through the month their claim is approved. In addition to cash payments, most SSI recipients qualify for health coverage under Medicaid. Established under Title XIX of the Social Security Act, Medicaid is a joint federal-state program that finances the delivery of primary and acute medical services, as well as long-term services and supports (LTSS), to certain needy populations, including the aged, blind, and disabled. SSI recipients often have medical conditions that require significant health care resources. However, many SSI recipients are unable to work enough to gain health insurance through an employer or to pay for such insurance on their own. Medicaid provides most SSI recipients with health coverage, including some LTSS that private health insurance and Medicare do not cover, making it an important program for individuals with significant long-term care needs. In FY2015, estimated spending per disabled Medicaid enrollee under 65 years old (including children) was $19,500. In 2016, approximately 94% of SSI recipients aged 18-64 reported Medicaid coverage. SSI is a mandatory Medicaid eligibility pathway, which means that states are required by law to cover SSI recipients. In general, individuals in receipt of SSI for a given month are also eligible for Medicaid for that month, provided they meet all other Medicaid eligibility requirements. SSI recipients typically become ineligible for Medicaid whenever their cash payments are suspended or terminated. However, states are afforded a certain degree of flexibility in this arrangement concerning (1) the Medicaid application process for SSI recipients and (2) the specific eligibility criteria applied to SSI recipients. Consequently, states are categorized into three groups with respect to Medicaid eligibility for SSI recipients: states that use SSI's eligibility criteria and do not require a separate application (i.e., "1634 states"); states that use SSI's eligibility criteria but require a separate application (i.e., "SSI criteria states"); and states that use more restrictive eligibility criteria than SSI's criteria and require a separate application (i.e., "209[b] states"). The following subsections discuss the three groups in more detail. Thirty-four states and the District of Columbia grant Medicaid coverage automatically to individuals who become eligible for SSI. Section 1634 of the Social Security Act allows states to contract with SSA for the agency to perform Medicaid eligibility determinations for their SSI recipients as part of the SSI application process. In other words, an SSI application in these states is also an application for Medicaid. States that elect to contract with SSA for these Medicaid determinations are known as 1634 states . In December 2017, 85.8% of all SSI recipients resided in these areas. Eight states and the Northern Mariana Islands use the same income, resource, and disability standards of the SSI program to determine Medicaid eligibility for SSI recipients but require them to file a separate application for Medicaid with the state or local Medicaid office. States that elect this option are known as SSI criteria states . The eight SSI criteria states are Alaska, Idaho, Kansas, Nebraska, Nevada, Oklahoma, Oregon, and Utah. In December 2017, 4.8% of all SSI recipients resided in these areas. The remaining eight states use more restrictive eligibility criteria than SSI's criteria to determine Medicaid eligibility for SSI recipients. Under Section 1902(f) of the Social Security Act, states may elect to use at least one eligibility criterion more restrictive than SSI's criteria in making Medicaid eligibility determinations for SSI recipients, provided any state-established standard is no more restrictive than the standards used by the state's Medicaid program in 1972. States that elect to apply more restrictive standards are known as 209(b) states , after the section of the Social Security Amendments of 1972 (P.L. 92-603) that established the option. The eight 209(b) states are Connecticut, Hawaii, Illinois, Minnesota, Missouri, New Hampshire, North Dakota, and Virginia. In December 2017, 9.4% of all SSI recipients resided in these areas. 209(b) states may use a stricter definition of blindness or disability, a lower income or resource standard, a less generous methodology for counting income or resources, or some combination of those factors. For example, New Hampshire imposes a longer duration-of-impairment requirement for individuals with a disability other than blindness (48 months instead of SSI's 12-month standard), while Virginia limits ownership of property contiguous to the individual's home (i.e., land other than the lot occupied by the home) to $5,000. However, 209(b) states that use a more restrictive income standard than the SSI program must deduct incurred medical expenses from an SSI recipient's income in determining Medicaid eligibility. This requirement allows SSI recipients to spend down their income to the state-established income standard. Since the enactment of the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended), three states have dropped their 209(b) status as part of larger efforts to reform their Medicaid programs. Specifically, Oklahoma elected to become a SSI criteria state effective October 1, 2015, while Indiana and Ohio elected to become 1634 states effective June 1, 2014, and August 1, 2016, respectively. Because SSI recipients are by definition low income, the Supplemental Nutrition Assistance Program (SNAP; formerly the Food Stamp Program) confers eligibility automatically to SSI eligible individuals in certain living situations. SNAP is a federally funded assistance program, administered jointly with the states, that provides benefits to eligible households on an electronic benefit transfer (EBT) card, which can be redeemed for foods at authorized retailers. Under SNAP law, individuals living in pure SSI households—those in which all members receive SSI payments—are categorically eligible for SNAP. SSI recipients living in mixed households may also qualify for SNAP if their household meets SNAP's traditional eligibility requirements. In 2016, an estimated 52% of SSI recipients aged 18-64 lived in households that received SNAP benefits. (California provides SSI recipients with a higher federally administered SSP in lieu of SNAP benefits.) Federal SSI payments and administrative costs are financed from the general fund of the U.S. Treasury. SSPs are financed solely with state funds. States reimburse SSA for the cost of SSPs made to their eligible recipients and for the cost of administering their supplementation program. In FY2017, total federal SSI outlays were $58.7 billion, with $54.6 billion for benefit payments and $4.1 billion for administrative and other costs. Spending on federally administered SSPs in FY2017 was $2.6 billion. In 2016, about 93% of spending on federally administered SSPs was attributable to SSI recipients living in California. In their August 2017 report and under current law, SSA's actuaries project that spending on federal SSI payments will increase (in CPI-indexed 2017 dollars) from $54.6 billion in 2017 to $61.5 billion in 2041. As a share of gross domestic product (GDP), SSA's actuaries project that spending on federal SSI payments will decrease from 0.28% in 2017 to 0.20% in 2041. Under its April 2018 baseline and under current law, CBO projects that spending on federal SSI payments will increase (in nominal dollars) from $54.6 billion in FY2017 to $80.8 billion in FY2028. (Hereinafter the term SSDI beneficiary refers to disabled workers, disabled widow[er]s, and disabled adult children of retired, disabled, or deceased insured workers. In addition, the term SSI disability recipient refers to blind or disabled SSI recipients under 65 years old.) In December 2016, about 12.8 million adults aged 18-64 received SSDI or SSI due to a qualifying impairment ( Figure 3 ). Of those, more than 1.3 million (or 10%) received both types of disability benefits. About one in seven SSDI beneficiaries aged 18-64 received SSI concurrently. At the same time, about a quarter of SSI disability recipients aged 18-64 also received SSDI. For this report, individuals who receive both SSDI and SSI due to a qualifying impairment are referred to as concurrent disability beneficiaries . Assuming they meet the applicable eligibility requirements, concurrent disability beneficiaries receive health coverage under Medicare and Medicaid. Individuals who qualify for both health care programs are known as dual eligibles . The average combined benefit for concurrent disability beneficiaries in December 2016 was $783 ( Table 7 ). Of that amount, $538 was from SSDI and $245 was from SSI. Because average benefits for concurrent disability beneficiaries were below the FBR for an individual ($733 per month in 2016) and because SSDI benefits generally offset SSI payments on a dollar-for-dollar basis, combined benefit levels for each type of concurrent SSDI beneficiary were about the same. Thus, disabled workers (who have higher average SSDI benefit amounts) received lower average SSI payments, and disabled adult children (who have lower average SSDI benefit amounts) received higher SSI payments, resulting in roughly the same combined disability benefit amount across all three beneficiary types. As shown in Figure 4 , the average benefit amount for concurrent disability beneficiaries is higher than that for SSI-only recipients but is lower than that for SSDI-only beneficiaries. The purpose of SSI for adults is generally twofold: (1) to provide cash assistance to aged, blind, or disabled individuals who have no income and (2) to supplement the incomes of those who have low Social Security benefits. For SSDI beneficiaries with minimal benefits and other income, SSI increases their overall monthly disability benefit from SSA. SSDI and SSI use a total work-limiting definition of disability for adults; in other words, an individual's impairment(s) must significantly interfere with his or her ability to earn a living. Most adults are considered disabled for SSDI and SSI eligibility purposes if they are "unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months." Adults generally qualify as disabled for SSDI and SSI purposes if they have an impairment (or combination of impairments) of such severity that they are unable to perform any kind of substantial work that exists in significant numbers in the national economy, taking into consideration their age, education, and work experience. The work need not exist in the immediate area in which the claimant lives nor must a specific job vacancy exist for the individual. The SSI program uses a special definition of disability for children because minors are generally not expected to work. Individuals under 18 years old must have "a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months." Children typically qualify as disabled if they have a severe impairment (or combination of impairments) that limits their ability to engage in age-appropriate childhood activities at home, in childcare, at school, or in the community. In addition, the child must be unable to perform substantial gainful activity (SGA). Under SSA's regulations for SGA, work activity is considered substantial if it involves doing significant physical or mental activities, even if it is done on a part-time basis. Work activity is considered gainful if an individual does it for pay or profit, regardless of whether the profit is realized or legal. SSA uses a monetary threshold to determine whether an individual's work activity constitutes SGA, which the agency adjusts annually to reflect changes in national earnings levels. For SSDI, the SGA earnings threshold in 2018 is $1,180 per month for most individuals and $1,970 per month for statutorily blind individuals. Under the SSI program, SGA rules do not apply to statutorily blind individuals. Because of certain SSI work incentives, the non-blind SGA earnings threshold applies to individuals with a condition other than blindness only at the time of application for SSI. The SGA threshold for blind individuals under the SSDI program is specified in statute, while the SGA threshold for non-blind individuals under the SSDI and SSI programs is specified in regulations by SSA. The SGA threshold for blind individuals under the SSDI program is adjusted annually for average earnings growth in the economy, provided a COLA is payable for that year. On the other hand, the SGA threshold for non-blind individuals under both programs is adjusted annually for average earnings growth in accordance with the agency's regulations, regardless of whether a COLA is payable for the year. Thus, in years when a COLA is not payable, the SGA threshold for blind individuals under the SSDI program remains the same as the amount for the previous year, while the SGA threshold for non-blind individuals is adjusted according to the formula specified in regulations, which may result in a higher threshold. Section 105 of the Contract with America Advancement Act of 1996 ( P.L. 104-121 ) amended the Social Security Act to bar SSA from considering an individual disabled if drug addiction or alcoholism (DAA) is a contributing factor material to the determination that the individual is disabled. SSA's policy interpretation of this requirement is specified in Social Security Ruling (SSR) 13-2p. DAA is a substance use disorder as defined in the latest edition of the Diagnostic and Statistical Manual of Mental Disorders (DSM). SSA considers an individual to have DAA if he or she has a medically determinable substance use disorder documented by objective medical evidence from an acceptable medical source. The DAA is considered material to the determination of disability if the individual would not meet the definition of disability if he or she were not using drugs or alcohol. It should be noted that nothing in the Social Security Act precludes an individual from qualifying for SSDI or SSI for using drugs or alcohol (including medical and recreational marijuana). The act simply prevents individuals from qualifying for benefits if their DAA is material to their disability determination or contributes to their inability to follow prescribed treatment (discussed below). In 2015, approximately 7.0% of all working-age SSDI beneficiaries and SSI disability recipients reported drug or alcohol abuse in the past 12 months. The Social Security Act requires individuals to follow treatment prescribed from their medical source(s) if such treatment is expected to restore their ability to work (i.e., engage in SGA). If an individual fails to follow the prescribed treatment without good reason, SSA will not consider the individual to be disabled for purposes of SSDI or SSI. In some instances, the individual's DAA may interfere with his or her ability to follow prescribed treatment. A 2015 report from SSA's Office of the Inspector General (OIG) noted the following case: An individual applied for disability benefits for seizures, high blood pressure, and poor eyesight. The medical evidence showed she was prescribed three doses of an anti-seizure medication per day; however, she only took two doses. She claimed she was taking only two doses to stretch the medication. However, because evidence in the file showed she was also using cocaine and marijuana, she had the means to purchase her medication as she had the means to purchase non-prescription drugs. The evidence showed that proper medication management should significantly reduce her seizure issues. Therefore, SSA denied the claim for failure to follow prescribed treatment. The definitions of disability under Titles II and XVI of the Social Security Act are considered total and long-term; neither program pays benefits to individuals with partial or short-term impairments. SSA's all-or-nothing definitions of disability are different from other disability standards. For example, the VA provides partial or total disability benefits to veterans with qualifying impairments on a scale from 0% to 100% (in 10% increments). In addition, state workers' compensation pays benefits for total or partial occupational-related injuries and illnesses that are permanent or temporary. According to SSA, the Social Security Act's "purpose and specific eligibility requirements for disability and blindness differ significantly from the purpose and eligibility requirements of other programs." The process begins when a claimant files an initial application for SSDI or SSI using one of four methods: (1) submitting an application in person at one of SSA's more than 1,200 nationwide field offices; (2) contacting a SSA teleservice representative over the phone and relaying the necessary information; (3) sending a paper application by mail; or (4) filing an electronic application on ssa.gov (for SSDI and certain concurrent claims only). If the agency requires more information to process the application, it will contact the claimant by phone or arrange for an in-person interview at the local field office. Claimants must inform and submit all evidence to SSA related to their impairment as a condition of their application for benefits. Claims representatives at SSA's field offices screen claimants to make sure they meet the applicable non-medical entitlement factors. For SSDI, non-medical factors include disability-insured status, the work activity test (i.e., SGA earnings limit), and the claimant's relationship to certain family members. For SSI, such factors include income, resources, living arrangements, the work activity test (for non-blind claimants), citizenship, residency, and the requirement to apply for all other benefits. In general, claimants who do not meet the applicable non-medical entitlement factors are found to be ineligible for benefits and do not receive a disability determination. SSA field office personnel notify claimants whose applications are denied due to non-medical factors. Applications that meet the applicable non-medical entitlement factors are forwarded to the disability determination services (DDS) office in the area that has jurisdiction for the disability determination (generally the state in which the claimant resides). DDSs, which are fully funded by the federal government, are state agencies tasked with reviewing the medical and vocational evidence and issuing the disability determination for SSA. Although DDS workers are state employees, they make the disability determinations based on federal law, regulations, and SSA's policy guidance. DDSs are located in the 50 states, the District of Columbia, Puerto Rico, Guam, and the Virgin Islands, and they employ approximately 15,000 state workers. The disability determination for both types of benefits is made based on evidence gathered in an individual's case record. Disability examiners—with the help of medical or psychological consultants (who are licensed physicians, psychiatrists, or psychologists)—typically use evidence collected from the claimant's own medical sources to evaluate the existence and severity of the claimant's impairment(s). However, if the medical evidence is unavailable or insufficient to make a determination, disability examiners can schedule a physical or mental examination or test from a medical source to obtain the necessary information. In such cases, SSA pays for the consultative examination (CE). The initial review generally does not involve a face-to-face meeting between the claimant and the adjudicator (i.e., the claim is decided based solely on the evidence in the claims file). After considering all medical and other evidence, the DDS agency issues a disability determination and returns the case to the SSA field office. If the claim is approved, the SSA field office sends out the initial award notice and begins processing the claim. If the claim is denied, the DDS agency prepares a personalized disability explanation and notifies the claimant of the decision. The Social Security Act gives the Commissioner of Social Security broad authority to promulgate regulations specifying the standards, administrative requirements, and procedures used in conducting disability determinations. Under its regulations, SSA employs a five-step sequential evaluation process to determine whether a claimant's medical condition meets the definition of disability prescribed in the act for SSDI and adult SSI claimants ( Figure 5 ). Each step in the process is followed in a set order. If SSA finds a claimant disabled or not disabled at a given step, the initial disability determination process is completed and a decision by the agency is made. If SSA cannot find a claimant disabled or not disabled at a given step, the agency proceeds to the next step. The SSA field office assesses whether a claimant's level of work activity constitutes SGA. In 2018, most claimants are found able to engage in SGA if their countable earnings average more than $1,180 per month. Countable earnings equal gross earnings minus applicable exclusions. Blind SSDI claimants are found able to perform SGA if their countable earnings average more than $1,970 per month. (SGA rules do not apply to statutorily blind SSI claimants.) To determine countable earnings, SSA first documents a claimant's gross earnings for each month during the relevant period of work. The agency then considers whether the claimant's work was performed under any special conditions, such as in sheltered employment or under certain government-sponsored job training or employment programs. Earnings or other compensation derived from work performed under special conditions may be deducted (in part or in whole) from gross earnings. Reasonable costs for certain impairment-related work expenses (IRWE)—such as attendant care services or medical equipment—may also be deducted if the claimant needs such expenses to work. Once a claimant's countable earnings have been calculated and added together, SSA divides them over the number of months in the relevant review period to produce a monthly average. Claimants with countable monthly earnings at or below the applicable SGA limit proceed to the next step of the disability determination process. Those with countable monthly earnings above the applicable SGA limit are found not disabled, and their application is denied. The DDS agency determines whether available medical evidence establishes a physical or mental impairment (or combination of impairments) of sufficient severity to prevent the claimant from engaging in SGA and, if so, whether the impairment(s) can be expected to last for at least 12 months or to result in death. In making this determination, the DDS agency first verifies the existence of a medically determinable impairment using objective medical evidence (i.e., medical signs or laboratory findings) from the claimant's acceptable medical sources . A claimant is considered to have a medically determinable impairment if such evidence shows the existence of one or more anatomical, physiological, or psychological abnormalities. Once a medically determinable impairment has been established, the adjudicative team evaluates the severity of the impairment using all available evidence, including medical opinions and statements of symptoms from the claimant. Symptoms , such as pain or fatigue, are considered if the objective medical evidence from acceptable medical sources shows that the impairment(s) could reasonably be expected to produce the symptoms. The DDS agency then evaluates the intensity and persistence of the claimant's symptoms to determine the extent to which such symptoms interfere with the claimant's ability to work. A claimant's impairment(s) is ultimately considered severe if it significantly limits his or her physical or mental ability to do basic work activities. Basic work activities include the following: walking, standing, sitting, lifting, pushing, pulling, reaching, carrying, or handling; seeing, hearing, and speaking; understanding, carrying out, and remembering simple instructions; use of judgment; responding appropriately to supervision, coworkers, and usual work situations; and dealing with changes in a routine work setting. A claimant's impairment(s) is considered not severe if it has only a "minimal effect" on his or her ability to perform basic work activities required in most jobs. In evaluating the claim at Step 2, the DDS agency is required to consider the combined effect of all the claimant's impairments without regard to whether any such impairment, if considered separately, would be of sufficient severity. Thus, a claimant may meet the severity requirement if he or she has multiple non-severe impairments that when combined, have the same effect on the claimant's ability to function as a single severe impairment. Lastly, in addition to being severe, the claimant's medically determinable impairment(s) must be expected to result in death or have lasted or be expected to last for a continuous period of not less than 12 months. Claimants who meet the severity and duration requirements proceed to the next step. Those who do not are found not disabled and their application is denied. At Step 3, the DDS agency determines whether the claimant's medically determinable impairment(s) meets the medical criteria of an impairment specified in SSA's Listing of Impairments (also known as the Blue Book ). The listings describe medically determinable impairments for each body system that the agency considers severe enough to prevent a claimant from performing any gainful activity, regardless of the claimant's age, education, or work experience. Most listed impairments are permanent or expected to result in death. All other listed impairments are expected to last for at least 12 months or for a specific duration. The listings for adults (Part A) are categorized across 14 major body systems, with each category containing examples of common qualifying impairments as well as specific evaluative criteria for confirming their existence. Each listing outlines the impairments applicable to the body system, the medical and other documentation required to evaluate the claim, and the rules used to evaluate the specific impairment, including related symptoms, effects of treatment, and loss of function. For impairments that can be objectively measured, the listing may describe the minimum threshold for a particular diagnostic test. For those that are more subjective to measure, the listing may describe the minimum functional criteria. The listings were created to quickly screen relatively clear-cut cases, leaving adjudicators more time to evaluate more difficult cases at the latter stages of the process. Claimants qualify at Step 3 of the disability determination process in one of two ways: (1) by meeting the criteria of a specific listing or (2) by equaling the criteria of a specific listing. For claimants to meet a listing , their medically determinable impairment(s) must satisfy all of the criteria described in the listing; a diagnosis alone is insufficient to meet a listing. In other words, claimants must have an impairment described in the listing, meet the objective medical and other findings, and meet the duration requirement. If claimants are unable to meet a listing, they may be able to equal a listing if their medically determinable impairment(s) at least equals in severity and duration the criteria of any listed impairment. Specifically, if the claimant's impairment(s) is described in the listings but he or she does not exhibit one or more findings specific for the listing (or one of the findings does not meet the specified severity), the DDS will find the claimant's impairment(s) medically equivalent to the listing, provided the claimant has other findings related to his or her impairment(s) that are at least of equal medical significance to the required criteria. If the claimant's impairment is not described in the listings but is closely analogous to a listed impairment, the DDS will find the claimant's impairment(s) medically equivalent to the analogous listing if the findings related to the claimant's impairment(s) are at least of equal medical significance to those of the listed impairment. Claimants with impairments that meet or equal a listing are found disabled and awarded benefits. Those with impairments that do not meet or equal a listing proceed to Step 4. Claimants with severe impairments that do not meet or equal a listed impairment proceed to an individual assessment that examines their remaining ability to work. To make this determination, the adjudicative team conducts a residual functional capacity (RFC) assessment, which is a function-by-function assessment of a claimant's ability to perform sustained, work-related physical or mental activities despite the limitations and restrictions caused by his or her medically determinable impairment(s). In general, RFC is a claimant's maximum remaining ability to do sustained work activities in an ordinary work setting on a regular and continuing basis (i.e., eight hours a day, five days a week, or an equivalent work schedule). The RFC assessment is based on all available evidence in the claimant's case record, such as objective medical evidence, activities of daily living (ADL), and statements provided by the claimant or other lay sources (e.g., family, friends, neighbors). In evaluating a claimant's RFC, the DDS agency considers the effects of pain and other symptoms, as well as any non-severe impairments, on the claimant's ability to function in a work setting. Once the assessment is complete, the DDS evaluates the claimant's RFC with the physical and mental demands of his or her past relevant work. Past relevant work is defined as work performed in the past 15 years, at SGA, and which lasted long enough for the claimant to learn to do it. The individual's past relevant work need not exist in significant numbers in the national economy. If a claimant's medically determinable impairment(s) does not prevent him or her from performing past relevant work, the claimant is found not disabled and the application is denied. If the claimant is found unable to perform past relevant work, the case proceeds to the next step. At the final stage of the disability determination process, the DDS agency considers whether the claimant can adjust to any other type of work. Specifically, the claimant must be unable to do not only his or her previous work but cannot, considering his or her age, education, and work experience, engage in any other kind of substantial gainful work that exists in the national economy. Work that exists in the national economy means work that exists in significant numbers either in the region where the claimant lives or in several regions of the country. It does not matter whether the work exists in the immediate area where the claimant lives, whether a specific job vacancy exists, or whether the claimant would be hired if he or she applied for such work. At this stage, the DDS agency uses medical-vocational rules (also known as the grids ) to relate the claimant's age, education, and work experience to his or her RFC to perform work-related physical or mental activities. The grids cross-reference the aforementioned vocational factors by certain exertional (i.e., strength demands) and skill levels to determine the limitations and restrictions imposed by the claimant's impairment(s) and related symptoms. The DDS agency uses the Department of Labor's Dictionary of Occupational Titles (DOT) for information about the physical and mental demands needed for jobs in the national economy. Claimants with impairments that prevent them from adjusting to any other work that exists in the national economy are found disabled and awarded benefits. Claimants with impairments that allow them to adjust to a significant number of jobs in the national economy are found not disabled and their application is denied. In general, older individuals (i.e., those aged 50 or older) who have limited education and work experience are more likely to be awarded benefits than younger individuals or those who have more education or work experience. For example, all things being equal, a 59 year old coal miner with an 8 th grade education and no other work experience is more likely to be awarded benefits than a 45 year old adjunct college professor who has worked several types of jobs in the past. As noted earlier, because children are generally not expected to work, the SSI program uses a special definition of disability for minors. Individuals under the age of 18 must have a medically determinable physical or mental impairment, which results in marked and severe functional limitations , and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. The first part of the disability determination process for child SSI claimants is similar to the one used for SSDI and adult SSI claimants ( Figure 6 ). At Step 1, the DDS agency determines whether the child's countable monthly earnings average more than the non-blind SGA earnings limit. At Step 2, the DDS agency determines whether available objective medical evidence from acceptable medical sources establishes a medically determinable impairment, and, if so, whether all medical and other evidence demonstrates that such impairment (or combination of impairments) meets the severity and duration requirements. In determining the severity of the claimant's impairment(s), the DDS agency compares the claimant's functioning to that of children his or her own age who do not have impairments. A child's medically determinable impairment(s) is considered not severe if it is a slight abnormality (or a combination of slight abnormalities) that causes no more than minimal functional limitations. At Step 3a, the DDS agency determines whether the child's medically determinable impairment(s) meets or medically equals the criteria of a specific listing. The listings for children (Part B) are categorized across 15 major body systems and like their adult counterparts, contain examples of common impairment for each body system and specific evaluative criteria for confirming the existence of a qualifying impairment. If a child has a severe impairment that does not meet or medically equal the criteria of a specific listing, then the case proceeds to Step 3b, where the DDS agency determines whether the impairment(s) results in limitations that functionally equal the listings. During this process, the DDS agency assesses the extent to which a child's impairment(s) limits or restricts his or her day-to-day functioning at home, in childcare, at school, or in the community. The DDS agency evaluates a child's functioning across six domains: (1) acquiring and using information; (2) attending and completing tasks; (3) interacting and relating with others; (4) moving about and manipulating objects; (5) self-care; and (6) health and physical well-being. These domains are cross-referenced by age categories that describe age-appropriate functioning and behavior. At this stage, a claimant's impairment (or combination of impairments) is not evaluated against a specific listing. Rather, it is evaluated on the basis of whether it causes functional limitations that are of listing-level severity, regardless of the nature of the impairment(s). A child's impairment(s) functionally equals the criteria in the listings if it results in marked limitations in at least two of the domains or an extreme limitation in one domain. A marked limitation in a domain occurs when a claimant's impairment(s) interferes seriously with his or her ability to independently initiate, sustain, or complete activities. An extreme limitation in a domain occurs when a claimant's impairment(s) interferes very seriously with his or her ability to independently initiate, sustain, or complete activities. Children are awarded benefits if their impairment(s) meets, medically equals, or functionally equals the listings. Individuals who are dissatisfied with SSA's initial determination or decision may request further review under the Social Security Act's administrative and judicial review provisions. The appeals process affords claimants the opportunity to present additional evidence or arguments to support their case as well as to appoint a representative to act on their behalf, such as an attorney or a qualified non-attorney. The claimant, his or her appointed representative, representative payee, or other third party on behalf of the claimant can file a request for review. The request for further review must be made, in writing, within 60 days of the date the claimant received notice of the prior determination or decision (generally five days after the date on the notice), unless SSA determines that the claimant has good cause for failing to file a timely request. Claimants may file their appeal using conventional SSA forms or online via the iAppeals system. SSA's administrative appeals process is generally composed of three levels of review: (1) reconsideration of the case by a reviewer who did participate in the initial determination; (2) a hearing before an administrative law judge; and (3) a request for review by the Appeals Council ( Figure 7 ). Individuals may elect to continue to receive benefit payment during this process under certain conditions. At each step of the appeals process, the decision-maker bases his or her decisions on provisions in the Social Security Act, SSA's regulations, and other agency guidance. Only after exhausting the administrative appeals process and receiving a final decision from SSA are claimants permitted to file a complaint against the agency in federal court. The following section describes each step of the appeals process in more detail. In general, reconsideration is the first mandatory step of the administrative appeals process that a claimant must initiate in order to appeal an initial determination by SSA. Reconsideration involves a thorough review of all evidence in the case record from the initial determination, along with any additional evidence submitted by the claimant. Reconsideration is effectively a new review of the case by the same DDS office that conducted the initial determination except that it is performed by an official who did not participate in the initial determination. For cases involving the appeal of a medical determination, a new adjudicative team consisting of a disability examiner and a medical or psychological consultant reexamine the evidence from the initial determination and any new evidence submitted with the appeal. The team may request additional evidence or a new consultative examination. As with the initial level, the reconsideration level generally does not involve a face-to-face meeting between the adjudicator and the individual (i.e., case review ). However, if the individual received benefit payments (i.e., was a beneficiary or recipient) and contests an initial determination based on medical factors that he or she is not now blind or disabled, then the individual may request a disability hearing , which is a face-to-face reconsideration of the individual's last medical determination. After the review has been completed, the adjudicator makes a determination based on the preponderance of the evidence in the case record. The claimant is later notified of the decision in writing. In 1999, SSA eliminated the reconsideration level in the following states as part of the Disability Redesign Prototype Model: Alaska, Alabama, California (Los Angeles West and North Branches), Colorado, Louisiana, Michigan, Missouri, New Hampshire, New York, and Pennsylvania. In these 10 states, claimants who appeal the initial determination skip the reconsideration level and proceed directly to the hearing level. As part of FY2019 President's budget request to Congress, the Trump Administration proposes to reinstate the reconsideration level in the 10 prototype states. In addition to the legislative proposal, officials from SSA's Office of Budget informed CRS that the agency plans to use its regulatory authority to gradually reinstate the reconsideration step in the 10 prototypes over the next several years. The second mandatory step of the administrative appeals process (or the first mandatory step for those who reside in one of the prototype states) is to request a hearing before an administrative law judge (ALJ). An ALJ is an impartial hearing examiner who issues a de novo (i.e., fresh) decision with respect to the individual's claim for benefits. The hearing level is often the first time that a claimant has the opportunity to appeal his or her case face-to-face (either in person or via video teleconferencing). During a hearing, an ALJ investigates the merits of an appeal by informally questioning the claimant, as well as any scheduled witnesses such as medical or vocational experts. A claimant or his or her appointed representative may also present additional evidence, examine evidence used in making the determination under review, introduce witnesses, question witnesses, and present oral or written arguments in support of a favorable decision. In general, all evidence, objections, or written statements must be submitted to SSA at least five business days before the date of the hearing. Because SSA is not represented at the hearing, the proceeding is considered inquisitorial (i.e., non-adversarial). An ALJ issues a decision based on the preponderance of the evidence in the hearing record. In certain situations, the ALJ may dismiss a case without making a decision of its merits, such as when a claimant fails to appear for the hearing. The claimant is later notified in writing of the decision or dismissal. The third mandatory step of the administrative appeals process is to request a review before the Appeals Council (AC). The AC is made up of administrative appeals judges (AAJs), appeals officers (AO), and support personnel. The AC reviews ALJ decisions and orders of dismissal, as well as processes certain court actions. The AC may dismiss or deny the request for review, or the AC may grant the request and either issue a decision or remand the case back to an ALJ for further proceedings. The AC may also review an ALJ decision or dismissal on its own motion within 60 days after the date of a decision or dismissal. Once the AC decides to review an ALJ decision on its own motion, it may affirm, reverse, or modify the decision (including a favorable decision) or remand the case back to an ALJ for further proceedings. The claimant is notified in writing of the AC's decision or reason for denial of the review. Only after exhausting the administrative appeals process and receiving a final decision from SSA may a claimant request judicial review by filing a civil action in a federal court. The Social Security Act requires that such action be brought in the U.S. district court in the judicial district where the claimant resides (or has a principal place of business) or, if not applicable, the U.S. District Court for the District of Columbia. A district court may issue a decision or remand the case back to SSA for further action. Court remands are initially sent to the AC, which may assume jurisdiction and issue a decision or remand the case to an ALJ for further proceedings and a new decision. On rare occasions, disability cases are appealed beyond U.S. district court to the U.S. court of appeals and, ultimately, the U.S. Supreme Court. After SSA finds that a claimant is disabled, the agency evaluates his or her impairment(s) from time to time to determine if the individual is still medically eligible for payments on the basis of blindness or disability. This evaluation is known as a continuing disability review (CDR). The frequency of a CDR depends on the beneficiary's prospective medical improvement. SSA's regulations specify three basic types of schedules or di a ries . Medical Improvement Expected (MIE). If medical improvement is expected, then SSA schedules a review at intervals from 6 to 18 months following the most recent decision that the individual is disabled or that disability is continuing. Examples of impairments that fall into this category include traumatic injuries and severe bone fracture. Medical Improvement Possible (MIP). If medical improvement is possible but cannot be accurately predicted based on current experience and the facts of the case, then SSA schedules a review at least once every three years. Examples of impairments that fall into this category include heart failure and severe diabetes with end organ damage. Medical Improvement Not Expected (MINE). If medical improvement is unlikely due to the severity of an individual's condition, then SSA schedules a review once every five to seven years. Examples of impairments that fall into this category include intellectual disabilities, amyotrophic lateral sclerosis (ALS) which is sufficiently severe, and Parkinson's disease which is sufficiently severe. Individuals who receive this classification are considered permanently disabled by SSA. As shown in Figure 8 , few SSDI beneficiaries and SSI disability recipients are assigned a MIE diary. SSA conducts two types of medical CDRs on individuals whose diaries mature: full medical CDRs and mailers. A full medical CDR involves SSA sending the case to the state DDS agency for a full medical review. A mailer is a questionnaire sent to the individual in order to obtain additional information, which SSA uses to determine if a full medical CDR is appropriate. If the answers to the mailer do not indicate likely improvement, SSA may defer a full medical CDR. Under current law, SSA must find substantial evidence of medical improvement during a CDR to find a SSDI beneficiary or SSI disability recipient no longer disabled and therefore ineligible for benefits. The legal requirement for determining if disability continues during a CDR is called the medical improvement review standard (MIRS). Under a MIRS determination for adults, the agency generally considers a SSDI beneficiary or SSI disability recipient no longer disabled if the review finds considerable evidence that (1) there has been substantial medical improvement in the individual's impairment(s) related to his or her ability to work since the last favorable medical decision and (2) the individual has the ability to engage in SGA. For a child SSI recipient, SSA typically considers the child no longer disabled if the review demonstrates that there has been substantial medical improvement in the recipient's impairment(s) since his or her most recent favorable medical decision to the point in which the recipient's condition no longer meets or medically or functionally equals the severity in the listings. When a SSDI beneficiary or SSI disability recipient is found no longer disabled, he or she may appeal the decision using the process described previously. SSA reevaluates the eligibility of all child SSI recipients who attain the age of 18 under the adult standard for initial disability claims. These reevaluations are known as age-18 disability redeterminations . Because these reviews are a new disability determination under the adult criteria, the MIRS does not apply. Under the SSDI program, SSA performs work CDRs to determine if a beneficiary's work activity represents SGA and if eligibility for benefits should continue. SSA typically initiates a work CDR if the agency becomes aware of the beneficiary's return to work. If a work CDR finds evidence that a beneficiary is engaging in SGA and is not participating in an approved SSA work incentive, the agency may find that the beneficiary's disability has ceased. Under the SSI program, SSA conducts periodic redeterminations of a recipient's non-medical eligibility factors—such as income, resources, and living arrangements—to verify that a recipient is still eligible for SSI and receiving the correct payment amount. There are two types of redeterminations: scheduled and unscheduled. Unscheduled redeterminations are conducted based on a report of a change in a recipient's circumstances that may affect program eligibility or payment amount. Scheduled redeterminations are performed at periodic intervals, depending on the likelihood of payment error: (1) annually if a change in a recipient's circumstances is likely to occur or (2) once every six years if a change in circumstances is unlikely to occur. Appendix A. Side-by-Side of SSDI and SSI Appendix B. Certain Other Benefits Available to SSDI Beneficiaries and SSI Disability Recipients Individuals who meet the blindness or disability standards of the SSDI or SSI programs may qualify for certain federal or state benefits. The following section discusses two federal benefits for which SSDI beneficiaries and SSI disability recipients may qualify. Achieving a Better Life Experience (ABLE) Accounts The Stephen Beck, Jr., Achieving a Better Life Experience Act (ABLE Act; Division B of P.L. 113-295 ) authorizes states to establish and maintain tax-advantaged savings plans through which contributions may be made to the investment account of a designated beneficiary to pay for qualified disability expenses. Qualified disability expenses include costs related to education, housing, transportation, employment training and support, assistive technology and personal support services, health and wellness (including long-term services and supports), financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses, and other expenses identified in guidance published by the IRS. To qualify for an ABLE account, an individual must either be (1) entitled to Social Security or SSI benefit payments due to blindness or disability and such impairment occurred before the date the individual attained age 26 or (2) certified by a physician that his or her impairment meets the blindness or disability standards used for children under the SSI program, regardless of the individual's age, and such impairment occurred before the date the individual attained age 26. There are three advantages to ABLE accounts. First, earnings in an ABLE account can grow tax-free annually until they are withdrawn. Second, distributions (i.e., withdrawals) from an ABLE account are tax-free if they are used to pay for qualified disability expenses. Third, assets in and distributions from an ABLE account for qualified disability expenses are disregarded in determining a designated beneficiary's eligibility for and the amount of assistance provided by most federal assistance programs. Under the SSI program, however, only the first $100,000 in an ABLE account is excluded. The balance of an ABLE account above $100,000 is treated as a resource to the designated beneficiary and is counted against the program's resource limit. If a designated beneficiary becomes ineligible for SSI due solely to excess ABLE funds, his or her cash payments are suspended (without a time limit) until the balance of the ABLE account falls to or below $100,000. This suspension does not affect the beneficiary's eligibility for Medicaid. In addition, a distribution from an ABLE account for housing-related expenses is counted against the resource limit unless the distribution is spent in the month of receipt. ABLE accounts allow SSI disability recipients to save for disability-related expenses without such savings jeopardizing their SSI and Medicaid eligibility. Although ABLE accounts have no effect on an individual's entitlement to SSDI, the accounts may allow beneficiaries to save and establish or maintain their eligibility for other federal programs, such as Medicaid or SNAP. The Social Security Administration (SSA), the Centers for Medicare & Medicaid Services (CMS), and the Department of Agriculture's Food and Nutrition Service (FNS) have all issued guidance on the treatment of ABLE accounts under SSI, Medicaid, and SNAP, respectively. Total and Permanent Disability (TPD) Discharge of Certain Federal Student Loans SSDI beneficiaries and SSI disability recipients may have their federal student loans discharged if they meet the requirements of the Department of Education's (ED's) Total and Permanent Disability (TPD) discharge program. The TPD discharge applies to obligations incurred under the following federal student loan programs: William D. Ford Federal Direct Loan (Direct Loan) program, the Federal Family Education Loan (FFEL) program, the Federal Perkins Loan program, and the Teacher Education Assistance for College and Higher Education (TEACH) Grant program. Borrowers qualify for the TPD discharge if they are determined to be totally and permanently disabled under any one of the following methods. VA Method. The borrower receives Department of Veterans Affairs (VA) disability compensation at the 100% rate due to one or more service-connected disabilities that the VA determined to be (1) totally disabling under its rating schedule, or (2) less than totally disabling under its rating schedule but which prevent the individual from establishing or maintaining substantially gainful employment (known as an individual unemployability [IU] rating). SSA Method. The borrower is entitled to SSDI or SSI and is scheduled to receive a medical review once every five to seven years (i.e., SSA assigns the individual a Medical Improvement Not Expected [MINE] continuing disability review [CDR] diary). Physician 's Certification Method. The borrower is certified by a physician that he or she is unable to engage in any substantial gainful activity due to any medically determinable physical or mental impairment that has lasted, or is expected to last, for at least 60 months or is expected to result in death (i.e., the individual meets the definition of disability for adults under the Social Security Act, except that the duration of the impairment must be for at least five years instead of one). SSDI beneficiaries and SSI disability recipients with a MINE CDR diary may request a Benefits Planning Query (BPQY) statement from SSA to demonstrate to ED that their medical review is scheduled once every five to seven years. In July 2017, about 40% of all SSDI beneficiaries and SSI disability recipients had a MINE CDR diary (see Figure 8 ). SSDI beneficiaries and SSI disability recipients with a medical improvement expected (MIE) or medical improvement possible (MIP) CDR diary may still qualify for the TPD discharge if they are determined to be totally and permanent disabled under the VA method or the physician's certification method. Borrowers awarded a TPD discharge based on a determination of totally and permanently disabled under the SSA method or the physician's certification method are subject to a three-year monitoring period from the date the discharge is initially granted. During the post-discharge monitoring period , the borrower is required to have annual earnings at or below the Department of Health and Human Services' (HHS's) poverty guideline for a family of two, regardless of his or her actual family size. ED will reinstate the loan obligation if the borrower fails to meet any of the TPD discharge program's requirements during the post-discharge monitoring period. The post-discharge monitoring period does not apply to borrowers awarded a TPD discharge based on a determination of totally and permanently disabled under the VA method. For more information on the TPD discharge program, including the monitoring period, visit http://www.disabilitydischarge.com . Computer Matching Agreements between ED and Other Federal Agencies to Improve the TPD Discharge Process Some disability advocates and Members of Congress have expressed concern that the TPD discharge process is "cumbersome," in that it requires borrowers to independently determine whether they qualify for the discharge and to coordinate the sharing of information between federal agencies to verify that they meet the applicable requirements. To address such concerns, President Barack Obama issued a memorandum in March 2015 that directed the Secretary of Education and the Director of the Office of Management and Budget (OMB), in consultation with the Commissioner of Social Security, to develop a plan to proactively identity student loan borrowers who receive SSDI and determine if they qualify for the TPD discharge. Later that year, ED released a report that, among other things, advocated for the streamlining of the TPD discharge process by having federal agencies coordinate their efforts to notify borrowers automatically of their potential eligibility for the discharge. In April 2016, ED announced that it had conducted a data match with SSA to identify borrowers potentially eligible for the TPD discharge under the SSA method. The match identified 387,000 SSDI beneficiaries and SSI disability recipients with a combined loan balance of over $7.7 billion. Shortly thereafter, borrowers who were positively identified in the match received a customized letter from ED's TPD servicer, Nelnet, explaining their eligibility for the discharge and how to apply for it. The number of individuals identified in the data match represented about 3% of the total SSDI beneficiary and SSI disability recipient population in July 2016, and about 7% of the total population with a MINE CDR diary that month. According to the Government Accountability Office (GAO), as of July 31, 2016, "TPD discharge applications were sent to about 234,000 borrowers based on the data matching and slightly more than 19,000 applications had been submitted and approved." In April 2018, ED announced that it would conduct a similar data match with the VA to identify borrowers potentially eligible for the TPD discharge under the VA method. Recent Changes to the Federal Income Tax Treatment of Loans Discharged Under the TPD Discharge Program Under prior law, the amount of student loan debt discharged under the TPD discharge program was included in the borrower's gross income for purposes of federal income tax in the year the discharge became final, which for borrowers approved under the SSA method or physician's certification method is at the close of the three-year monitoring period and for borrowers approved under the VA method is the date that ED approves the discharge. This resulted in some borrowers having markedly high taxable income relative to their income exclusive of the discharged student loan indebtedness for the tax year. However, during debate on the 2017 tax revision ( P.L. 115-97 ), the Senate incorporated some of the provisions of the Stop Taxing Death and Disability Act ( S. 405 ) into the legislation, which were ultimately enacted into law. Section 11031 of P.L. 115-97 excludes the amount of the discharged indebtedness under the TPD discharge from the definition of gross income for federal income tax purposes. These new provisions apply to loans discharged during the period from January 1, 2018, through December 31, 2025. Student loan debt discharged under the TPD discharge program may still be considered income for state income tax purposes. | The Social Security Administration (SSA) is responsible for administering two federal entitlement programs established under the Social Security Act that provide income support to individuals with severe, long-term disabilities: Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). SSDI is a work-related social insurance program authorized under Title II of the act that provides monthly cash benefits to nonelderly disabled workers and their eligible dependents, provided the workers accrued a sufficient number of earnings credits during their careers in jobs subject to Social Security taxes. In contrast, SSI is a need-based public assistance program authorized under Title XVI of the act that provides monthly cash payments to aged, blind, or disabled individuals (including blind or disabled children) who have limited assets and little or no Social Security or other income. In 2017, SSDI and SSI combined paid an estimated $199 billion in federally administered benefits to 14.5 million qualified disabled individuals and 1.5 million non-disabled dependents of disabled workers. SSDI is part of the federal Old-Age, Survivors, and Disability Insurance (OASDI) program, commonly known as Social Security. OASDI benefits are based on an insured worker's career-average earnings in jobs covered by Social Security and designed to replace a portion of the income lost to a family due to the worker's retirement, disability, or death. Workers become insured against these events by acquiring a certain number of earnings credits during their careers in covered employment or self-employment. The SSDI component of the program provides benefits to disabled workers who are under Social Security's full retirement age and to their eligible spouses and children. The Old-Age and Survivors Insurance (OASI) component also provides disability benefits to eligible disabled dependents of retired workers and to eligible disabled survivors of deceased beneficiaries and deceased insured workers. Although these individuals are not technically disability insurance beneficiaries, they are often included in the term SSDI because they receive Social Security benefits due to a qualifying impairment. SSDI and OASI disability benefits are paid from the Social Security trust funds, which are financed primarily by payroll and self-employment taxes levied on the earnings of covered workers. SSI is a federal assistance program that provides needy aged, blind, or disabled individuals with a guaranteed minimum income to meet their basic living expenses. Although there are no work or contribution requirements to qualify for payments, the program is based on need and therefore is restricted to individuals with limited financial means. SSI is commonly known as a program of "last resort" because claimants must first apply for most other benefits for which they may be eligible; cash assistance is awarded only to those whose assets and other income (if any) are within prescribed limits. The basic federal SSI payment is the same for all recipients and is reduced by the amount of other income that an individual receives. Some states supplement the federal SSI payment with solely state funds. Unlike Social Security, SSI is financed by appropriations from general revenues. Most claimants are considered disabled for SSDI and SSI eligibility purposes if they are unable to engage in any substantial gainful activity (SGA) by reason of any medically determinable physical or mental impairment that is expected to last for at least 12 months or to result in death. In 2018, the SGA earnings limit is $1,180 per month for most individuals. Claimants generally qualify if they have an impairment (or combination of impairments) of such severity that they are unable to perform any kind of substantial work that exists in significant numbers in the national economy, taking into consideration their age, education, and work experience. If a claimant's application for benefits is denied at any point during the disability determination process, the claimant has the right to appeal the determination or decision. |
In the 110 th Congress, the Higher Education Opportunity Act (HEOA; P.L. 110-315 ) was enacted to amend, extend, and establish new programs under the Higher Education Act of 1965 (HEA; P.L. 89-329). In most cases, funding authorization for programs extended or newly established under the HEOA is provided through FY2014. The HEOA also makes amendments to and extends funding authorization within a number of other laws. 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, as well as programs that provide aid to institutions of higher education (IHEs). The HEA, as amended by the HEOA, is organized into eight titles. Title I specifies general provisions and definitions for most of the programs authorized under the HEA. Most of the federal student aid programs are authorized under Title IV, Student Assistance. Title IV also authorizes programs that make available services and support to less-advantaged students. In addition, programs that make available assistance to students pursuing international education and certain graduate and professional degrees are authorized under Title VI, International Education Programs and Title VII, Graduate and Postsecondary Improvement Programs. Programs that make available aid and support to institutions are authorized under Title II, Teacher Quality Enhancement, Title III, Strengthening Institutions, and Title V, Developing Institutions. Finally, the HEOA added a new title, Title VIII, Additional Programs, to the HEA. HEA programs are administered by the U.S. Department of Education (ED). The Higher Education Act of 1965 was enacted as P.L. 89-329, on November 8, 1965. Since then, the HEA and its component programs have been amended and extended numerous times. On several occasions, the HEA has been comprehensively amended and reauthorized. Prior to the enactment of the HEOA, the last comprehensive reauthorization of the HEA occurred in 1998, under the Higher Education Amendments of 1998 ( P.L. 105-244 ), which authorized funding for most HEA programs through FY2003. During the period leading up to the enactment of the HEOA, authorization for HEA programs had been extended for one additional fiscal year under the General Education Provisions Act (GEPA), and then incrementally through a series of Higher Education Extension Acts. Major amendments to selected HEA programs—particularly those that receive mandatory funding—have also been made as part of recent budget reconciliation measures. In the 109 th Congress, the Federal Family Education Loan (FFEL) program and the William D. Ford Federal Direct Loan (DL) program were amended and extended under the Higher Education Reconciliation Act (HERA, part of P.L. 109-171 ). In the 110 th Congress, the College Cost Reduction and Access Act (CCRAA; P.L. 110-84 ) made significant changes to FFEL and DL programs, the Federal Pell Grant program, and the federal need analysis formula. Additionally, in Spring 2008, emergency changes to the federal student loan programs were made under the Ensuring Continuing Access to Student Loans Act of 2008 (ECASLA; P.L. 110-227 ). In the first session of 110 th Congress, the Senate passed S. 1642 , the Higher Education Amendments of 2007 ( S.Rept. 110-231 ), to amend and extend the HEA. In the second session of the 110 th Congress, the House passed an HEA reauthorization bill, H.R. 4137 , the College Opportunity and Affordability Act of 2008 ( H.Rept. 110-500 ). The two bills contained a number of similar provisions, as well as many that were unique to each bill. Many of the provisions contained in either or both the Senate and House bills were agreed to by House and Senate conferees in approving the conference report to H.R. 4137 ( H.Rept. 110-803 ). Both the House and the Senate passed H.R. 4137 , renamed as the Higher Education Opportunity Act, on July 31, 2008; and it was signed into law by the President on August 14, 2008 ( P.L. 110-315 ). The HEOA is composed of eleven Titles, as identified below. Title I: General Provisions Title II: Teacher Quality Enhancement Title III: Institutional Aid Title IV: Student Assistance Title V: Developing Institutions Title VI: International Education Programs Title VII: Graduate and Postsecondary Improvement Programs Title VIII: Additional Programs Title IX: Amendments to Other Laws Title X: Private Student Loan Improvement Title XI: Studies and Reports In general, Titles I through VII of the HEOA amend, extend, and authorize new programs under the corresponding titles of the HEA. Title VIII of the HEOA adds a new Title VIII to the HEA, which establishes a series of new programs. Together, the eight titles of the HEA specify program requirements and authorize a wide array of programs that assist students and their families with paying for or financing the costs of obtaining a postsecondary education; and also programs that provide aid to institutions. Titles IX and X of the HEOA primarily make amendments to other laws; and Title XI establishes requirements for a series of studies and reports. In general, amendments made under the HEOA to the HEA are effective the date of enactment (August 14, 2008). However, certain amendments are effective either prospectively or retroactively. Unless otherwise noted, the amendments discussed below are effective the date of enactment. Also, unless otherwise noted, authorizations for the appropriation of funds for discretionary grant programs are provided for FY2009 through FY2014. See Appendix for a complete list of authorizations of appropriations in the HEA, as amended by the HEOA. The remainder of this report is divided into two parts. The first part is organized in a manner that corresponds with the organization of the HEA and identifies and describes amendments the HEOA makes to the HEA. The second part describes changes the HEOA makes to other laws and the studies and reports it requires. Title I of the HEA specifies general provisions and definitions that govern most of the programs authorized by the HEA. It includes many institutional reporting requirements, important definitions such as that of an "institution of higher education" (IHE), and authorization of a performance based organization (PBO) to administer federal student aid within ED. The HEOA adds a new Part E to Title I, which specifies lender and institution requirements relating to education loans. Major changes to Title I made under the HEOA are identified and described below. In addition to these changes to the HEA, § 119 of the HEOA establishes a prohibition against IHEs using any federal funds awarded under the HEA for lobbying purposes or to influence grantmaking processes; however, this provision is not added to the HEA. Part A of Title I of the HEA is comprised of definitions that are applicable to certain parts of the act. The HEOA amends a number of previously existing definitions and adds several new definitions, including 'authorizing committees,' 'critical foreign language,' 'distance education,' 'diploma mill,' 'early childhood education,' 'poverty line,' 'universal design,' and 'universal design for learning.' The HEA contains two definitions of "institution of higher education" (IHE), which are primarily used to qualify entities as eligible to receive student or institutional assistance authorized under the act. A general definition of an IHE is specified at HEA, § 101 and applies for purposes other than Title IV. For purposes of Title IV, a separate IHE definition is specified at HEA, § 102 (primarily for the purpose of expanding the definition to include for-profit institutions). Effective July 1, 2010, the HEOA makes the changes described below to these previously existing definitions of IHEs. In certain instances, the HEOA incorporates into statute provisions that had previously been established through regulations promulgated by the Secretary of Education (hereafter referred to as the Secretary). Students within the Definition of an IHE . The definition of an IHE is based in part on the types of students served by an entity. The HEOA explicitly adds home-schooled students to the types of students who may be considered "regular" students at an IHE. The amended definition also permits IHEs to admit as regular students individuals who are dually or concurrently enrolled in the IHE and at a secondary school. Types of Institutions within the Definition of an IHE . To the delineated types of entities that may be considered IHEs, the HEOA explicitly adds graduate-only institutions, as well as institutions that award a degree that is acceptable for admission to a graduate or professional degree program (subject to review and approval by the Secretary). IHEs Outside of the United States . The provisions in Title I, Part A defining the eligibility of foreign IHEs to participate in FFEL (Title IV, Part B) are amended as follows. (Foreign schools are excluded from participating in any other HEA programs.) Under the pre-HEOA definition, foreign schools, (including in certain circumstances, proprietary, or for-profit, institutions), were permitted to certify FFEL program loans for their students who are from the United States. The only foreign proprietary institutions permitted to participate had been graduate medical schools and veterinary schools. Effective July 1, 2008, the Title IV definition of IHE is amended to extend eligibility to participate in the FFEL program to proprietary foreign nursing schools, contingent on the schools meeting certain requirements. Elimination of the " 90/10 Rule " for Proprietary Institutions from the Definition of an IHE . To ensure that for-profit institutions do not derive all of their income from Title IV student aid, the definition of an IHE—prior to enactment of the HEOA—included a provision that proprietary institutions derive at least 10% of their revenues from non-Title IV sources. Failure to meet this requirement resulted in the loss of Title IV eligibility. The HEOA eliminates the 90/10 rule as a condition of institutional eligibility by removing it from the Title I, Part A definition of an IHE; but the HEOA retains the effect of the provision by making it part of the Program Participation Agreement (PPA) required under Title IV, Part G (see below). Title I, Part B of the HEA consists of provisions and other requirements that are generally applicable to IHEs participating in programs authorized by the act. The HEOA amends and restructures provisions establishing the National Advisory Committee on Institutional Quality and Integrity (NACIQI), though without significantly altering NACIQI's purpose of advising the Secretary on decisions related to recognition of accrediting agencies. The HEOA also reauthorizes the Drug and Alcohol Abuse Prevention program established under Title I, Part B and makes the following additional changes. The HEOA extends the Protection of Student Speech and Association Rights provisions with a Sense of Congress statement that the diversity of institutions and educational missions is a strength of the American higher education system; IHEs should have different missions and design their academic programs in accordance with their educational goals; IHEs should facilitate the free and open exchange of ideas; students should not be intimidated or discouraged from speaking out; students should not be discriminated against; students should be treated equally and fairly; and any sanctions imposed on students should be done objectively and fairly. This provision has commonly been referred to as being similar to an "academic bill of rights," although it is significantly different than the Sense of Congress resolution regarding an academic bill of rights that was introduced in the House in 2003. The HEOA adds a number of new requirements to Title I, Part B relating to how students and families plan for college and what information is available to them to make informed college selection choices. Provisions include requiring the Secretary to improve the usefulness and accessibility of department-provided college planning and financial aid information; collecting and making information available online about federal aid available from other federal departments and agencies; developing a new website with federal and state financial aid information for members of the Armed Forces, veterans, and their dependents; and developing a website that provides financial assistance information for students interested in science, technology, engineering, and mathematics (STEM) and which includes both public and private sources of aid. Other new information-related provisions are described in further detail below. Diploma Mill Information . The HEOA requires the Secretary, working with other federal agencies, to publish information on identifying and avoiding diploma mills, which are unaccredited entities that offer degrees, diplomas, or certificates to individuals for a fee and that require the individual to complete little or no educational coursework. IHE Data Reporting Requirements . Within one year of the date of enactment of the HEOA, the Secretary is required to make publicly available specified information about institutions, such as data related to student enrollment, graduation rates, cost of attendance, student aid, and specific services offered by the institution. Many of the data items that are delineated in the HEOA are currently collected in some form through the Integrated Postsecondary Education Data System (IPEDS) or other data collection efforts maintained by ED. However, the HEOA expands and codifies these data reporting requirements in statute. These new Title I, Part B reporting requirements are in addition to those added under Title I, Part E and Title IV, Parts B and D (all related to student loans); and Title IV, Part G (in general). Prohibition Against a Federal Student Record Database . The HEOA provides that, except under specific circumstances, the development, implementation, or maintenance of a federal database containing the personally identifiable information of students is prohibited. This prohibition does not apply to systems necessary for the operation of programs authorized under Titles II, IV, or VII of the HEA, and that were in use the day before enactment of the HEOA. State Higher Education Information System Pilot Program . The HEOA establishes a competitive grant program to support the development of state-level postsecondary education data systems in up to five states. Title I, Part C of the HEA includes provisions focused on collecting data on college costs and prices. The HEOA establishes new requirements under Title I, Part C related to the increasing price of college and universities. (Title VIII, Part M, Low Tuition, described below, authorizes a new program also related to cost.) The new requirements, which are generally aiming to address college affordability issues through enhanced transparency and consumer information are described below. Beginning July 1, 2011, the Secretary must annually publish six lists related to college affordability, by institution sector (e.g., public four-year institutions): the 5% of institutions with the highest tuition and fees, the 5% of institutions with the highest net price, the 5% of institutions with the largest percentage increase in tuition and fees over the last three academic years (unless the increase was less than $600), the 5% of institutions with the largest percentage increase in net price over the last three academic years (unless the increase was less than $600), the 10% of institutions with the lowest tuition and fees, and the 10% of institutions with the lowest net price. Institutions listed on the third or fourth lists are subject to reporting requirements related to the reasons for cost increases and steps being taken to reduce costs. The provision defines the term "net price." A new state "maintenance of effort" (MOE) provision is added under Title I, Part C, which requires states to maintain appropriations for the general operations of public IHEs and student financial aid to private IHEs in each academic year beginning on or after July 1, 2008, that equal or exceed the average appropriation over the preceding five years. If a state fails the MOE test, the Secretary is required to withhold the state's allotment of funds for the College Access Challenge Grant Program (Title VII, Part E) "until such State has made significant efforts to correct such violation." ED must also report state-level data related to the percentage change in state spending per full-time equivalent student enrolled at a public IHE, the percent change in average tuition and fees at public IHEs, and the percentage change in need-based aid and merit-based aid provided by the state. The Secretary is required to add an institution pricing summary page to the College Navigator website, to be updated annually, and which must include data on tuition and fees, net price, and the average annual percentage change and average annual dollar change in tuition and fees and net price. In addition, ED must develop a net price calculator that would enable current or prospective students to estimate their net price of attendance at an institution. IHEs are subsequently required to make a net price calculator available to current and prospective students. ED must also develop a multi-year tuition and fees calculator to enable students to determine a nonbinding estimate of the price of a postsecondary education for the normal duration of an undergraduate or graduate program. The HEOA established a series of new provisions under Title I of the HEA that affect textbook publishers. Effective July 1, 2010, publishers must provide faculty members with various information about textbooks, including price information and copyright dates of previous editions. Also, except under certain circumstances, textbook publishers must "unbundle" materials, making textbooks, and each supplement to a textbook, available as a separate item. Institutions must publish in online course pre-registration and registration materials information about all required texts that will be used in the class, as well as the retail price of course materials. Finally, IHEs must provide to any college bookstore, upon request, its course schedule, required or recommended materials for each course, and course enrollment information. HEOA amendments that take effect July 1, 2009, require states to provide members of the Armed Forces on active duty, their spouses, and their dependent children with in-state tuition at public institutions if they are domiciled or stationed on permanent duty within the state for more than 30 days. States must also allow such individuals to continue to pay in-state tuition if they are continuously enrolled, even if the member's permanent duty station is relocated outside of the state. No federal funds are made available to assist states in complying with this requirement; and no penalties are specified for non-compliance. The HEOA includes technical and other minor amendments to provisions concerning the Performance-Based Organization which administers Title IV student financial aid programs. A new Title I, Part E establishes disclosure and reporting requirements which are applicable to lenders and IHEs with respect to federal student loans made under Title IV and private education loans. The newly established reporting and disclosure requirements are summarized below. Institutions participating in preferred lender arrangements, in which the IHE recommends, promotes, or endorses the education loan products of certain lenders, must disclose on their websites and in informational materials: the maximum amount of Title IV grant and loan aid available to students; detailed information about the terms and conditions of loans; and that under the FFEL program, the institution is required to process applications to obtain a loan from any eligible lender. In addition, institutions must provide prospective borrowers of private education loans with the information required to be disclosed under § 128(e) of the Truth in Lending Act (see Title X, below); inform them that they may qualify for federal student aid under Title IV; and inform them that the terms and conditions of federal student loans may be more favorable than the terms and conditions of private education loans. Lenders of federal student loans must disclose to borrowers written information about the terms and conditions of loans at or prior to disbursement. Lenders of private education loans are required to disclose to borrowers, detailed information on the terms and conditions of private education loans. In addition, lenders of FFEL program loans are required to disclose to the Secretary, information on expenses paid to institutions; and must annually certify their compliance with the requirements of the HEA. Not later than 18 months after the date of enactment, the Secretary, in coordination with the Board of Governors of the Federal Reserve System, is required to determine the minimum information that entities participating in preferred lender arrangements must make available to borrowers. Subsequently, they must develop a model disclosure form that may be used by IHEs and lenders for purposes of disclosing information about FFEL and DL program loans and private education loans to prospective borrowers. The Secretary, in consultation with the Board of Governors of the Federal Reserve System, is required to develop a self-certification form for private education loan applicants. Individuals applying for private education loans must complete and sign the form, using information available from the financial aid office of their IHE. Applicants must enter the following on the self-certification form: (1) cost of attendance (COA); (2) expected family contribution (EFC); (3) estimated financial assistance (EFA); (4) COA minus EFA; and (5) EFC, plus the difference between COA and EFA. This form must also disclose to loan applicants (1) that the applicant may qualify for federal, state, or institutional aid in addition to a private education loan, (2) that the applicant is encouraged to discuss the availability of federal, state, and institutional aid with the financial aid office, (3) that a private education loan may affect the applicant's eligibility for federal, state, or institutional aid, and (4) that the information the applicant is required to provide on the form is available from the financial aid office. Title II of the HEA authorizes grants for improving teacher education programs, strengthening teacher recruitment efforts, and providing training for prospective teachers. This title also includes the reporting requirements for states and IHEs regarding the quality of teacher education programs. Amendments made to Title II under the HEOA include the following. Part A of Title II authorizes grants for improving teacher education programs, strengthening teacher recruitment efforts, and providing training for prospective teachers. Prior to the HEOA, 45% of Title II, Part A funds were to be used to award State grants, and 10% were to be used to award Recruitment grants; however, this requirement had been overridden in recent years by language passed through appropriations legislation and ED had not awarded a new State grant since FY2005, nor a new Recruitment grant since FY2007. Under the HEOA amendments, both the State Grant and Recruitment Grant programs are eliminated, and 100% of Title II, Part A funds are authorized for the Partnership Grant program. Amendments made by the HEOA to the Partnership Grant program include the following. Prior to the HEOA, under the Partnership Grant program, an eligible partnership included three entities: a "partner institution," a "school of arts and sciences" at a higher education institution, and a "high need local educational agency" (LEA). The HEOA amends the definition of an eligible partnership to require two additional partners (1) either a "high-need school" or "high-need early childhood education program," and (2) a "school, department, or program of education...within a 4-year institution." The definition of a high-need LEA is amended to require the LEA to serve either (a) not less than 20%, or (b) not fewer than 10,000 children who are from families below the poverty line. The definition of a "partner institution" is amended to include two-year IHEs that offer a dual program with a four-year institution. Prior to the HEOA, Partnership grantees were required to use their funds for program reforms, clinical experience, and professional development; and allowable uses included parental involvement, dissemination and coordination, leadership skills, and teacher recruitment. Under the HEOA, Partnership Grant funds are authorized to be used for either a Pre-Baccalaureate Preparation program, a Teacher Residency program, or both. Funds may also be used for a Leadership Development program, but only in addition to one of these other two uses. Activities authorized by the HEOA amendments are described below. Pre-Baccalaureate Preparation Program . The HEOA specifies a variety of activities to be carried out under a Pre-Baccalaureate program which are similar to the use of funds under the prior Partnership Grant program. The act describes (in much greater detail than in previous law) how program funds for a Pre-Baccalaureate program must be used for program reforms, clinical experience, induction, early childhood education, recruitment, and literacy training. Program funds may also be used for a variety of other activities including "performance-based pay" for teachers who participate as mentors. Teacher Residency Program . A new Teacher Residency program is established under which recent college graduates and mid-career professionals (who are not teaching) may receive a one-year stipend to obtain graduate-level teacher training in exchange for agreeing to serve three years in a high-need school immediately upon completion of the program. Leadership Development Program . A new Leadership Development program is established to prepare students for careers as superintendents, principals or other school administrators, as well as to support activities that promote strong leadership skills among other mandatory activities. The HEOA amends several administrative and other partnership grant requirements. The act increases the non-Federal funds matching requirement for Partnership grants from 25-50% to 100%. The HEOA enhances the reporting requirements for States and teacher preparation programs, including a required Report Card (with specified data requirements) from all programs that enroll students receiving Federal assistance under the HEA for both traditional programs as well as those that employ alternative routes to state certification. Prior to the amendments made by the HEOA, Title II, Part B authorized a program for Preparing Tomorrow's Teachers to Use Technology. The HEOA eliminates this program and establishes five new programs. The HEOA amendments establish a program called Preparing Teachers for Digital Age Learners, authorizing the Secretary to award competitive grants to or enter into contracts or cooperative agreements with consortia to (1) prepare graduate teacher candidates to use modern information, communication, and learning tools; (2) strengthen and develop partnerships in the field of teacher preparation to ensure technology-rich teaching and learning environments; and (3) assess the effectiveness of IHEs in preparing teachers to implement technology-rich teaching and learning environments. The HEOA amendments establish a program called Honorable Augustus F. Hawkins Centers of Excellence, authorizing the Secretary to awards competitive grants to eligible minority-serving institutions to ensure that current and future teachers are highly qualified. Grantees are to use funds to support activities similar to those supported under the Title II, Part A programs. The HEOA amendments establish a program called Preparing General Education Teachers to More Effectively Educate Students With Disabilities, authorizing the Secretary to award Teach to Reach competitive grants to eligible partnerships to improve the preparation of general education teacher candidates' ability to instruct students with disabilities in general education classrooms. The HEOA amendments establish a program called Adjunct Teacher Corps, authorizing the Secretary to award competitive grants to eligible entities to identify, recruit, and train qualified individuals with subject matter expertise in mathematics, science, or critical foreign languages to serve as adjunct content specialists in schools that have a shortage of such expertise. The HEOA amendments establish a program called Graduate Fellowships to Prepare Faculty in High-Need Areas at Colleges of Education, authorizing the Secretary to award competitive grants to eligible IHEs to provide fellowships to graduate students preparing to become education professors who will prepare highly-qualified teachers in STEM, special education, or limited English proficient education. Those receiving a fellowship must fulfill a service agreement by teaching one year in a teacher preparation program for each year in which they received a fellowship. Titles III and V are the primary sources of institutional support authorized by the HEA, including support for minority-serving institutions (MSIs). Both titles award grants to IHEs to strengthen their academic, administrative, and financial capabilities. Title III, Part A includes provisions for IHEs that serve large numbers of needy students, Tribally Controlled Colleges and Universities (TCCUs), and Alaska Native and Native Hawaiian-Serving Institutions (ANNHSIs); and Title III, Part B establishes programs to support Historically Black Colleges and Universities (HBCUs) and Historically Black Graduate Institutions (HBGIs). Title V authorizes funds for Hispanic-Serving Institutions (HSIs); and Titles II, VI, VII, and VIII authorize other MSI programs (see below). Title III, Part A provides grants to eligible IHEs to support a variety of activities, including improving facilities, faculty development, curriculum development, student services, and others. Prior to passage of the HEOA, this part included three programs: Strengthening Institutions (for IHEs serving needy students), TCCU, and ANNHSI. The act amends the allowable uses of funds for these programs and establishes three new MSI programs, which are described below. The HEOA establishes a new Title III, Part A program authorizing the Secretary to award grants to Predominantly Black Institutions (PBIs). Unlike HBCUs, which are institutions founded during the era of segregation with a mission of educating black students, PBIs are defined as colleges and universities without a specific historical mandate to enroll African Americans, but whose student populations are now over 40% black. Although other programs under Title III, Part A define institutional eligibility criteria collectively under § 312(b), the PBI program establishes its own criteria. To be eligible for a PBI grant, IHEs must be accredited (or making progress toward accreditation); be legally authorized by the state to grant undergraduate degrees; not be an HBCU or HSI; enroll at least 1,000 undergraduates (half of which must be in degree programs); and have expenditures per student that are low compared to similar IHEs. In addition, PBIs must meet a two-part test for enrolling underprivileged students: (1) at least 50% of students must receive Pell Grants, come from a family receiving means-tested federal benefits, attend a high school meeting certain criteria under Title I of the Elementary and Secondary Education Act (ESEA), or be first-generation college students; and (2) at least 50% of students must be either from low-income families (earning less than 150% of the Census definition of poverty) or be first generation college students. PBI grants may be used for activities similar to those authorized under other Title III Part A programs. Additional uses of funds include academic instruction, enhancing teacher education, academic outreach to elementary and secondary students, and contributions on a matching basis towards an endowment fund. Grants are to be divided among eligible IHEs based on a number of factors, for a minimum grant of $250,000. The HEOA establishes a new Title III, Part A program to support Native American-Serving, Nontribal Institutions (NASNIs). NASNIs are defined as IHEs that enroll more than 10% Native American students and meet HEA, § 312(b) eligibility requirements, but are not TCCUs, and are not receiving funds under any other Title III or Title V program. Grants are generally to be used to improve and expand capacity to serve Native Americans and low-income students; and are for a minimum of $200,000. The HEOA establishes a new Title III, Part A program to support Asian American and Native American Pacific Islander-Serving Institutions (AANAPISIs). AANAPISIs are defined as IHEs enrolling more than 10% Asian American or Native American Pacific Islander students, must meet HEA, § 312(b) eligibility requirements, must not be TCCUs, and must not be receiving funds under any other Title III or Title V program. Grants are generally to be used to improve and expand capacity to serve the targeted students and low-income students. Title III, Part B of the HEA authorizes assistance to HBCUs and HBGIs. The HBCU program provides formula grants to eligible IHEs that were founded prior to 1964 to educate African Americans, to be used for similar purposes as Title III, Part A grants. The HEOA lowers the minimum allotment to HBCUs to $250,000 from $500,000. In order to receive a grant, the amendments require HBCUs to have enrolled Pell Grant recipients, to have students successfully graduate, and to have alumni attending graduate programs in which black students are underrepresented. Also under Title III, Part B, the HBGI program provides assistance to eligible institutions to increase the number of African Americans in certain professional fields. The HEOA adds six IHEs to the specified list of institutions eligible to receive HBGI grants under HEA, § 326. Hold harmless provisions, however, protect funding for the previously included 18 IHEs, and only funding above that aggregate amount may be awarded to the newly added IHEs. No IHEs may receive HBGI grants while also receiving grants under the new Title V, Part B HSI graduate program or the new Title VII, Part A HBCU and PBI master's degree programs. While the program has not been funded since FY1995, Title III, Part C authorizes a grant program for IHEs eligible for Title III programs to assist them in increasing their endowments. Endowment Challenge Grants award amounts are increased by the HEOA, with the minimum raised from $50,000 to $100,000, and the maximum raised from $500,000 to $1,000,000. Title III, Part D authorizes a program which provides federal insurance for bonds issued to support capital financing projects at HBCU, up to a maximum outstanding principal and interest limit. Under the HEOA amendments, maximum amounts for capital programs are increased, with the total federal bonding authority raised to $1.1 billion. The HEOA makes other technical amendments to this program, including changes to the membership of the HBCU Capital Financing Advisory Board. The HEOA adds two new programs as a second subpart of Title III, Part E. (The first subpart authorizes the Minority Science and Engineering Improvement Program.) First, the purpose of the new YES Partnerships Grant Program is to encourage elementary and secondary minority students to pursue careers in science, technology, engineering, and mathematics (STEM) fields. Grants are for a minimum of $500,000 and must be matched by non-Federal funds. Under the second program, the Secretary is authorized to enter into a contract for Promotion of Entry into STEM Fields. The Strengthening Historically Black Colleges and Universities and Other Minority-Serving Institutions program, established at Title IV, Part J, under the CCRAA, provides mandatory appropriations for programs supporting MSIs. The HEOA redesignates these programs under Title III, Part F, of the HEA, and in so doing eliminates the eligibility of for-profit IHEs to participate. Also, the HEOA adds new mandatory appropriations to support master's degree programs at HBCUs and PBIs under Title VIII, Part AA (discussed under Title VIII, below). Mandatory appropriations to MSIs are shown in Appendix . The HEOA provides the Secretary waiver authority in relation to Title III programs for IHEs affected by the Gulf Coast Hurricanes of 2005. The act also increases authorizations of appropriations for Title III programs through FY2014. Note that these discretionary authorizations are in addition to the mandatory appropriations; both are shown in Appendix . Programs authorized under Title IV are the primary source of federal aid to support postsecondary education. The largest Title IV student aid programs are the Pell Grant program, authorized under Part A; and the FFEL and DL programs, authorized under Part B, and Part D, respectively. Title IV, Part A also authorizes the Academic Competitiveness (AC) Grant and National Science and Mathematics Access to Retain Talent (SMART) Grant programs, the federal TRIO programs and the Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP), the Federal Supplemental Educational Opportunity Grant (FSEOG) program, and the Leveraging Educational Assistance Partnership (LEAP) program. The Federal Work-Study (FWS) program is authorized under Part C, and the Federal Perkins Loan program is authorized under Part E. Rules for need analysis are specified in Part F. General provisions relating to student assistance, and requirements for program integrity are specified under Part G, and Part H, respectively. The parent PLUS Loan pilot auction program is authorized under Part I. Amendments made by the HEOA to Title IV of the HEA are described below. Title IV, Part A authorizes numerous grant programs for students who attend eligible institutions participating in Title IV programs; and also authorizes federal early outreach and student services programs. The Federal Pell Grant program is the single largest source of grant aid for postsecondary education attendance funded by the federal government. The AC/SMART grant programs provide additional aid to certain Pell-eligible students. The CCRAA amended and reauthorized the Federal Pell Grant Program. The CCRAA amendments provided mandatory appropriations to (1) eliminate the tuition sensitivity provision and (2) provide additional funding for Pell Grant awards through 2017, as shown in Appendix . Under the HEOA, the Pell program is further amended as described below. Note that the HEOA also authorizes an Early Federal Pell Grant Commitment Demonstration Program under Title VIII, Part Y, which is described in a separate section below. Maximum and Minimum Pell Grant Awards . Under the HEOA amendments, the maximum authorized Pell Grant award amounts are established as $6,000 for AY2009-2010, and maximum award amounts increase incrementally to $8,000 for AY2014-2015, as shown in Table 1 , below. The authorized maximum represents discretionary appropriations and does not count mandatory add-ons to grants that were included in the CCRAA. The mandatory add-on has the effect of increasing the maximum Pell award, but only for those students who qualify for the maximum discretionary appropriated award amount; these amounts are also shown in Table 1 . In addition, the minimum Pell Grant award amount is changed from $400, to 10% of the appropriated maximum award amount, with a "bump" for students who would otherwise qualify for at least 5% of the appropriated maximum award amount to receive 10% instead. For example, if for FY2009, the AY2009-2010 appropriated maximum Pell Grant were to be $5,000, then the minimum grant would be $500, and any student who qualifies for an award amount between $250 and $499, would receive $500. Year-Round Pell Grants . Effective July 1, 2009, eligible students may receive so-called "year-round Pell Grants" as a result of the Secretary being authorized to award a second Pell Grant to students during a single award year. For example, the additional Pell Grant award may support a summer term in addition to the regular academic year. To qualify, students must be enrolled on at least a half-time basis in either an associate's or bachelor's degree program. Ineligibility as a Result of Involuntary Civil Commitment . In addition to a previously existing provision making individuals serving in a federal or state penitentiary ineligible for Pell Grants, the HEOA eliminates eligibility for individuals serving in involuntary civil commitment centers. (These centers are used by some states as an alternative to prison for sexual offenders.) Maximum Duration of Eligibility . The HEOA amendments introduce duration of eligibility limitations for Pell Grants. Effective for students who receive their first Pell Grant on or after July 1, 2008, cumulative Pell Grant eligibility is limited to 18 full-time semesters (or the equivalent). Auto-Zero EFC for Individuals Whose Parent or Guardian Died in a Post-9/11 War Zone . Effective July 1, 2009, individuals who were under 24 years of age, or were enrolled at an IHE, at the time their parent or guardian died while serving in the armed forces of the United States in Iraq or Afghanistan, after September 11, 2001, are assigned an automatic $0 expected family contribution (auto-zero EFC), for the entirety of the period they are eligible for a Pell Grant. An auto-zero EFC would make a student eligible for a maximum Pell Grant award. It appears that the assignment of an auto-zero EFC to such individuals will also increase their eligibility for other forms of Title IV aid as well. The American Competitiveness Grant program makes available two award types to students who are eligible for Pell Grants and who meet certain academic requirements: AC Grants for first- and second-year undergraduates who have completed a rigorous secondary school program; and National SMART Grants for third- fourth-, and certain fifth-year undergraduates majoring in certain fields of science, mathematics, or a critical foreign language. The HEOA amends the AC Grant program (as amended by the ECASLA) to provide authority for recognizing a "rigorous secondary school program" to "the official designated for such recognition consistent with State law" and to require this official to report such programs to the Secretary. It also makes other technical corrections and waives master calendar and negotiated rulemaking for the changes to the AC and SMART grant programs that were made under the ECASLA. Subpart 2 of Title IV, Part A authorizes Federal Early Outreach and Student Services Programs. Chapter 1 of this subpart establishes the Federal TRIO programs and Chapter 2 authorizes the Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP) program. The TRIO programs, Talent Search (TS), Upward Bound (UB), Student Support Services (SSS), Ronald E. McNair Postbaccalaureate Achievement (MPA), and Educational Opportunity Centers (EOC), each provide direct or indirect service support to students. Grants are competitively awarded to institutions of higher education and other public and private institutions and agencies, and are four or five years in duration. Amendments made to the TRIO Programs under the HEOA are described below. Changes to Award Provisions . The HEOA clarifies that community-based organizations are eligible TRIO award recipients, removes a requirement that secondary schools may be eligible only in "exceptional circumstances," and extends the duration for certain grants in order to synchronize current award cycles. The HEOA extends the duration of TRIO grants from four to five years; and increases the minimum grant amount for each of the TRIO programs to $200,000, except for Staff Development grants which remain at $170,000. (Prior to the HEOA, TS and EOC grants were capped at $180,000; UB and MPA grants were capped at $190,000; and evaluation grants were capped at $170,000). The HEOA requires the Secretary to use specified outcome criteria in evaluating TRIO programs and mandates that grantees' prior experience be taken into account when awarding grants. Note that a mandatory appropriation for years FY2008 through FY2011 was enacted under the CCRAA to support additional Upward Bound awards, as shown in Appendix . Changes to Eligibility and Uses . The HEOA allows more than one TRIO grant to be awarded to campuses under certain conditions and expands the definition of the term "veterans eligibility." Prior to the HEOA, the program authority for TS stated that the program should be designed to encourage individuals who have not completed secondary or postsecondary programs, "but who have ability to complete such programs, to reenter such programs." The HEOA eliminates this phrase and adds to the program authority language encouraging grantees to facilitate students' application for financial aid. UB is amended to prohibit the Secretary from denying a student participation in a project because the student will enter the project after the 9 th grade; and the stipend provision is amended to allow flexibility in defining the period for summer recess. Under prior law, a list of permissible services was specified for each TRIO program. The HEOA creates two subsections in each program which distinguish between required and permissible services. It also expands the description of individuals to be served by each program to include those who are Limited English Proficient, homeless, aging out of foster care, traditionally underrepresented in postsecondary education, or disabled, as well as other disconnected students. In recent years, the Secretary established an "absolute priority" for the UB program which set rules regarding which high school students will be given priority for participation in the program and called for an evaluation of the program using a control group of students who do not receive UB services (see Federal Register on September 22, 2006 (71 Fed. Reg. 55447 et seq.)). The HEOA prohibits the Secretary from proceeding with implementing or enforcing the absolute priority for student eligibility. In addition to other new requirements placed on TRIO evaluations, the Secretary is further prohibited from requiring a grantee to recruit students to serve as a "control group" for purposes of program evaluation. GEAR UP seeks to increase disadvantaged students' secondary school completion and postsecondary enrollment by providing support services and by assuring students of the availability of financial aid to meet college costs. Amendments made to GEAR UP by the HEOA are described below. Changes to Award Provisions . The HEOA maintains a grant period of six years; however, this may be increased to seven years in the case of an entity that plans to provide services to students through their first year of postsecondary education. The HEOA further retains the requirement that the Secretary ensure that students served under the program will continue to receive assistance through completion of secondary school. The application for GEAR UP is expanded and the 50% matching requirement is amended to allow entities to accrue non-Federal funds over the duration of the grant, to allow the match to be modified either at the time of the application or in response to a petition, and to clarify what can count toward the match. Changes to Eligibility and Uses . The HEOA amendments delineate early intervention grant activities under categories of "required activities" and "optional activities." The list of priority students to be served by an entity not using a cohort approach is expanded to include homeless youth and those "otherwise considered by the eligible entity to be a disconnected student." State grantees generally had been required to reserve 50-75% of funds received for scholarships, but may now use less than 50% if other funds for scholarships can be demonstrated. State grantees must notify students of their eligibility for scholarships and make scholarships available for students upon completion of secondary school and enrollment in college. State grantees must establish a scholarship trust fund containing amounts sufficient to cover the scholarship for each student in each cohort and must return unused funds to a grantees' trust fund for redistribution to other eligible students; and any funds unused after redistribution must be returned to the Secretary. Subpart 4 of Title IV, Part A authorizes Grants to States for State Student Incentives, which provide matching grant incentives for states to establish scholarship programs. Under the HEOA amendments, the maximum allowable Leveraging Educational Assistance Program grant is increased from $5,000, to the lesser of $12,500 or a student's cost of attendance. In addition, the Special LEAP program is repealed and replaced with a new subsidiary program—Grants for Access and Persistence (GAP). Like LEAP, GAP provides matching funds to states to support state need-based scholarships. Federal funds may be used to contribute up to two-thirds of GAP program costs, depending on certain conditions. GAP requires partnerships between states, IHEs, philanthropic organizations, and private corporations. GAP grants fund early awareness and outreach activities, support services, and scholarships that must be equal to average tuition and fees at similar public IHEs, less any other federal or state aid. A key component to GAP is annually notifying low-income students in grades 7 through 12 of the availability of financial aid in general, and the GAP scholarships in particular. In addition to the general LEAP maintenance of effort (MOE) requirement, GAP has a separate MOE provision requiring that each year's state contribution to GAP activities not be less than that for the prior year. The HEOA repeals the Chapter 3 of Subpart 2, Academic Achievement Incentive Scholarships; and Subpart 8, Learning Anytime Anywhere Partnerships programs. It reauthorizes Subpart 3, Federal Supplemental Education Opportunity Grant program and increases the program's allowance for books and supplies used in the formula to allocate funds to IHEs. The act amends the Subpart 5, Migrant and Seasonal Farmworker programs by making relatively minor expansions to allowable services under the grants, increasing minimum allocations to $180,000 for both the High School Equivalency Program and the College Assistance Migrant Program, by changing the distribution of funds among the activities, and by requiring increased data collection. The HEOA amends the Subpart 6, Robert C. Byrd Honors Scholarship Program to clarify that home-schooled children are eligible. It also changes definitions and funding distribution provisions for the Subpart 7, Child Care Access Means Parents in School program. In addition to establishing new requirements relating to disclosures, waivers, and evaluation, the HEOA clarifies that Subpart 9, Teacher Education Assistance for College and Higher Education (TEACH) Grant recipients studying in fields which are subsequently designated as no longer high-need may fulfill their service agreements in their original field. The federal government operates two major student loan programs: the FFEL program, authorized under Title IV, Part B, and the DL program, authorized Title IV, Part D. Under the FFEL program, loan capital is provided by private lenders, and the federal government guarantees lenders against loss through borrower default, death, permanent disability, or, in limited instances, bankruptcy. Under the DL program, the federal government provides the loans to students and their families, using federal capital (i.e., funds from the U.S. Treasury). While the two programs rely on different sources of capital and different administrative structures, they both make available essentially the same set of loans, with very similar terms and conditions: Subsidized Stafford Loans and Unsubsidized Stafford Loans for undergraduate and graduate students; PLUS Loans for parents of undergraduate dependent students and graduate students; and Consolidation Loans through which borrowers may combine their loans into a single loan payable over a longer term, that varies according to the combined loan balance. Amendments made by the HEOA to the FFEL and DL programs are described below. The HEOA includes amendments to loan terms and conditions that apply to current military servicemembers and veterans of the armed forces. Exclusion of Veterans ' Education Benefits from Being Treated as Estimated Financial Assistance for Subsidized Stafford Loans . Effective July 1, 2010, all forms of veterans' education benefits are excluded from being treated as estimated financial assistance for purposes of determining a student's eligibility to borrow FFEL and DL program Subsidized Stafford Loans. At present, only veterans' education benefits received under the Montgomery GI Bill-Active Duty (MGIB-AD) program are excluded from a student's EFA. Note that similar provisions exclude veterans' education benefits from the general Title IV need analysis calculation, as described under Part F, below. Extension of Protections under § 207 of the Servicemembers Civil Relief Act (SCRA) to Federal Student Loans . Individuals who borrow loans under the FFEL and DL program loans after the date of enactment, and who later enter military service, may have the interest rate on those loans capped at 6% for the duration of their military service. Creditors must forgive interest above the rate of 6% and may not accelerate repayment of the loans. For loans first disbursed on or after July 1, 2008, on which the interest rate is reduced to 6% in accordance with § 207 of the SCRA, the formula for determining special allowance payments (SAPs) to lenders shall take into account the 6% interest rate, resulting in no reduction in SAPs to lenders. No Accrual of Interest on DL Program Loans for Certain Active Duty Service Members . The terms and conditions of DL program loans (but not FFEL program loans) for which the first disbursement is made on or after October 1, 2008, must specify that interest will not accrue during any period of up to 60 months while the borrower is serving on active duty or performing qualifying National Guard duty in an area of hostilities during a war or national emergency. Additionally, the Secretary is required to offer a Consolidation Loan under the DL program to any borrower seeking to obtain such a loan for purposes of using the no accrual of interest for active duty service members program. For Consolidation Loans, the benefit is only available with respect to the portion used to repay loans first disbursed on or after October 1, 2008. The HEOA adds a number of requirements for IHEs, lenders, and other entities to provide specified information to students, borrowers, or others. These requirements are discussed below. Forbearance Information Requirements . The HEOA amends the FFEL program guaranty agreements to require lenders, at the time of granting a borrower forbearance, to inform the borrower of the impact that the capitalization of interest will have on the total loan principal and interest required to be repaid. At least once during every 180-day period in forbearance, lenders must inform borrowers: that interest will continue to accrue during forbearance; of the total amount of unpaid principal; of the amount of interest that has accrued since the last statement, and when it will be capitalized; that accrued interest may be paid before it is capitalized; and that borrowers may discontinue forbearance at any time. Disclosures to Borrowers of Consolidation Loans . FFEL and DL program lenders are required to disclose to borrowers of Consolidation Loans whether consolidation of FFEL or DL program loans would result in the loss of any loan benefits, including loan forgiveness, cancellation, or deferment; and that the consolidation of a Perkins Loan will result in a loss of the in-school deferment benefit and loan cancellation benefits. Disclosure of Terms and Conditions for Federal Student Loans . New requirements are added for lenders to disclose to borrowers detailed information about the terms and conditions of FFEL and DL program loans upon notification of approval of the loan, upon disbursement of the loan, upon the start of repayment, and during repayment. Items required to be disclosed include information on charges, fees, and the rate of interest; an explanation that if the borrower does not pay the interest that accrues on unsubsidized loans while in school, the interest will be capitalized (i.e., added to the principal balance of the loan); a statement of the total cumulative balance owed to the lender, and estimated monthly payments (or sample projections for Unsubsidized Stafford Loans and PLUS Loans); information on repayment options and borrower benefits, such as deferment, forbearance, and forgiveness; and information on the consequences of default. Consumer Education Information . The HEOA amendments require guaranty agencies (GAs) under the FFEL program to work with the IHEs they serve to develop and make available high-quality and easy to understand educational programs and materials to provide training in budgeting and financial management to prospective and enrolled students and their families. GAs may use existing programs and materials to meet this requirement. Also, consumer education information activities shall be considered default reduction activities. The HEOA amends requirements related to entities involved in the guaranteed student loan program in the following manner. Restrictions on Inducements, Payments, Mailings, and Advertising by Guaranty Agencies . The HEOA enhances previously existing restrictions on guaranty agencies to prohibit GAs from offering specified types of inducements to any IHE or its employees in order to secure applicants for FFEL program loans; and to lenders for purposes of being designated as the insurer of its loans. The HEOA amendments also specify that GAs are prohibited from performing for any institution, or paying to have performed, any function that it is required to perform under Title IV, with the exception of exit counseling. Voluntary Flexible Agreements . Under the HEA, the Secretary is authorized to enter into voluntary flexible agreements with guaranty agencies in which certain requirements otherwise applicable to guaranty agreements may be waived. The HEOA establishes new reporting requirements for voluntary flexible agreements. The Secretary, in consultation with guaranty agencies operating under voluntary flexible agreements, is now required to report annually to the authorizing committees on outcomes with respect to program integrity, cost efficiencies, delinquency prevention, default aversion, consumer education programs, and the availability and delivery of student financial aid. Expansion of Financial Institutions Treated as Eligible Lenders . Prior to the HEOA, most banks, thrifts, and credit unions were prohibited from being eligible lenders under the FFEL program unless FFEL program loans constituted no more than half of their consumer credit function. Now, in accordance with the HEOA amendments, national and state chartered banks and credit unions with assets of less than $1 billion may be eligible lenders under the FFEL program without regard to whether the making or holding of FFEL program loans constitutes more than half of their consumer credit function. Disqualification as an Eligible Lender for Use of Incentives . Prior to the HEOA, to be an eligible lender under the FFEL program, an entity was prohibited from offering inducements to IHEs, conducting unsolicited mailings of student loan applications, offering loans as an inducement to borrowers to purchase other products, and engaging in fraudulent or misleading advertising. With the enactment of the HEOA, additional forms of incentives are specifically prohibited. These include entering into a consulting arrangement with an IHE's financial aid office; compensating an employee of an IHE's financial aid office for service on an entity established by the lender (except reimbursement of expenses); performing, or paying to have performed, any function an IHE is required to perform under Title IV (except exit counseling); paying or providing benefits to a student to secure loan applications (unless otherwise employed by the lender); and specified forms of inducements. The HEOA amends provisions related to PLUS loans in the following manner. Extenuating Circumstances for Making PLUS Loans . FFEL and DL program PLUS Loans are not available to borrowers with adverse credit histories; and prior to enactment of the ECASLA, lenders were required to consider a PLUS Loan applicant to have an adverse credit history if the applicant was 90 days or more delinquent on a debt payment, unless extenuating circumstances existed. An ECASLA amendment specifies that extenuating circumstances exist, if during the period from January 1, 2007, through December 31, 2009, an applicant is no more than 180 days delinquent on mortgage payments for a primary residence or medical bill payments; or if an applicant is no more than 89 days delinquent on any other debt payments. The HEOA further amends this provision, effective July 1, 2008, to specify that extenuating circumstances exist only if an applicant is no more than 180 days delinquent on mortgage payments for a primary residence or medical bills. Grace Period and Deferment for PLUS Loans . The HEOA amends the terms and conditions of PLUS Loans for which the first disbursement is made on or after July 1, 2008. For parent PLUS Loans, borrowers may request a deferment for any period during which the student on whose behalf the loan was borrowed would qualify for a deferment. With respect to graduate and professional student PLUS Loans, the commencement of repayment is deferred until the end of a six-month grace period beginning immediately after the borrower ceases to be enrolled in school on at least a half-time basis. In addition to related provisions under Title IV, Part G, the HEOA extends and amends requirements and programs related to loan forgiveness, repayment by others, and discharge. Teacher Loan Forgiveness for Employment in Educational Service Agencies . The HEOA extends loan forgiveness under the existing FFEL and DL Loan Forgiveness for Teachers programs to new borrowers who, on or after October 1, 1998, had no outstanding balance on federal student loans and who have been employed by an educational service agency as a full-time teacher for 5 consecutive years. Previously, the teacher loan forgiveness benefit was available only to eligible teachers employed in certain low-income schools. Loan Forgiveness for Service in Areas of National Need . A new discretionary program is established to provide loan forgiveness of up to $2,000 in FFEL or DL program student loan debt (other than PLUS Loans borrowed on behalf of a dependent student), per year during which a borrower is employed full-time in an area of national need, with a maximum amount forgiven of $10,000 for five years of service. Specified areas of national need are early childhood educators; nurses; foreign language specialists; librarians; certain highly qualified teachers; child welfare workers; speech-language pathologists and audiologists; school counselors; certain public sector employees; nutrition professionals; medical specialists; mental health professionals; dentists; STEM employees; physical therapists; superintendents, principals, and other (school) administrators; and occupational therapists. The program is available to borrowers on a first come, first served basis; and is subject to the availability of appropriations. It is authorized to be funded at such sums as may be necessary for FY2009-FY2014. Loan Repayment for Civil Legal Assistance Attorneys . A new discretionary program is established to provide loan repayment to individuals who enter into agreements with the Secretary to serve as civil legal defense attorneys for not less than three years. In return for their service, the Secretary shall assume the obligation to make payments of up to $6,000 per year, and $40,000 in the aggregate, on federal student loans made under FFEL, DL and Perkins Loan programs (other than PLUS Loans borrowed on behalf of a dependent student). The program is available on a first come, first served basis; and is subject to the availability of appropriations. Appropriations are authorized at $10 million for FY2009; and such sums as may be necessary for FY2010-FY2014. Disability Discharge . At present, the Secretary discharges FFEL and DL program loans for borrowers who die or become permanently and totally disabled. In accordance with the HEOA amendments, effective July 1, 2010, FFEL and DL program loans will also be discharged for borrowers who are unable to engage in any substantial gainful activity due to a physical or mental impairment that can be expected to result in death or that has lasted continuously or can be expected to last continuously for 60 months. Also, effective July 1, 2010, borrowers who have been determined by the Secretary of Veterans Affairs to be unemployable due to a service-connected condition shall be considered permanently and totally disabled. The HEOA amends provisions related to IHEs' rates of students defaulting on federal student loans in the following manner. Cohort Default Rates Calculation . Prior to the HEOA amendments, cohort default rates have been based on the number of current and former student borrowers of Subsidized Stafford Loans and Unsubsidized Stafford Loans made under the FFEL and DL programs who enter repayment in a particular fiscal year, and who default on their loans before the end of the next fiscal year (a two-year period). Effective for FY2009 and succeeding years, the calculation of cohort default rates is amended to be based on the number of current and former student borrowers of Subsidized Stafford Loans and Unsubsidized Stafford Loans who enter repayment in a particular fiscal year, and who default on their loans before the end of the second succeeding fiscal year (a three-year period). (PLUS Loans to graduate and professional students are not included in the calculation of cohort default rates.) Also effective for FY2009 and succeeding years, a new life of cohort default rate is established which measures, on a year-by-year basis, the cumulative percentage of current and former student borrowers of FFEL and DL program Subsidized Stafford Loans, Unsubsidized Stafford Loans, and graduate PLUS Loans who enter repayment in a particular fiscal year, and who have defaulted on their loans since entering repayment. It appears that the new life of cohort default rate is for informational purposes only. Cohort Default Rate Penalties . Prior to the HEOA amendments, IHEs have been subject to the loss of institutional eligibility to participate in Title IV programs for having high cohort default rates for FFEL and DL program loans. At present, IHEs are subject to the loss of institutional eligibility if their cohort default rate equals or exceeds 25% for 3 consecutive fiscal years. Beginning with FY2012, IHEs will be subject to the loss of eligibility if their cohort default rates (as measured according to the amended cohort default rate calculation) equal or exceed 30% for 3 consecutive fiscal years. The HEOA also establishes provisions for appeals for regulatory relief if an IHE demonstrates that exceptional mitigating circumstances led to its high cohort default rate; and requirements for IHEs with high cohort default rates to prepare default reduction plans. The Federal Work-Study (FWS) program is authorized under Title IV, Part C, and provides undergraduate, graduate, and professional students the opportunity for paid employment in a field related to their course of study or in community service. Amendments made by the HEOA to the FWS program include the following. A new use of FWS program funds is added that allows IHEs to compensate students employed in projects that teach civics in schools, raise awareness about the government, or increase civic participation. Whereas the federal share of compensation may not exceed 75% for most types of FWS employment, it may for civic education and participation activities. A new authorization of appropriations is established for grants to IHEs for purposes of compensating students employed in community service jobs. The Federal Perkins Loan program is authorized under Title IV, Part E. The program provides low-interest loans with favorable terms and conditions to undergraduate, graduate, and professional students. Amendments to the Federal Perkins Loan program include the following. The HEOA amends requirements for Perkins Loan program participation agreements to provide that if an IHE has not knowingly failed to maintain an acceptable collection record with respect to a defaulted Perkins Loan, the Secretary may allow the institution to refer the loan to the Secretary, without recompense, except that once every six months, any amounts collected (less collection costs) shall be repaid to the referring institution within 180 days of collection and shall be treated as an additional federal capital contribution. The HEOA also restricts the authority of the Secretary to require the mandatory assignment of defaulted Perkins Loans. The HEOA increases annual borrowing limits on Perkins Loans from $4,000 to $5,500 for undergraduate students; and from $6,000 to $8,000 for graduate and professional students. It also increases aggregate Perkins Loan limits from $20,000 to $27,500 for undergraduate students who have completed two years of study; from $40,000 to $60,000 for graduate and professional students; and from $8,000 to $11,000 for all other students. The HEOA amends requirements related to the discharge and cancellation of Perkins Loans, as described below. Disability Discharge . At present, Perkins Loans are discharged by the Secretary for borrowers who die or become permanently and totally disabled. In accordance with the HEOA amendments, effective July 1, 2008, Perkins Loans will also be discharged for borrowers who are unable to engage in any substantial gainful activity due to a physical or mental impairment that can be expected to result in death or that has lasted continuously or can be expected to last continuously for 60 months. Also, effective July 1, 2008, borrowers who have been determined by the Secretary of Veterans Affairs to be unemployable due to a service-connected condition shall be considered permanently and totally disabled. Loan Cancellation for Public Service . Under the HEOA, loan cancellation is extended to borrowers of Perkins Loans for full-time employment as public defenders, fire fighters, faculty members at Tribal Colleges and Universities, librarians, and speech language pathologists, at the rate of 15% for their first and second years of service; 20% for their third and fourth years of service; and 30% for their fifth year of service. In addition, loan cancellation for service as a member of the armed forces in an area of hostilities is also provided at those rates; whereas, previously it was provided at the rate of 12.5% per year of service for up to four years. The HEOA expresses the sense of Congress that the Federal Perkins Loan program is an important part of federal student aid and that it should remain a campus-based program at colleges and universities. Title IV, Part F provides requirements for calculating the contribution students and their families are expected to pay toward the costs of postsecondary education, known as the expected family contribution (EFC). What the EFC does not cover toward the total cost of attendance (including tuition, room, board, books, supplies, and living expenses) is then defined as the student's need for assistance and is used in determining Title IV financial aid awards. The HEOA makes several changes to the need analysis calculation. For the purpose of calculating a student's estimated financial need, the HEOA makes several changes: (1) financial aid administrators may make adjustments to need based on nursing home expenses, adult dependent care, or because of a family member who is a dislocated worker; (2) financial aid administrators may award Unsubsidized Stafford loans to students whose parents have ended financial support and refuse to complete the FAFSA; (3) the Secretary may use IRS income information from the second preceding tax year for the purpose of designing a simplified needs application; (4) technical corrections are made to the independent student definition as it relates to foster youth; and (5) income from cooperative education programs is treated as excluded income. Items 1 and 2, above, are effective as of the date of enactment of the HEOA, whereas items 3, 4, and 5 are effective July 1, 2010. The HEOA also changes the effective date of financial aid administrators' professional judgement provisions enacted under the CCRAA to be as of the date of enactment of the HEOA. Effective July 1, 2010, the HEOA makes significant changes to the calculation of need for military service members and veterans. For military service members living on base or receiving a housing stipend, only board and not room is to be included in the total cost of attendance (COA) for the purpose of calculating need. Also, the value of such housing or housing stipend is not to be counted as untaxed income and benefits. Finally, any portion of veterans' education benefits received by the student (or the student's spouse or parents) is excluded both from the student's "income or assets" and from the student's "estimated financial assistance" (which is aid from non-Title IV sources). As a result of these changes, it appears that veterans may be eligible to receive veterans' education benefits and Title IV grants, loans, or work study, which combined may exceed their COA. For example, beginning August 1, 2009, a veteran who has served for three years on active duty since September 11, 2001, will be eligible for veterans education benefits under the Post-9/11 Veterans Education Assistance program that would pay an amount equal to tuition and fees charged at the most costly public IHEs in the state, a $1,000 allowance for books, and a monthly housing allowance equal to the basic allowance for housing payable to an E-5 (i.e., a junior non-commissioned officer) with dependents living in the area where the IHE in which the student is enrolled is located. While assistance made available under the Post-9/11 Veterans Education Assistance program may be substantial (in some instances in excess of $25,000), this and other veterans education benefits will be excluded from being considered as either income or as part of estimated financial assistance from other sources. Thus, it appears that the receipt of any type of veterans education benefits will not impact an individual's eligibility for, nor the amount of, need-based and non-need-based aid available under Title IV. Part G contains an array of institutional requirements for Title IV participation and related provisions. The HEOA specifies technical amendments to many of the general provisions which govern Title IV student aid programs, the most significant of which are described below. The HEOA amends provisions related to the process by which students are made aware of, apply for, and are awarded student financial aid. Regular and Simplified Applications for Student Aid . The HEOA reconstructs the entirety of HEA, § 483, which establishes the Free Application for Federal Student Aid (FAFSA). In addition to the FAFSA, this section authorizes the EZ-FAFSA for students qualifying under either the Simplified Needs Test or Auto-Zero EFC provisions, as well as web-based versions of the FAFSA and EZ-FAFSA. The section also requires the Secretary to pursue a process of streamlining the FAFSA for reapplications and to ultimately reduce the number of data elements required from all applicants by a goal of 50%. In so doing, the Secretary is to determine how Internal Revenue Service (IRS) data may pre-populate the FAFSA in order to reduce income and asset questions on the form and is given the authority to directly obtain such data from the IRS. The Comptroller General is to convene a group including the Secretaries of Education and of the Treasury, the Directors of the Office of Management and Budget and of the Congressional Budget Office, and representatives of IHEs and of state higher education agencies, in consultation with the Advisory Committee on Student Financial Assistance, to study alternative approaches for calculating the EFC. Early Application and Estimated Award Demonstration Program . A demonstration program is authorized for dependent students to apply for and receive conditional aid offers based on income and other data two years prior to the year of enrollment (as opposed to the current practice of one year prior). The Secretary is to measure whether giving students early award notifications prior to the start of their senior year of high school positively impacts their enrollment in postsecondary education. States in partnership with their IHEs and secondary schools may apply to participate in the demonstration. Model Institutional Financial Aid Offer Form . The Secretary is required to convene a group to develop a model format for financial aid offer forms, including specified information on college prices, aid, loans, and family contributions. The HEOA amends and expands student eligibility requirements for federal student aid. Drug Conviction Ineligibility . The HEOA expands requirements under which students may be able to regain eligibility for Title IV aid following certain drug convictions by mandating that students also pass two random drug tests conducted by a rehabilitation program. Also, the Secretary is required to study and report the effects of drug conviction ineligibility. Students with Intellectual Disabilities . To provide students with intellectual disabilities (including those with mental retardation) the opportunity to participate in comprehensive transition and postsecondary education programs, the HEOA amendments open eligibility for these students to receive Pell Grant, FSEOG, and FWS aid. Specifically, new student eligibility provisions exempt intellectually disabled students from requirements relating to these students' ability to benefit from and enroll in regular recognized postsecondary degree or credential programs and modify requirements relating to maintenance of satisfactory academic progress. Ability to benefit provisions . The HEOA expands the criteria by which a student who has not graduated from high school may demonstrate the ability to benefit from postsecondary education and, subsequently, receive federal student aid. A student who satisfactorily completes six credit hours or the equivalent coursework that is applicable toward a degree or certificate offered by the IHE at which the coursework was taken is considered to demonstrate the ability to benefit from postsecondary education. The HEOA adds a requirement for how IHEs treat servicemembers returning from a leave of absence during which they served on active duty. Readmission Requirements for Servicemembers . IHEs are required to readmit students who take a leave of absence to serve on active duty in the armed forces. Students must be readmitted at the same academic status they had attained prior to serving on active duty. In addition to related provisions under Title I, Part B (in general), as well as Title I, Part E and Title IV Parts B and D (related to student loans), the HEOA adds disclosure and other reporting requirements under the general provisions of Title IV, Part G, as described below. Compliance Calendar . The Secretary must annually provide to IHEs a list of all reports, disclosures, and other regulatory requirements under the HEA, with deadlines for compliance. Information that IHEs must Make Available to Enrolled and Prospective Students . IHEs are required, upon request, to disclose various information to current and prospective students. The HEOA expands these requirements to include several new data requirements. Examples of the types of information that must be disclosed including the following: institutional policies and sanctions related to copyright infringement, including a description of the institution's policies with respect to unauthorized peer-to-peer file sharing, information on student body diversity, the placement in employment and types of employment obtained by graduates of the institutions' degree or certificate programs, the types of graduate and professional education in which graduates of the institutions' four-year degree programs enroll, the institution's fire safety report, and the retention rate of certificate- or degree-seeking first-time, full-time undergraduate students entering the university. Disclosure of Reimbursements for Service on Advisory Boards . Under the HEOA amendments, IHEs are required to annually report to the Secretary, information on the reimbursement of expenses received by employees of the financial aid office of the institution for their service on an advisory board, commission or group established by a private educational lender. The Secretary is required to annually transmit a summary report on reimbursed expenses to the authorizing committees. Data on Completion and Graduation Rates . Under the HEOA amendments, institutions must disaggregate completion and graduation rate data submitted to ED based on student gender, race/ethnicity, receipt of a Pell Grant, receipt of a federal loan but not a Pell Grant, and non-receipt of a Pell Grant or specific federal loans. These requirements will not apply to two-year degree-granting institutions until the 2011-2012 academic year. Prior to that time, the Secretary is required to convene a group of representatives from the higher education community to consider the mission and role of these institutions, and to recommend additional or alternative measures of student success. The Secretary has until June 30, 2011 to modify the measures of student success for two-year degree-granting institutions. Campus Crime, Emergency Response, and Fire Safety Requirements . The HEOA expands the list of crimes for which IHEs must indicate whether the crime committed was a "hate crime" to include crimes such as simple assault and intimidation. It requires IHEs to establish policies related to immediate emergency response and evacuation procedures, including the use of electronic or cellular communication. This includes having procedures to "immediately notify the campus community" about a significant emergency or dangerous situation occurring on campus that involves an immediate threat to the health and safety of students or staff. IHEs are also required to test their emergency response and evacuation procedures on an annual basis. In addition, IHEs must publish an annual fire safety report, to be available to the public and submitted to the Secretary, that contains information about fire safety practices and standards at the institution and provides data on fires that occurred in on-campus housing facilities. Transfer of Credit Policy Disclosures, Missing Person Procedures, and Drug Policy Notification . The HEOA requires IHEs to publicly disclose their transfer of credit policies, including any established criteria the IHE uses in determining whether to accept the transfer of credit, as well as a list of any institutions with which the IHE has established an articulation agreement. Each IHE is also required to develop missing person procedures for students living on-campus. Finally, IHEs are required to provide students, upon enrollment, with a written notice detailing the penalties under the HEA for drug violations and to provide students who have lost their Title IV eligibility as a result of a drug violation with information on how to regain Title IV eligibility. The HEOA requires the Secretary to take actions to maintain confidentiality in the National Student Loan Data System (NSLDS); to restrict access to NSLDS, and to provide applicants of federal student aid a disclosure of the uses of individual data contained in NSLDS, and their privacy rights with respect to such data. In addition, guaranty agencies, lenders, and institutions must inform borrowers of federal student loans that information on their loans will be provided to NSLDS. The Secretary is required to carry out a program with public IHEs to develop, enhance, and implement comprehensive articulation agreements between or among such institutions in a state and (to the extent practicable) across state lines by 2010. Under the HEA, IHEs have been required to enter into a Program Participation Agreement; and, in so doing, agree to comply with the laws, regulations, and policies governing institutional participation in Title IV financial aid programs. New and amended requirements made by the HEOA to the Program Participation Agreement are described below. Disclosures to Victims of Crimes . The HEOA adds requirements within the PPA related to the disclosure of the outcome of an institutional disciplinary hearing to victims of certain crimes. Addition of the " 90/10 Rule " for Proprietary IHEs to the PPA . The HEOA moves the 90/10 rule, which applies only to proprietary institutions, to the PPA from Title I. By making this change, the 90/10 rule is no longer a condition of institutional eligibility to participate in the Title IV programs. Thus, proprietary institutions that violate the 90/10 rule in a given year will not lose their Title IV eligibility. They will, however, be placed on provisional eligibility status for two years. Proprietary institutions that violate the 90/10 rule for two consecutive years will lose their Title IV eligibility for at least two years, dependent upon further requirements to regain eligibility. Revenue Sources for Compliance with the 90/10 Rule . The HEOA specifies sources of revenue that may be counted toward the provision of the 90/10 rule that 10% of total revenues must be from non-Title IV sources. While many of these sources were allowed under regulations prior to the enactment of the HEOA, proprietary institutions may now count revenue sources toward the 10% requirement that were not permitted previously. For example, proprietary institutions may now count revenue earned from non-Title IV eligible programs of study toward the 10% requirement, provided the program is approved by the state, accredited, or provides an industry-recognized credential or certification. Under the new provision, a proprietary institution could have its Title IV programs fully paid for by Title IV federal student aid but have this aid count as only 90% of its total revenue if the other 10% of its total revenue is derived from non-Title IV programs. Also, from July 1, 2008 to July 1, 2011, proprietary institutions may count toward the 10% requirement the proceeds of Unsubsidized Stafford Loans in excess of the loan limits that existed the day before the enactment of the ECASLA. Requirements for Teach-Outs . In the event that the Secretary initiates the limitation, suspension, or termination of an IHE's participation in any Title IV program or initiates an emergency action against an IHE, the HEOA requires the IHE to prepare a teach-out plan for submission to the institution's accrediting agency. A teach-out plan is a written plan that provides for the equitable treatment of students if an IHE ceases operations before all students have completed their program of study. Code of Conduct for Student Loans . The HEOA adds requirements to the PPA that IHEs develop, publish, administer, and enforce codes of conduct with respect to federal student loans. Codes of conduct must include a ban on revenue-sharing arrangements with lenders; a ban against employees of the financial aid office receiving gifts from lenders, compensation through consulting arrangements or contracts with lenders, and compensation for service on an advisory board, commission, or group established by a lender; prohibitions against IHEs steering borrowers to particular lenders, and against delaying or refusing to certify loans based on a borrower's selection of lender or guaranty agency; a ban against IHEs receiving funds from lenders for private loans or opportunity pools in exchange for entering into a preferred lender arrangement; and a ban against financial aid offices receiving staffing assistance from lenders. Preferred Lender Arrangements . The HEOA adds requirements to the PPA that IHEs entering into preferred lender arrangements must annually compile, maintain, and make available a list of lenders of federal student loans and private student loans that it recommends, promotes, or endorses. IHEs must also disclose: detailed information about the terms and conditions of loans offered by preferred lenders, as specified under Title I, Part E; why the IHE entered into a preferred lender arrangement with the lender; the terms and conditions of those loans that are favorable to borrowers; that students need not borrow from preferred lenders; and the criteria used by the IHE to select preferred lenders. Preferred lender lists for FFEL program loans must contain at least 3 unaffiliated lenders; and preferred lender lists for private education loans must contain at least 2 unaffiliated lenders. Previously, institutions were permitted to transfer up to 25% of their Perkins Loan FCC allotment to either or both the FSEOG and the FWS programs; and up to 25% of their FWS allotment to the FSEOG program. Institutions may now also transfer up to 25% of their FWS allotments to either or both the FSEOG or the Perkins Loan program; and up to 25% of their FSEOG allotment to the FWS program. The HEOA amends the purposes of the Advisory Committee related to early intervention and awareness programs and federal regulations and the appointment provisions for committee membership. It requires the Advisory Committee, in consultation with expert review panels, to review and monitor all proposed federal regulations in regard to their potential impact on IHEs, to maintain a website with regulatory information (including the study of HEA regulations conducted by the National Academy of Sciences as required under Title XI), and to conduct the committee's own review and analysis of federal regulations affecting IHEs. The act also requires the Advisory Committee to conduct a Study of Innovative Pathways to Baccalaureate Degree Attainment. Part H includes three subparts that specify the roles and responsibilities for the three aspects of the program integrity triad: state authorization, accreditation by an accrediting organization recognized by the Secretary, and eligibility and certification by ED. The HEOA requires accrediting agencies to consistently apply and enforce standards that respect the stated mission of the institution, including religious missions. It adds requirements related to accrediting agency distance education oversight responsibilities, including ensuring students are doing the distance education coursework for which they receive credit. Also modified are existing due process requirements related to the accrediting process, including requiring accrediting agencies to have written accreditation standards and to have a conflict of interest policy for appeals panels. The HEOA also adds requirements related to the growth of programs, teach-out plans, public disclosure of accrediting agency actions, and transfer of credit policies. The HEOA amendments require accrediting agencies to evaluate institutions' success with respect to student achievement in relation to the institution's mission. But, the HEOA prohibits the Secretary from establishing any criteria that specify the standards that accrediting agencies must use to assess an IHE's success with respect to student achievement. It also prohibits the Secretary from issuing regulations related to the standards an accrediting agency must use to assess various aspects of institutions, including, for example, student achievement, curricula, faculty, and facilities. The HEOA amendments specify that during a program review, ED is required to provide an IHE with an adequate opportunity to review and respond to any relevant materials prior to a final program report being issued. The Department of Education must review and take into consideration an IHE's response in any final program review report or audit determination, including issuing a written statement addressing the IHE's response. The Department must maintain and preserve the confidentiality of any program review report until a final program review is issued, except that information must be shared with the IHE being reviewed and the institution's accrediting agency and state. Part I, added to the HEA by the CCRAA, authorizes the Secretary to implement a pilot student loan auction program for FFEL program parent PLUS loans beginning July 1, 2009. Under the program, auctions will be held in each state and lenders will bid on the minimum amount of subsidization they will accept to obtain rights to originate parent PLUS loans in that state. The program is amended: to require lenders, at the time of submitting bids to participate in the program for a particular state, to make a commitment that if theirs is the winning bid, they will enter into an agreement with the Secretary to originate parent PLUS Loans in that state; to specify penalties for lenders with a winning bid that fail to enter into an agreement with the Secretary; to specify that GAs are responsible for administering federal loan insurance on parent PLUS Loans made under the program; and to require an evaluation of the program. Title V establishes programs that make available support for Hispanic Serving Institutions (HSIs), similar to those described under the Title III heading, above. The HEOA amends the allowable uses of funds for HSI grants to include remedial and English language instruction, financial literacy counseling, and articulation agreement facilitation. The HEOA establishes a new Title V program, to be designated Title V, Part B, to be called Promoting Postbaccalaureate Opportunities for Hispanic Americans (PPOHA). HSIs that offer postbaccalaureate certificate or degree programs are eligible grantees, with funds to be used for a variety of activities to support expansion of graduate programs, including construction and student financial assistance. Under Title VIII, Part AA, $11.5 million per year is appropriated for the program for FY2009 through FY2014, as shown in Appendix . In addition to technical amendments, the HEOA increases the authorization of appropriations for Title V; see Appendix . Title VI authorizes a variety of grants to IHEs and related entities to enhance instruction in foreign language and area studies. The international education program reflects the special priority placed by the federal government on foreign language and area studies, especially with respect to diplomacy, national security, and trade competitiveness. In addition to the Title VI amendments below, note that the HEOA also establishes a new Deputy Assistant Secretary for International Education through an amendment to the Department of Education Organization Act (see Title IX, below). Authorized Part A programs include Language and Area Centers, International Studies and Foreign Languages, and Research Centers Abroad. The HEOA amends these programs' purposes as well as application, evaluation, and other administrative requirements of these programs. The HEOA also makes certain undergraduate students eligible for Language and Area Studies Fellowships and redistributes how funds appropriated for Title VI, Part A are to be allocated to each program. Authorized Part B programs include International Business Education Centers and Business and International Education Projects. The HEOA amends the programs' purposes and grantee assurances to "encourage the advancement and understanding of technology-related disciplines, including manufacturing software systems and technology management" and requires grantees to provide an assurance that "diverse perspectives will be made available to students." Part C establishes the Institute for International Public Policy which provides a grant to a consortium of certain minority-serving institutions to support the preparation of underrepresented minority students for international and foreign service careers. The HEOA clarifies eligibility criteria so as to include all institutions eligible for assistance under Title III, Parts A and B, and Title V. The act also authorizes financial assistance under Part C consisting of summer stipends and Ralph Bunche Scholarships. Part D contains provisions that define terms used in Title VI. In addition to adding a new Title VI program under Part D, the HEOA amendments give the Secretary authority to waive the Title VI grant programs' matching requirements under certain conditions and revise assessment and reporting requirements. The HEOA establishes a new program authorizing the Secretary to award competitive grants to IHEs to develop programs that teach foreign languages and emphasize understanding of science and technology; foster international scientific collaboration; and provide professional development to K-12 teachers. Programs authorized under Title VII, Part A are focused on supporting specific graduate and professional degrees. Note that other aid programs targeted toward graduate education are authorized elsewhere in the HEA, including Title VIII, Part G, Mink Fellowships, described below. Title VII, Part B authorizes the Fund for the Improvement of Postsecondary Education (FIPSE). Finally, Title VII, Parts D and E authorize other programs related to educating students with disabilities, and outreach and grant assistance. Title VII, Part A authorizes programs to support graduate education. Amendments under the HEOA include a requirement that representatives from IHEs receiving grants under Titles III or V be represented on the Jacob K. Javits Fellows Program Fellowship Board; new requirements for designating areas that qualify under for Graduate Assistance in Areas of National Need; an expansion of allowable services to include secondary school students (to be called "Associates," as opposed to the undergraduate "Fellows") under the Thurgood Marshall Legal Educational Opportunity Program; and a sense of Congress statement encouraging Title VII, Part A institutions to voluntarily establish an inter-institution monitoring organization to address the under-representation by race, ethnicity, and gender in higher education faculty and administration. In addition, a new subpart is established, which creates the two new programs described below. The HEOA establishes a new program to support Master's Degree Programs at HBCUs (MDP-HBCU). Grants are for a minimum of $500,000 and must be matched with non-Federal funds if over $1,000,000. Unlike other Title VII, Part A programs that are open to all IHEs meeting specified criteria, MDP-HBCU delineates the 18 specific institutions that are eligible for the program. Grants may be used for a wide variety of activities to support master's degree programs in STEM and health fields. Title VIII, Part AA specifies a mandatory appropriation for the program of $9 million per year for FY2009 through FY2014 (enough for each eligible IHE to receive the minimum grant). The HEOA establishes a new program to support Master's Degree Programs at PBIs (MDP-PBI). MDP-PBI grants have the same minimums, matching requirements, and purposes as MDP-HBCU grants. The MDP-PBI program delineates the 5 specific institutions that are eligible for grants. Title VIII, Part AA appropriates to the program $2.5 million per year for FY2009 through FY2014 (enough for each eligible IHE to receive the minimum grant). Title VII, Part B authorizes FIPSE, whose purpose is to broadly encourage the reform, innovation, and improvement of postsecondary education. The HEOA adds five purposes for FIPSE grants and contracts and adds to areas of national need for the purpose of awarding grants for FIPSE Special Projects. In addition, HEOA establishes a priority in FIPSE grant competitions to IHEs using green building standards and creates two programs under FIPSE. The HEOA establishes new allowable uses for FIPSE grants, including reforms in remedial education, partnerships between high schools and colleges to increase late-entering limited English proficient students to pursue postsecondary education, interdisciplinary programs on poverty with service-learning components, demonstration programs for housing homeless and foster youth during periods when college dorms are closed, and promoting cultural diversity in the entertainment industry. The HEOA establishes a new program authorizing a competitive grant or contract to an IHE to establish and maintain a center to study and develop best practices for IHEs to support single parents who are themselves students. The HEOA establishes a new program authorizing a competitive contract to a nonprofit organization to provide postsecondary education scholarships to children and spouses of military service members who are on active duty during a war, military operation, or national emergency, or of veterans who served since September 11, 2001, and who were killed or disabled while serving. Scholarships are to be need-based and up to a maximum of $5,000. The HEOA repeals Title VII, Part D, which provided for demonstration projects, and replaces it with several programs related to postsecondary education for students with disabilities. Specific statutory language prohibits Title VII, Part D programs from reducing or expanding any rights or obligations established under the Rehabilitation Act of 1973, the Americans with Disabilities Act of 1990, the Individuals with Disabilities Education Act, the Developmental Disabilities Assistance and Bill of Rights Act of 2000, or state laws. The HEOA establishes a new competitive grant or contract program for model demonstrations, technical assistance, and professional development relating to teaching methods, secondary-postsecondary transitions, research, distance learning, developing career pathways, professional development, and accessibility. The HEOA establishes a new competitive grant program for IHEs, or IHEs in partnership with vocational rehabilitation agencies, to create model transition programs to postsecondary education for students with intellectual disabilities. Grant activities include academic enrichment, extracurricular participation, and campus housing integration. Federal funds must be matched by non-federal funds at a 3 to 1 ratio. The HEOA establishes two new programs to improve accessibility of course materials. It creates for the Secretary an Advisory Commission on Accessible Instructional Materials in Postsecondary Education for Students with Disabilities, to conduct a study and issue recommendations within a year to improve accessibility of instructional materials for postsecondary education students with print disabilities. The act also creates a competitive grant or contract program for Model Demonstration Programs to Support Improved Access to Postsecondary Instructional Materials for Students with Print Disabilities, available to eligible partnerships of IHEs and expert organizations. The HEOA establishes two new programs to provide technical assistance and information to students, their families, and Title VII, Part D grantees. The Secretary is authorized to award a grant, contract, or cooperative agreement to an IHE, nonprofit organization, or partnership to support a National Center for Information and Technical Support for Postsecondary Students with Disabilities. The Center will build a web-based database of information on disability services in higher education and will provide other support, assistance, and information to students and families relating to IHEs' disability support services. The Secretary is also authorized to award a cooperative agreement to create a Coordinating Center for IHEs offering inclusive comprehensive transition programs for students with intellectual disabilities. The Coordinating Center will offer technical assistance, evaluation protocols, program development assistance, and other services; and will convene a working group to make recommendations to NACIQI on accreditation standards for such programs. Title VII, Part E was added to the HEA by the CCRAA. The CCRAA provided mandatory funding for the program for FY2008 and FY2009. The HEOA amended the College Access Challenge Grant program to also authorize discretionary appropriations for FY2009 through FY2014. As discussed above (see Title I), the HEOA also established a new state maintenance of effort (MOE) requirement at HEA, § 137 under which states would lose eligibility to participate in the program for failure to meet the MOE. Authorizations of appropriations for the College Access Challenge Grant program are shown in Appendix . The HEOA adds a new title to the HEA, "Title VIII—Additional Programs," which includes 27 new Parts, each establishing one or more new programs. Each of these newly authorized programs would be funded through discretionary appropriations. These new programs are each briefly described below. Part A authorizes the Secretary to enter into a contract with the nonprofit organization Project GRAD USA to provide support for programs that assist in secondary-to-postsecondary education transitions, implemented through a series of subcontractors that must match federal funds received. Part B authorizes the Secretary to award competitive grants to states to provide support and scholarships for students pursuing STEM or health fields. Freshmen students are eligible for the "Mathematics and Science Scholars Program" and upperclass students are eligible for an additional four years of the "STEM or Health-Related Scholars Program"—each of which provides up to $5,000 per year. Part C authorizes the Secretary to award competitive grants to partnerships of IHEs, employers, and labor organizations to provide job training in high-growth fields and to strengthen degree programs to meet workforce needs. Part D authorizes the Secretary to award competitive grants to IHEs to expand associate, baccalaureate, and graduate nursing programs. Grants may be used to purchase technology, conduct assessments, and provide scholarship support for students wishing to become nursing faculty. Part E authorizes the Secretary to award competitive grants to IHEs to establish or strengthen programs or centers related to traditional American history, free institutions, and Western civilization. Grants may be used to design and implement academic programs, materials, research, fellowships, teacher preparation, school partnerships, and dissemination. Part F authorizes the Secretary to award a directed grant to Teach for America, Inc. to expand its program of recruiting, selecting, training, and supporting new teachers. Such teachers are to be placed in high-need schools. Part G authorizes the Secretary to award grants to IHEs to make fellowship awards to assist minority and women students acquiring doctoral and other terminal degrees for entering the professoriate. Not less than 30% of funds must be awarded to IHEs eligible for grants under Titles III and V. Fellows must subsequently be employed at an IHE for one year for each year of the fellowship; failure to do so results in fellowship awards having to be repaid through conversion to a DL program Unsubsidized Stafford Loan. Part H authorizes the Secretary to award a grant to a nonprofit organization to make postsecondary education enrollment rate data available by secondary school attended, to carry out an assessment of 50 urban school districts and 5 rural states as to what factors contribute to improved postsecondary education enrollment rates, and to provide services to improve such rates in 10 districts and states (with a declining federal share of such services). Part I authorizes the Secretary to award competitive grants to states to establish a State Task Force to develop comprehensive statewide plans for professional development and careers for early childhood education providers, including scholarships to students for up to $17,500. Part J authorizes the Secretary to award a grant to a partnership of IHEs (including those with STEM programs and two-year IHEs) and private organizations to develop secondary-to-postsecondary transition programs for students in STEM fields, provide support services, and internships. Part K authorizes the Secretary to award competitive grants under two programs. The Pilot Program to Increase Persistence and Success in Community Colleges makes available grants to two-year and less than two-year IHEs to provide scholarships (paid as a performance incentive, incrementally up to $2,000) and counseling services. The Student Success Grant Pilot Program makes available grants, which require a federal to non-federal match on a 3 to 1 ratio, to IHEs to employ student success coaches for at-risk, first-year students, and for other support activities. Part L authorizes the Secretary to award competitive grants, required to be matched with non-federal funds, to IHEs and consortia of IHEs to develop emergency communications systems, measures to improve campus safety, and mental health service coordination with local agencies. It authorizes the Secretary to establish and promulgate regulations for an Education Disaster and Emergency Relief Loan Program for IHEs impacted by major disasters to help fund recovery and operations. It also requires the Secretary, in consultation with the Secretary of Homeland Security and the Attorney General to (1) undertake the following: disseminate model emergency response policies; (2) develop preparation, response, and recovery procedures for IHEs involved in disasters; and (3) provide guidance for IHEs relating to student mental health issues with a potential to cause harm. Part M authorizes the Secretary to award formula grants to IHEs that meet certain criteria under two programs: Rewards for Low Tuition and Rewards for Guaranteed Tuition. For Low Tuition, IHEs must either (1) have an annual tuition percentage increase in the lowest fifth of similar institutions, (2) be public IHEs that have tuition in the lowest quartile of similar institutions, or (3) be public IHEs that have a tuition increase of less than $600. Grant funds are used to give additional grants to Pell-eligible students. For Guaranteed Tuition, the Secretary is to give IHEs a "bonus," again to be used for grants to Pell-eligible students, if the institution (1) is a public IHE and tuition is in the lowest quartile of similar institutions, or (2) the institution guarantees to students that tuition will not increase by (a) more than $600 per year for public IHEs, or (b) by more than the previous three-year percentage change for private IHEs. (The guarantee must sustain for 4 succeeding years for bachelor's degree programs or for 1.5 succeeding years for associate's degree programs.) Part N authorizes the Secretary to award competitive grants to IHEs or consortia of IHEs to develop work experiences integrated with the academic program. Grants may support new programs up to $500,000 or existing programs up to $75,000, and require matching funds on an increasing basis over the course of the grant. The Secretary is also authorized to support cooperative education demonstration projects, training centers, and research. Part O authorizes the Secretary to award competitive grants to consortia of IHEs or state higher education agencies for the purpose of developing articulation agreements, common course numbering, and common general education curricula. Part P authorizes the Secretary to award competitive grants to IHEs to improve developmental education and workforce bridge programs. Part Q authorizes the Secretary to award competitive grants to rural-serving IHEs or consortia of IHEs in partnership with education service agencies or nonprofit organizations to improve postsecondary education enrollment rates for rural secondary school students and nontraditional students, strengthen academic offerings in high-need occupations, and provide career training in fields relevant to the regional economy. Grants are for up to $200,000. Part R authorizes the Secretary to award competitive grants or contracts to IHEs, consortia of IHEs, or other organizations to develop programs to reduce the illegal downloading and distribution of intellectual property. Part S authorizes the Secretary to award competitive grants to postsecondary court reporting programs to promote training and placement of realtime writers. Grants are for up to $1,500,000 and may be used for need-based scholarships with a service requirement. Part T authorizes the Secretary to award competitive grants to IHEs to develop model programs to support the academic, financial, physical, and social needs of students who are veterans of the armed forces. Part U authorizes the Secretary, in consultation with the Administrator of the Environmental Protection Agency, to award competitive grants to IHEs or partnerships to develop programs and practices in energy management, greenhouse gas emissions reduction, green building, waste management, toxics management, and other aspects of sustainability. Grantees must match grants with nonfederal funds on a 4 to 1 ratio. Grants may be between $250,000 and $2,000,000. Part V authorizes the Secretary to award competitive grants to IHEs under two programs to (1) establish and (2) enhance modeling and simulation degree programs. It also establishes within ED a modeling and simulation task force to define, promote, and support the field. Part W authorizes the Secretary to award competitive grants to community colleges in partnership with juvenile detention centers to provide counseling, training, and assistance reentering the community and pursuing career or technical training or an associate's degree. Students served are youth aged 16-25 who served in or were released from a detention center, with a priority to serve youth with gang-related convictions. Part X authorizes the Secretary of Health and Human Services to award competitive grants to schools of veterinary medicine or other schools offering graduate training or residency for veterinarians to increase the number of veterinarians with specializations in public health practice areas. Part Y authorizes the Secretary to award competitive grants to four state agencies to pay administrative costs associated with participating in a demonstration program under which the Secretary makes Pell Grant commitments to two cohorts of 10,000 eighth grade students, each of whom are eligible for free or reduced price lunch. State grantees and local education partners are to conduct a targeted information and outreach campaign. Part Z authorizes the Secretary to award a grant to the University of Hawaii Academy for Creative Media to establish the Archives, collect Native Hawaiian historical data, support related programs, create materials, provide outreach and other services, and to fund scholarships. Part AA directs the appropriation of mandatory funding for FY2009 through FY2014. As shown in Appendix , $9 million per year is appropriated for Masters Degree Programs at Historically Black Colleges and Universities (Title VII, Part A), $2.5 million per year for Masters Degree Programs at Predominantly Black Institutions (Title VII, Part A), and $11.5 million per year for Promoting Postbaccalaureate Opportunities for Hispanic Americans (Title V, Part B). Title VIII also establishes two programs as a part of the HEOA. As these provisions do not amend the HEA, these programs will not be codified within the HEA. Part AA establishes a nonprofit research corporation to harness the capacity of technology to improve all levels of learning and education. The Center is to have a board whose members are to be appointed by the Secretary with the advice of Congressional leadership. Funds are authorized to be appropriated for a directed grant to the center. Part AA also authorizes the Secretary to establish a competitive grant program to award 10 grants to IHEs to pilot bookstore programs of renting course materials and books to students. Three additional titles of the HEOA do not amend the HEA. Title IX amends and reauthorizes appropriations to several other higher education-related laws. Title X amends other laws in relation to private student loans. Finally, Title XI mandates studies and reports to be conducted by various entities and submitted to Congress. The HEOA amends several laws related to higher education, but separate from the HEA. The HEOA also reauthorizes laws related to education of the deaf, Indian education, and programs established under previous HEA amendments. The HEOA names the center for elementary and secondary education programs at Gallaudet University the Laurent Clerc National Deaf Education Center and establishes education and assessment requirements for the center. It establishes a new Cultural Experiences Grants program, authorizing the Secretary to award competitive grants or contracts to provide students with cultural, educational, and social experiences. The act also amends international student provisions for the National Technical Institute for the Deaf and expands previous provisions requiring the Secretary to conduct a study on education of the deaf to now require the establishment of a commission on the education of the deaf. It also includes other technical amendments to the Education of the Deaf Act, and extends its authorization through FY2014. The HEOA makes technical amendments and extends authorization through FY2014. The HEOA repeals from previous higher education amendments several programs and provisions, including prior studies, Community Scholarship Mobilization; Improving United States Understanding of Science, Engineering, and Technology in East Asia; Web-Based Education Commission; and a Sense of Congress statement regarding good character. It also makes significant amendments to the Grants to States for Workplace and Community Transition Training for Incarcerated Individuals program and the Underground Railroad Educational and Cultural Program, and extends their authorizations through FY2014. The HEOA extends the authorization for Olympic Scholarships through FY2014. The HEOA amends the Department of Education Organization Act to establish within the Office of Postsecondary Education the position of Deputy Assistant Secretary for International and Foreign Language Education. The HEOA reauthorizes the Tribally Controlled Colleges or Universities Assistance Act of 1978 through FY2014, and makes amendments to definitions, continuing education, accreditation, and other provisions. For grants to TCCUs, the act increases the per student allotment from $6,000 to $8,000, to be adjusted in the future for inflation. It also adds a new Title V, Tribally Controlled Postsecondary Career and Technical Institutions, which provide grants to the United Tribes Technical College and the Navajo Technical College. The HEOA also makes technical amendments to the Navajo Community College Act and extends its authorization through FY2014. The Omnibus Crime Control and Safe Streets Act of 1968 is amended to establish a loan repayment program, under which the Attorney General may assume the obligation to repay up to $10,000 per year, and a maximum of $60,000, on federal student loans made under FFEL, DL and Perkins Loan programs (other than PLUS Loans borrowed on behalf of a dependent student) for borrowers who enter into agreements to serve as prosecutors or public defenders for at least three years. The program is authorized to be funded at $25 million for FY2009; and such sums as may be necessary for FY2010-FY2014. This provision of the HEOA specifies that, notwithstanding any other provision of law, IHEs are authorized to provide financial assistance to current and former students who are officers or employees of the United States government, or of the District of Columbia, for the purpose of repaying a student loan or providing forbearance. Such assistance must be provided in accordance with a published written policy of the institution addressing loan repayment or forbearance for current and former students who perform public service. Note that this provision does not amend any law. The HEOA establishes the Minority Serving Institution Digital and Wireless Technology Opportunity Program, authorizing the Secretary to award grants or contracts to IHEs to acquire and build capacity for using digital and wireless networking technologies. Title III and Title V MSIs and minority institutions (IHEs enrolling more than 50% of any minority group) are eligible to apply for these grants. Title X amends the Truth in Lending Act (TILA), the Community Reinvestment Act of 1977 (CRA), and Title I, Part E of the HEA (discussed above), with respect to education loans. It also establishes new requirements for the Financial Literacy and Education Commission. The HEOA amends the TILA with respect to private education loans. These amendments are described below. The HEOA amends the TILA to make it applicable to all private education loans (i.e., loans not made, insured, or guaranteed under Title IV of the HEA; and that are issued expressly for expenses included as part of a student's COA), regardless of the amount of such loans. Lenders of private education loans are prohibited from directly or indirectly offering or providing gifts to an IHE or its employees in exchange for any advantage related to the business of making private education loans; from engaging in revenue sharing with an IHE; and from co-branding with an IHE in the marketing of private education loans. Employees of the financial aid office of an IHE, or who otherwise have responsibilities with respect to private educational loans, and who serve on an advisory board, commission, or group established by a lender of private education loans are prohibited from receiving anything of value from the lender, except for the reimbursement of reasonable expenses incurred as a result of such service. Lenders of private education loans are also prohibited from imposing pre-payment penalties on borrowers. The HEOA amends the TILA to require lenders of private education loans to disclose to borrowers detailed information about the terms and conditions of loans, and the right to cancel within three days of consummation, in applications and solicitations, at the time of loan approval, and at the time of consummation. Borrowers of private education loans must be provided 30 days to accept the terms and conditions of the loan and to consummate the transaction, with no changes (other than adjustments to interest rates based on an index). Lenders are also prohibited from consummating private education loans without first obtaining private education loan self-certification forms (specified under HEA Title I, Part E) from borrowers. The HEOA amends the Truth in Lending Act to subject lenders of private educational loans to civil liability for the failure to disclose required information about the terms and conditions of private education loans, including the right to cancel. Borrowers of private educational loans may sue for damages regarding violations of the terms of disclosure until one year following the date on which the first payment of principal is due. The HEOA amends the CRA as follows. The CRA is amended to require federal financial supervisory agencies to consider low-cost education loans made to low-income borrowers as a factor in assessing the record of a financial institution in meeting the credit needs of its entire community (including low-and moderate-income neighborhoods, consistent with the safe and sound operation of such institution). The HEOA requires the Financial Literacy and Education Commission to identify programs that promote or enhance financial literacy for college students, evaluate the effectiveness of those programs, promote those that are most effective, and encourage IHES to implement effective financial education programs. The Commission is also required to report to Congress on the state of financial literacy at IHEs. In addition to performance reporting requirements and formal evaluations mandated for the various programs of the HEA, The HEOA authorizes 24 studies and reports to be conducted by the following designated entities: Study on Foreign Graduate Medical Schools Employment of Postsecondary Education Graduates Study on IPEDS Report on Proprietary IHEs Endowment Report Study on Regional Sensitivity in the Needs Analysis Formula Study on the Financial and Compliance Audits of the Federal Student Loan Program Study and Report on Nonindividual Information Feasibility Study for Student Loan Clearinghouse Study on Department of Education Oversight of Incentive Compensation Ban Analysis of Federal Regulations on IHEs Independent Evaluation of Distance Education Programs Review of Costs and Benefits of Environmental, Health, and Safety Standards Study on Bias in Standardized Tests Study on Teaching Students with Reading Disabilities Nursing School Capacity Report and Study on Articulation Agreements Study of Minority Male Academic Achievement Study of Correctional Postsecondary Education, in consultation with the Secretary of Labor and the Attorney General Study of Aid to Less-than-Half-Time Students Study of the Impact of Student Loan Debt on Public Service, in consultation with the Office of Management and Budget and coordination with the National Academy of Public Administrators or the American Society for Public Administration Report on Income Contingent Repayment Through the Income Tax Withholding System, with the Secretary of the Treasury Developing Additional Measures of Degree Completion Summit on Sustainability, in consultation with the Administrator of the Environmental Protection Agency As discussed throughout this report, the HEOA amended the HEA to extend funding authorization for previously established HEA programs and to authorize the appropriation of funds for newly established programs. Table A-1 presents information on the authorization of appropriations for HEA programs and activities, as amended by the HEOA. It also presents information on higher education programs that are not part of the HEA, but that are established under related acts: the HEOA, the Higher Education Amendments of 1998 ( P.L. 105-244 ), and the Higher Education Amendments of 1992 ( P.L. 102-325 ). Table A-1 lists, by title and part, programs for which funds are authorized to be appropriated under the HEA or related acts. For each program, the table identifies the section of the act under which the appropriation of funds is authorized for the program; whether the program is a continuing program (C) that had been authorized under the HEA or a related act prior to reauthorization, or is newly established (N) by the HEOA; and whether appropriations for the program are discretionary (D) or mandatory (M). For continuing programs, the table also shows the amount of funding that was provided for FY2008; notations of "n/a" for new programs mean that FY2008 amounts are not applicable. For all programs, the table shows the amount of funding authorized to be appropriated for FY2009 through FY2017, as applicable. Appropriations figures are shown in thousands of dollars; the phrase "such sums" indicates that the amount authorized to be appropriated for a particular fiscal year is such sums as may be necessary. In general, in the absence of legislation to extend or repeal a program in the HEA, the authorization of appropriations would be extended for one additional fiscal year under § 422 of the General Education Provisions Act (GEPA, P.L. 90-247). Therefore, although most HEA program authorizations will expire in FY2014, GEPA will automatically extend these authorizations to FY2015. (The table, however, does not reflect this extension.) Note that for programs with both discretionary and mandatory components, the discretionary authorization is in addition to mandatory amounts. Mandatory funds may flow under the authority of a particular program, but the funding provision may limit uses of funds. For example, HSI funds are available to HSI-eligible institutions (as defined by Title V, Part A), but for limited purposes of promoting science programs and articulation agreements (described under Title III, Part F, § 371). Mandatory appropriations made under Title III, Part F (§ 371); Title IV, Part A (§ 401); and Title VII, Part E (§ 781) were added by the CCRAA and were amended by the HEOA. Mandatory appropriations made under Title VIII, Part AA (§ 898) were added by the HEOA. | The Higher Education Act of 1965 (HEA; P.L. 89-329), as amended, 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 HEA also authorizes a series of programs that provide federal aid and support to institutions of higher education. HEA programs are administered by the U.S. Department of Education (ED). In the 110th Congress, the Higher Education Opportunity Act (HEOA; P.L. 110-315) was enacted to amend, extend, and establish new programs under the Higher Education Act of 1965 (HEA). In most cases, funding authorization for programs extended or newly established under the HEOA is provided through FY2014. The HEOA also makes amendments to a number of other laws. Prior to the enactment of the HEOA, the last comprehensive reauthorization of the HEA occurred in 1998, under the Higher Education Amendments of 1998 (P.L. 105-244), which authorized funding for most HEA programs through FY2003. Reauthorization of the HEA was considered during the 108th, 109th, and 110th Congresses. While reauthorization of the HEA was being considered, funding authorization for HEA programs had been extended under the General Education Provisions Act (GEPA) and a series of Higher Education Extension Acts. Separate from bills to reauthorize the HEA, significant changes to several HEA programs were made under the Higher Education Reconciliation Act of 2005 (HERA; P.L. 109-171), the College Cost Reduction and Access Act (CCRAA; P.L. 110-84), and the Ensuring Continuing Access to Student Loans Act of 2008 (ECASLA; P.L. 110-227). In the first session of 110th Congress, the Senate passed S. 1642, the Higher Education Amendments of 2007 (S.Rept. 110-231), to reauthorize the HEA. In the second session, the House passed H.R. 4137, the College Opportunity and Affordability Act of 2008 (H.Rept. 110-500). Many of the provisions contained in either or both the Senate- and House-passed bills were agreed to by House and Senate conferees in the conference report to H.R. 4137 (H.Rept. 110-803). The House and the Senate passed H.R. 4137, the Higher Education Opportunity Act, on July 31, 2008. The President signed it into law as P.L. 110-315, on August 14, 2008. This report begins with a brief overview of the HEA, its organization into various titles, and the major programs and program requirements specified under each title. It then identifies and describes selected amendments made to the HEA and other laws by the HEOA. This report will be updated as warranted. |
Political instability in Georgia appeared to worsen in November 2007 after several opposition parties united in a "National Council" that launched demonstrations in Tbilisi, the capital, to demand that legislative elections be held in early 2008 as originally called for instead of in late 2008 as set by the government-dominated legislature. The demonstrations had been spurred by sensational accusations by former defense minister Irakli Okruashvili against President Mikheil Saakashvili (including that Saakashvili ordered him to commit murder). Calls for Saakashvili's resignation intensified after Okruashvili claimed that he had been coerced by the government to recant the accusations. On November 7, police and security forces forcibly dispersed demonstrators, reportedly resulting in several dozen injuries. Security forces also stormed the independent Imedi ("Hope") television station, which had aired opposition grievances, and shut it down. Saakashvili declared a state of emergency for 15 days, giving him enhanced powers. He claimed that the demonstrations had been part of a coup attempt orchestrated by Russia, and ordered three Russian diplomats to leave the country. U.S. and other international criticism of the crackdown may have influenced Saakashvili's decision to step down as president on November 25, 2007, so that early presidential elections could be held on January 5, 2008, "because I, as this country's leader, need an unequivocal mandate to cope with all foreign threats and all kinds of pressure on Georgia." At the same time, he called for a plebiscite on whether to have a spring or fall legislative election and on whether Georgia should join NATO. Legislative Speaker Nino Burjanadze became acting president. She called on prosecutors to drop charges against Imedi. It renewed broadcasts on December 12, and became for a time the main television outlet for opposition candidates in the election (see also below). Significant amendments to the electoral code were adopted in late November and mid-December to make elections more democratic, including by adding some opposition party representatives to electoral commissions. However, the adoption of new rules shortly before the election sometimes resulted in haphazard implementation, according to the Organization for Security and Cooperation in Europe (OSCE), which monitored the electoral process. Most observers considered the nomination process for presidential candidates to be inclusive and transparent. Besides Saakashvili, six other candidates were successfully registered (see Table 1). Among the campaign pledges made by the candidates, Saakashvili ran on his claimed record of reducing corruption and crime and improving living conditions, and pledged to further reduce poverty and to restore Georgia's territorial integrity peacefully. Levan Gachechiladze stated that he would work to create a parliamentary system of rule with a constitutional monarchy, nominate former foreign minister Salome Zourabichvili as the prime minister, and encourage private enterprise and poverty alleviation. Davit Gamqrelidze pledged to consider backing either a parliamentary system or constitutional monarchy, and to bolster freedom of speech, personal property rights, and an independent judiciary. Shalva Natelashvili pledged to boost social services and called for a parliamentary system. The Harvard-educated Giorgi Maisashvili stressed business creation. All the candidates except Irina Sarishvili-Chanturia and prominent businessman Badri Patarkatsishvili called for Georgia to seek membership in NATO. Sarishvili-Chanturia urged voters to either vote for her or other candidates she favored. Patarkatsishvili called for abolishing the presidency, creating a confederation with a weak central government, and establishing close ties with Russia. He pledged to use his fortune to provide unemployment benefits and some free utilities to the poor. Mass rallies were prominent in the campaign, and several candidates toured the country. In contrast, Patarkatsishvili faced charges of involvement in a coup attempt linked to the November demonstrations and conducted his campaign from abroad. Most observers considered much of the campaigning as focused on accusations rather than issues. Perhaps the most sensational event of the campaign occurred in late December, when the government released recordings which it claimed incriminated Patarkatsishvili in yet another coup planned for after the election. Patarkatsishvili denied planning a coup and called on journalists to defend him. He also stated that he would step down as a candidate, but later reversed course. Staff at Imedi, which was at least partially owned by Patarkatsishvili, decided to temporarily halt transmissions on December 26. The Central Electoral Commission (CEC) reported that 56.2% of 3.35 million registered voters reportedly turned out and that Saakashvili received enough votes (over 50%) to avoid a legally mandated second round of voting for the top two candidates (preliminary results; see Presidential Election Results ). On the plebiscite issues, 77% of voters endorsed Georgia joining NATO and almost 80% supported holding legislative elections in spring 2008. An effort by the government to conduct balloting in Georgia-controlled areas in South Ossetia was denounced by officials in the breakaway region with the claim that almost all residents are citizens of Russia. Saakashvili's performance at the polls benefitted from a growing economy and a boost in social services provided by the government. His pledge of greater efforts to alleviate poverty also may have helped ease some grievances against his rule, according to many observers. The fractiousness of some of the opposition, which could not agree on a single candidate, was a major factor in the results. A preliminary report by observers from the OSCE, the Parliamentary Assembly of the Council of Europe (PACE), and the European Parliament (EP) assessed the election as "in essence consistent with most ... commitments and standards for democratic elections, [although] significant challenges were revealed...." Several positive aspects of the election were listed, including that the race offered a competitive choice of candidates. Negative aspects included "pervasive" violations that were "not conducive to a constructive, issue-based election campaign." These included the use of government offices to support Saakashvili, "substantiated" instances in which officials harassed opposition campaigners, allegations that state employees were ordered to vote for Saakashvili, the use of social services to gain support for Saakashvili, and a tendency toward pro-Saakashvili bias by the CEC in resolving complaints. The monitors viewed the vote count more negatively, with a significant number assessing it as bad or very bad. The preliminary report argued that electoral abuses varied from region to region, appeared often due to incompetence or local fraud, and stopped short of organized and systematic manipulation. The CEC and the courts eventually invalidated or corrected the results in 18 of 3,511 voting precincts. Among other assessments of the election, the prestigious Georgian NGO, Fair Elections, reported on January 10 that its exit polling at 400 precincts appeared to indicate that Saakashvili may have won enough votes to avoid a runoff, even if there were voting irregularities. U.S. analyst Charles Fairbanks, however, argued on January 16, 2008, that the balloting reported for Saakashvili was inflated, so that it was "unlikely" that he won in the first round. Although no Russian election observers were invited, the Russian Foreign Ministry asserted on January 6, 2008, that the election "could hardly be called free and fair," including because "the campaign was accompanied with the extensive use of administrative resources, unconcealed pressure on opposition candidates and rigid limits on their access to financial and media resources." Many observers regarded the relative peacefulness of the election campaign (compared to the November 2007 violence) as a positive sign that at least fitful democratization might be preserved in Georgia. Among other possible signs of progress toward democratization and stability, Saakashvili in his inaugural address on January 20, 2008, pledged to facilitate greater opposition participation in political decision-making. Some analysts also suggest that opposition parties and politicians might have benefitted from the campaign by becoming better known and might gain votes in upcoming legislative elections, thereby enhancing political pluralism. These observers suggest that opposition parties and politicians will soon shift from protesting the results of the presidential race to campaigning for a prospective May 2008 legislative election. In the economic realm, these observers suggest that Saakashvili's re-election reassured international investors that Georgia has a stable investment climate, although boosted social spending could increase short-term inflation. The Secretary General of the Council of Europe (COE) on January 6 urged opposition politicians to eschew "immature" rabble-rousing and to "show responsibility, political maturity and respect for the democratic process" by working through constitutional procedures to address electoral irregularities. Thousands of people reportedly turned out on January 13 and January 20 to peacefully protest against what they considered a fraudulent election. Gachechiladze and other leaders of the National Council asserted that Saakashvili did not win enough votes to avoid a run-off, where he would have faced a single opponent (Gachechiladze). Many observers argue that Saakashvili's electoral victory with 53% of the vote contrasts sharply with the 96% of the vote he won in 2004 and illustrates that public trust in his governance has declined. One Georgian analyst has suggested, however, that despite this decline in public trust, many citizens remembered the disorder of past months and years and were fearful of voting for opposition candidates who promised radical political and economic changes if elected. The risk of disorder could greatly increase if public trust further declines as the result of a tainted prospective May 2008 legislative election. Saakashvili's win appeared to be a further blow to Russia's hopes of restoring its influence in Georgia, according to many observers. These observers also raise concerns that Saakashvili's campaign pledge to soon unify Georgia (although he called for peaceful measures) could contribute to further tensions with Russia. In his inaugural address, however, Saakashvili attempted to reassure Russia that Georgia was intent on repairing bilateral ties. One Tajik analyst has suggested that Saakashvili's re-election provides a positive example to reform-minded politicians in Russia and other Soviet successor states and threatens non-reformist governments in these states. On November 8, 2007, the U.S. State Department welcomed President Saakashvili's call for early presidential elections and a plebiscite on the timing of legislative elections. At the same time, it urged Saakashvili to relinquish emergency power and to "restore all media broadcasts" to facilitate a free and fair election, and urged all political factions to "maintain calm [and] respect the rule of law." Deputy Assistant Secretary of State Matthew Bryza visited Tbilisi on November 11-13 with a letter from Secretary of State Condoleezza Rice that listed these and other proposals "to restore [the] momentum of democratic reform" in Georgia, highlighting U.S. interest in Georgia's fate. He argued that while in the past the United States had focused on Georgia as a conduit for oil and gas pipelines to the West and on security assistance, "today what makes Georgia a top tier issue for the U.S. government is democracy." He held extensive talks with government and opposition politicians to urge them to moderate their mutual accusations and to make compromises necessary for democratic progress. He also stressed that "the United States remains a firm supporter [of] Georgia's NATO aspirations," and called on unnamed NATO allies to await further political developments in Georgia before deciding whether or not the country is eligible for a Membership Action Plan (MAP). Some observers have suggested that NATO's possible consideration of a MAP for Georgia may well be delayed beyond the April 2008 NATO Summit in Bucharest, Romania, for reasons that include assessing Georgia's performance in holding a prospective May 2008 legislative election. Just after the January 5 balloting, the State Department "congratulated" the people of Georgia for an election that many international observers considered "was in essence consistent with most OSCE and COE commitments and standards." However, the State Department also raised concerns about reported electoral violations and urged that they be thoroughly investigated and remedied. U.S. ambassador to Georgia John Tefft likewise appeared cautious when he stated on January 10 that the United States had not yet reached an "official political assessment" of the election, so had not congratulated a winner. After the CEC announced the final election results, President Bush on January 14 telephoned Saakashvili to congratulate him, and dispatched U.S. Commerce Secretary Carlos Gutierrez to the inauguration. Some opposition supporters in Georgia criticized the United States for recognizing Saakashvili's win, perhaps reflecting some potential increase in anti-Americanism, but at an opposition protest at the U.S. Embassy on January 22, only one of the parties involved in the National Council participated. Many in Congress long have supported democratization and other assistance to Georgia, as reflected in hearings and legislation. The 110 th Congress ( P.L. 110-17 ) urged NATO to extend a Membership Action Plan for Georgia and designated Georgia as eligible to receive security assistance under the program established by the NATO Participation Act of 1994 ( P.L. 103-447 ). Indicating ongoing interest in Georgia's reform progress, on December 13, 2007, the Senate approved S. Res. 391, which urged the U.S. President to publically back free and fair elections in Georgia. In introducing the resolution, Senator Richard Lugar averred that he was "a strong friend of the Georgian people," and that the resolution indicated "our strong hopes that ... Georgia will return to the democratic path and embrace a free and fair election process." He also urged Georgia to facilitate the work of international election monitors, particularly those from the OSCE. Representative Alcee Hastings was appointed as Special Coordinator by the OSCE Chairman-in-Office to lead a mission of nearly 500 short-term observers who monitored the January 5 election. The day after the election, Representative Hastings reportedly stated that he viewed the election as a "viable expression of free choice of the Georgian people," but he also cautioned that Georgia's "future holds immense challenges" because of the high degree of mistrust and polarization in Georgian society. Similarly, former Representative Jim Kolbe, who led a delegation from the International Republican Institute, evaluated the election as broadly free and fair, but called for further reforms. | This report discusses the campaign and results of Georgia's January 5, 2008, presidential election and implications for Russia and U.S. interests. The election took place after the sitting president, Mikheil Saakashvili, suddenly resigned in the face of domestic and international criticism over his crackdown on political dissidents. Many observers viewed Saakashvili's re-election as marking some democratization progress, but some raised concerns that political instability might endure and that Georgia's ties with NATO might suffer. This report may be updated. Related reports include CRS Report RL33453, Armenia, Azerbaijan, and Georgia: Political Developments and Implications for U.S. Interests, by [author name scrubbed]. |
A dramatic collapse in farm milk prices late in 2008, which resulted in severe financial stress for many dairy farmers, led to efforts in 2009 by both Congress and the Administration to provide assistance for milk producers. The U.S. Department of Agriculture (USDA) reactivated dairy export subsidies in May and temporarily raised dairy product price supports in July, among other actions. In October, Congress provided $350 million in the FY2010 Agriculture appropriations act ( P.L. 111-80 ) to supplement the assistance provided under existing dairy programs. Market dynamics in 2009 have also generated concerns about "dairy pricing" and the adverse effects of milk price volatility on farmers. Dairy pricing is shorthand for the process of establishing the farm value of milk. The federal government plays a prominent role in that process. This report describes dairy pricing and examines several related issues. Among the related issues are (1) how milk producers receive price signals under existing policy and how that affects production decisions, (2) farm milk price variability and managing price risks, and (3) the farm share of retail prices for dairy products and whether retail prices track changes in the farm milk price. The report concludes with a discussion of alternative approaches that the dairy industry is proposing as a way to deal with dairy pricing. Price movements for milk and other commodities have several components. First, "trend" is the long-term movement in prices. For agricultural commodities, prices adjusted for inflation typically trend downward, primarily because improvements in agricultural productivity reduce costs and increase supplies. Second, a seasonal component is one that results in higher or lower prices during different periods of the year. For example, the supply of milk increases and prices tend to decline in the spring, when cows are highly productive. Third, cyclical price movement refers to highs and lows established over any particular period with regularity. This is the type of price movement at the crux of today's concern for dairy farmers. Dairy economists generally agree that the current cyclical price movement for dairy farmers was created by a mismatch in demand and supply. Simply put, milk output in late 2008 and 2009 was greater than milk demand, and prices adjusted downward in order for dairy products to sell or "clear the market" ( Figure 1 ). The lower prices also provided a signal to producers that market needs had declined and they should cut milk production, either by culling cows or by reducing feed inputs. According to dairy forecasters, supply adjustments and a modest improvement in demand helped lift farm milk prices in fall 2009, and further (modest) gains are expected in 2010. The 2009 experience has been particularly painful for milk producers because prices had been at a record high in 2007-2008 and then fell sharply, with monthly average prices dropping nearly 25% below the long-term average. In the past, prior to reductions in the price support levels in the 1980s, farm milk prices were very stable, resting atop support prices and leaving little price uncertainty for producers. It was not until the late 1980s and into the 1990s that year-to-year prices began to fluctuate significantly. Over the last 10 years, as the dairy industry has become more dependent on export markets and world dairy prices have remained generally above U.S. support price levels, the volatility in farm milk prices has likely been enhanced by supply and demand changes in the world market. Historically, dairy programs provided a significant amount of stability in farm milk prices, particularly during the 1970s and early 1980s. During this period, support prices for milk were ratcheted up to levels high enough to prevent farm prices from dropping significantly. With low year-to-year price volatility, dairy farmers had little need for managing price risk. In the mid-1980s, to reduce costs associated with purchasing dairy products, Congress reduced price supports in periodic omnibus farm bills. In the years that followed, supply and demand factors generally took the price support program out of marketing order pricing equations, and year-to-year price variability increased ( Figure 1 ). Subsequently, the dairy industry devoted more time and effort to developing export markets to handle a growing share of its output. Together, these two developments have opened the domestic market to transmissions of price volatility from the world market. Increasing volatility in dairy producer prices has led to a greater demand from dairy farmers for managing price and/or revenue risks. Dairy farmers who are members of cooperatives benefit from risk management practices employed by their cooperatives through higher net milk prices or patronage dividends. Such risk management practices include shifting production between plants or product types in order to receive the highest return, integrating into the consumer and niche markets to diversify away from commodity market volatility, and forming partnerships with other firms to shift business risk. For a dairy farmer, the risk associated with the output (farm milk) is only part of his or her exposure to market risk. Feed prices are subject to constant change, and high feed costs contributed significantly to the 2008/2009 price-cost squeeze many milk producers faced. Managing the risks associated with changes in both output and input prices can be critical to survival of any firm, agricultural or otherwise. Producers across the agricultural sector can, and to varying degrees do, use futures markets to guard against financial losses when market prices change. A futures contract is an agreement to either buy or sell a given commodity at a specific price at a specific time in the future. Futures contracts are available for many agricultural commodities, including major crops, crop products (like soybean meal), livestock, milk, and dairy products. A wide variety of other commodities (or financial instruments) are also traded on futures exchanges, including metals, lumber, and currencies. Farmers who produce milk (or another commodity) can protect against the prospect of declining prices by selling a milk futures contract on the CME. If prices in the future in fact decline, the farmer will realize a profit on the trade when the original contract is eventually liquidated (i.e., when the farmer buys another contract of the same kind to offset the first contract). The farmer adds any profit generated from this set of transactions to the actual value of milk he or she sells. If prices in the futures market rise instead of fall, the farmer will realize a loss in the futures market, but these losses can be offset by gains in the value of milk the farmer is selling, because the cash market and futures market tend to move in the same direction. By using such a strategy (called "hedging"), farmers can "lock in" a predetermined price for milk they produce. A similar strategy can be employed to lock in favorable prices of key feed inputs, such as corn and soybean meal. Farmers—particularly large-scale operators with milk volumes that match the size of available futures contracts—may hedge directly on the exchanges. Some farmers also have opportunities to hedge their production through their cooperatives on a scale suitable to their operation. A good hedge for a farmer depends on a somewhat predictable "basis," which is the difference between the futures market price and the local cash price. Without a reasonable basis pattern, a gain or loss in the futures market may not actually reduce a farmer's overall price risk. Volatility could be amplified if the loss in one market (futures or cash) is not offset by a gain in the other. Observers have pointed out that hedging milk production is complicated by the nature of cash milk pricing. For a dairy farmer, the cash price is often the "mailbox price," which is an average price based on many factors, among them marketing order prices, utilization amounts, plant and marketing agency premiums and adjustments for quality, hauling costs, and volumes sold. As such, the cash price may or may not be connected directly to the available futures prices for milk (e.g., the Class III milk futures traded on the CME), making hedging potentially problematic for dairy farmers. Nevertheless, congressional testimony has indicated that some farmers who pursued milk hedging strategies have received net milk prices substantially above market lows in 2009. Some proprietary plants offer programs for farmers to lock in their selling price before delivery (called a "forward contract"). Prior to implementation of the 2008 farm bill ( P.L. 110-246 ), handlers were required to pay at least the minimum prices established by the federal marketing orders each month, which dampened participation. Under the 2008 farm bill, dairy farmers can enter into forward contracts with handlers for milk purchased for manufacturing uses without following the minimum pricing rules. Another option dairy producers can use to manage price risk is the Livestock Gross Margin for Dairy Cattle insurance policy (LGM for Dairy Cattle), which provides protection against the loss in gross margin (market value of milk minus feed costs). At the end of an 11-month insurance period, producers receive an indemnity if the actual gross margin is less than the guarantee. The policy uses futures prices for corn, soybean meal, and milk to determine the actual and guaranteed margins (local milk prices are not used for the calculations). Producers are eligible in more than 35 states. LGM and a large array of crop insurance products are administered by USDA's Risk Management Agency (RMA). Farmers purchase LGM polices from private crop insurance agents. LGM for Dairy Cattle became available in 2008. Producers are still learning how it works and how it might be useful for them, so participation remains low. Observers say another factor affecting participation is the cost of the policy. Unlike crop insurance products, the producer pays the full premium on the LGM policy. For crop policies, the federal government pays on average nearly 60% of the total cost of the premium. Producer subsidies on crop insurance products have been credited with helping greatly expand participation, with insured acreage as a share of total plantings ranging between 77% and 95% for major crops. A separate pricing issue concerns the relationship between farm and retail prices. As farm prices of milk and other agricultural commodities fell in late 2008, retail food price declines were slow to follow. This decreased the farm value share—the portion of the retail dollar that flows to the farmer—and caused some in Congress to question whether processors and retailers were contributing to economic stress in the agricultural sector, particularly for dairy farmers. In recent decades, across the agricultural sector, several factors have led to a declining farm share of the retail food dollar, including gains in agricultural productivity, growth in demand for value-added products, and changes in food marketing. The farm share of the retail food dollar for all farm products (not just dairy) was 41% in 1950, a time when many food products were sold with much less value-added processing or packaging than today. In 2006, USDA estimated that the average farm-value share of all food products of U.S. farm origin consumed was 18.5%. The remaining 81.5% was accounted for by a host of marketing factors, including labor (processing and retail sectors), packaging, profit, transportation, energy, and other business expenses. For dairy products, the farm share is approximately one-third of the retail dollar, which is greater than the all-food average, largely because other food categories such as cereals and bakery products have a higher overall degree of processing. Examining changes in monthly farm and retail prices during 2008 and early 2009 indicates a decline in the farm-value share of retail product values and a widening of the marketing margin. Between July 2008 and December 2008, the farm price of milk reported by USDA fell by $0.33 per gallon ( Figure 2 ). Meanwhile, the average retail milk price fell only $0.28, with the difference between the retail and farm price (i.e., the marketing margin) increasing to $2.35 per gallon. In January 2009, the difference between the average retail price of milk and the farm price of milk reached a record-high $2.43 per gallon ( Figure 3 ). However, as retailers cut prices amid lower costs for farm milk and other inputs (e.g., energy and transportation), the difference between farm and retail prices declined in September 2009 to $1.89 per gallon, which is below the recent five-year average margin. The decline in late summer/early fall means that producers are receiving a greater share of the retail dollar as retail prices retreat, although the farm share remains below year-ago levels. Retail milk and dairy product prices have retreated significantly from dramatic highs in 2007 and 2008. In addition, they have declined more sharply than overall food prices, as measured by the Consumer Price Index ( Figure 4 ). Dairy pricing in the United States is a unique combination of both market-based and administered (through public dairy policies or programs) prices. Each influences the other to determine the overall level of farm milk prices as well as price movements to some extent. Two characteristics—perishability and production on a daily basis—create challenges for pricing and marketing milk (and the products made from it). As a result, in the short run, production in excess of demand in the fluid market must be either dumped (much like unharvested fresh fruit left in orchards) or manufactured into storable dairy products and sold later. Market-based pricing for milk and dairy products is similar to that for many other agricultural commodities, in that primary mechanisms for price discovery like cash and futures markets, such as those located at the Chicago Mercantile Exchange (CME), play key roles. In general, current and future price levels for milk and dairy products are largely determined by buyers and sellers of milk and dairy products based on their perceptions of overall demand and supply conditions, along with expectations for changes in government policy (e.g., dairy product support prices). Wholesale cash prices for dairy products (cheese, butter, and nonfat dry milk) are determined daily at the CME. The prices written into contracts nationwide between dairy manufacturers and wholesale or retail buyers of basic dairy products often reflect CME prices. Some dairy producers say that cash market pricing on the CME works to the detriment of producers (see " Potential for Price Manipulation ," below). Separately, milk and dairy product futures contracts are also traded in Chicago. Individuals and firms that face financial risk from movements in dairy prices can use futures contracts to manage their risk and offset potential losses in the cash market for dairy products (see " Using Futures Markets ," above). Administered farm milk prices are derived from two government policies: the dairy product price support program (DPPSP) and federal milk marketing orders (FMMOs). The two policies originated at least 60 years ago and operate independently until market prices decline to support levels. The DPPSP simply provides price support for dairy farmers through government purchases of dairy products at legislated minimum prices. In contrast, the FMMO system generally does not support prices but is designed to stabilize market conditions, which had been chaotic in the 1920s and early 1930s, through monthly, market-based minimum prices that processors must pay for farm milk. FMMOs also provide a pricing system for sharing farm revenue across producers in certain geographic areas and for balancing marketing power between milk handlers, who reportedly held an advantage prior to FMMO development, and farmers. The role of the federal government in milk pricing is greatest when overall prices for milk and dairy products are relatively low and the government purchases dairy products. In this way, the DPPSP undergirds minimum prices in the federal milk marketing order system. Under the DPPSP, the federal government stands ready to purchase unlimited amounts of butter, American cheese, and nonfat dry milk from dairy processors at specified minimum prices. Purchases under the DPPSP, which occurred during FY2009, essentially prevent market prices for dairy products (and hence milk prices received by farmers) from dropping below support levels. In contrast, when the three product prices are above support levels, the DPPSP is not a factor in the market and farm milk prices reflect prevailing supply and demand conditions. Year-to-year changes in farm milk prices have increased since the mid-1990s because price support levels have been reduced below typical market-average prices. FMMOs mandate minimum prices that processors in milk marketing areas must pay producers or their agents (like the dairy cooperatives) for delivered milk depending on its end use, regardless of whether market prices are high or low. Minimum milk prices are based on current wholesale dairy product prices collected by USDA's National Agricultural Statistics Service in a weekly survey of manufacturers, which are determined in large part by prices established on the CME. As such, FMMO minimum prices rise and fall each month with overall changes in the dairy product market. Under marketing orders, the price farmers receive for their milk is calculated based on these minimum prices and on how milk is utilized (fluid vs. manufacturing) in the marketing order, which collectively is called "classified pricing." FMMOs also address how market proceeds are distributed among the producers delivering milk to federal marketing order areas—called "pooling"—whereby all farmers receive a "blend price" each month based on order-wide revenue. The blend price is the weighted average price in a marketing order, with the weights being the volume of milk sold in each of the four classes. Under FMMOs, the farm price of approximately two-thirds of the nation's fluid milk is regulated in 10 geographic marketing areas. Some states, California being the largest, have their own milk marketing regulations instead of federal rules. Marketing orders were created in the 1930s to balance market power between farmers and milk handlers while reducing "destructive competition" between milk producers that can drive down prices to their mutual detriment. Milk prices at the farm level reflect the minimum prices paid by handlers under the marketing orders, plus any premiums generated from local supply/demand factors, such as a seasonal mismatch between supply and demand or special retail promotions, minus costs such as transport and marketing charges. In contrast, retail product prices are not regulated by the FMMO system. Instead, they reflect what retailers pay for dairy products from manufacturers and the level of competition among retailers in local markets. Cooperatives play an important role in dairy pricing. A cooperative is an enterprise owned by and operated for the benefit of those using its services. Farmer-owned dairy cooperatives often operate a complete milk distribution system, procuring raw milk from the farm, routing it where needed, managing or coordinating movements of processed or manufactured products, and managing surplus milk. Cooperatives also bargain for prices with milk handlers and represent their members in the rulemaking processes for changing marketing orders. Dairy farmers typically sign one- to three-year contracts to market their entire production through the cooperative in exchange for marketing services. Besides guaranteeing members a market for their milk, some dairy cooperatives manage price risks by operating multi-product, multi-plant operations, using their flexibility to shift production from one product to another in an effort to obtain the highest return for the farmer-members. When prices of agricultural (or other) commodities rise, producers tend to increase their output to increase profit. Alternatively, when prices are falling, they focus on trimming costs to save money, thereby reducing production. At some point, the price cycle (with prices either rising or falling) reverses course as supply becomes more aligned with demand. The points at which farmers see these price incentives and when they take action affects overall production levels and price movements going forward. For most milk producers in the United States, the "mailbox price" is what farmers receive for their milk in a monthly check from the handler or their cooperative. It is the net price received after adjustments for quality, marketing costs (e.g., hauling charges, cooperative dues, producer assessments), and over-order premiums that arise when market prices rise above the marketing order minimums. Dairy farmers make production decisions—to buy or raise more cows or send some to the slaughterhouse—based in large part on their monthly revenue or expected revenue in the future. Feed and other input costs, including debt service, also play a large part in whether to expand or contract. The biggest factors driving the changes in prices producers receive month-to-month are the minimum FMMO prices handlers must pay for milk. USDA calculates the FMMO prices using wholesale product prices as input into formulas that have been established through the regulatory process. For a more detailed description of the FMMO system, see CRS Report R40205, Dairy Market and Policy Issues . Three pricing issues with respect to market signals for dairy farmers are timing, clarity, and the "make allowance," or margin afforded to dairy manufacturers in the federal order minimum prices. FMMO prices are issued by USDA each month for each class of milk (depending on its use) as data on wholesale prices become available. For a specific FMMO month, minimum prices for fluid milk (Class I) are announced in advance (by the 23 rd of the previous month). For other classes of milk, prices are announced after the close of the FMMO month. Shortly thereafter, mailbox prices are calculated once the marketing order pools close (i.e., monthly volumes and values are tabulated) and each of the 10 FMMO administrators determines the overall order "blend" price. The process of establishing monthly prices dates to the beginning of the marketing order system in the 1930s. Previously, day-to-day or week-to-week price fluctuations created enormous price uncertainty for dairy farmers. A monthly price system, along with other features of milk marketing orders, helped create a more stable price environment. Farmers could better manage their business decisions when they knew with certainty the price they would receive. A criticism of current FMMO pricing stems from this effort to stabilize the market. Some market participants, including dairy manufacturers and, on occasion, milk producers, claim that the system does not transmit price signals quickly enough, particularly in today's fast-changing market. For example, suppose domestic or foreign demand for milk or dairy products declines in April. The negative market signal could take until late June to reach milk producers, delaying the response of producers to begin slowing production to more closely align with demand. Conversely, when dairy product prices rise rapidly, the production response, now in the upward direction, can be delayed to the extent that farmers base their expansion on their mailbox price. The pooling function in milk marketing orders is designed to reduce destructive competition and allow all producers to benefit from higher prices of fluid milk (relative to other uses). At the same time, however, some in the industry suggest that pooling can have the unfortunate consequence of muting marketing signals. When revenues are pooled across the marketing region (both geographically and by how milk is utilized), critics argue, individual producers do not have a direct market signal of risks associated with production, a situation that can encourage excessive growth in production when prices are low. To calculate minimum milk prices in the FMMO system, USDA starts with survey data collected from dairy manufacturers. USDA's National Agricultural Statistics Service calculates average dairy product prices from these weekly data. Next, USDA's Agricultural Marketing Service subtracts a "make allowance"—an estimate of the manufacturer's cost of processing milk into dairy products—to arrive at the monthly minimum prices. USDA periodically revises make allowances, most recently in October 2008 to reflect higher energy costs for manufacturers, following a lengthy regulatory process involving all parties. The make allowance mathematically reduces average product prices used to calculate minimum farm milk prices. Some producers feel that the make allowance unfairly reduces the minimum milk prices set under the FMMOs. Manufacturers say the make allowance is simply the cost of processing milk into dairy products, and calling it a cost to farmers misrepresents the economics of producing dairy products. The controversy for some is that the make allowance for each dairy product is a fixed amount (at least until changed in the regulatory hearing process). It does not change when dairy product markets strengthen or weaken, leaving essentially a fixed margin for manufacturers, regardless of their relative efficiencies. As a result of this inflexibility, changes in the market are reflected to a greater degree in farm prices or in the margins seen by firms that come downstream from the manufacturer (i.e., broker, wholesaler, or retailer). At times, this can be a detriment to farmers when prices are declining because manufacturers' margins may be held artificially wide, forcing down minimum prices below what they otherwise would be. Conversely, a fixed margin may benefit producers when manufacturers' actual margin (based on real-time costs such as energy) is greater than the make allowance. In this case, FMMO minimum prices would be above the level that would be calculated using actual costs. The primary cash market for dairy products is located at the CME, where cheese, butter, and nonfat dry milk are traded. Actual quantities traded are quite small, but prices determined by buyers and sellers at this market are used to establish wholesale price contracts across the country, subject to premium and discounts for factors such as quality and transportation. Wholesale dairy product prices are then used to set monthly minimum prices under the federal orders. Some dairy producer groups believe that the CME is an inadequate pricing mechanism because the market is too thinly traded, lacks transparency and sufficient oversight, and creates a highly volatile market that adversely affects producers. The U.S. Government Accountability Office concluded in a 2007 study that "certain market conditions at the CME spot cheese market, including a small number of trades and a small number of traders who make a majority of trades, continue to make this market particularly susceptible to manipulation." However, the report also noted that if price manipulation were to occur, some industry participants claim it would be short-lived because many large participants in the cheese and dairy industry with diverse interests monitor the market and are prepared to participate in it. Reportedly, they would begin trading once prices became disconnected from underlying supply and demand conditions, potentially counteracting any attempted price manipulation. Nevertheless, some industry participants want sales volume to increase on the CME, thereby reducing the possibility of price manipulation. The Commodity Futures Trading Commission (CFTC) and the CME itself monitor activities of the spot market participants for signs of price manipulation. In December 2008, several dairy industry participants agreed to pay a civil monetary penalty for attempting to manipulate milk futures prices through purchases of cheese on the CME in 2004. While dairy markets appear to be rebounding from low farm milk prices of summer 2009, the dairy industry and policymakers continue to consider how the dairy pricing system might be improved. The House and Senate have held hearings on dairy policy and pricing in 2009. The Administration is also collecting information through USDA's establishment of a Dairy Advisory Committee, which is to review issues of farm milk price volatility and suggest to the Secretary of Agriculture how USDA can best address these issues. The committee is to "develop changes to the dairy pricing system to avoid the boom and bust cycle facing dairy famers this year." As Congress, the Administration, and the dairy industry consider how possibly to revise the dairy pricing system, two schools of thought appear to be emerging. One is to reduce price volatility through some means of supply control while raising farm prices. The other is to allow the market to fluctuate and help farmers manage the resulting price risk through hedging strategies used by farmers in other parts of the agriculture sector. A number of organizations are also examining potential changes to various aspects of the federal dairy programs. Supply control is a way for government to influence the supply of farm products on the market with the intention of increasing or stabilizing farm prices. One dairy producer group, Holstein Association USA, has proposed a plan to stabilize farm milk prices with assessments on farmers who increase milk production over specified levels, as determined by USDA forecasts of demand for fluid milk and manufactured dairy products. Some of the program's objectives are to reduce the volatility of dairy product prices and producer milk prices while preventing severely depressed producer milk prices. The National Farmers Union (NFU) is among the supporters. Supply control is also affected by imports. Legislation has been introduced in both the House and the Senate in 2009 to apply import controls on specific dairy products. The Milk Import Tariff Equity Act ( S. 1542 and H.R. 3674 ) would impose tariff-rate quotas on imports of casein (the main protein found in milk) and milk protein concentrates. Some believe a change in federal milk marketing orders also could be used to stabilize the milk market and boost dairy farm returns. One bill in the 111 th Congress, the Federal Milk Marketing Improvement Act of 2009 ( S. 1645 , first introduced as S. 889 ), is designed to "help farmers get a fair price for their milk" and provide relief and assistance to dairy farmers by using the cost of milk production as the basis for pricing milk. The bill contains provisions for USDA to administratively reduce prices received by farmers, in an effort to limit milk production, if the Secretary of Agriculture determines that an excess amount is being produced for the national domestic market. Supporters of price stabilization and supply control say that incentives within the dairy industry to overproduce need to be offset by a program to control supplies in a more measured way. Critics contend that supply control could reduce the competitiveness of the U.S. dairy industry, limit its incentive to innovate, and raise consumer prices because, they argue, a pricing system based on supply control and/or cost of production potentially rewards inefficiency. Critics also argue that administratively matching supply and demand can be difficult because the process would require accurate forecasts of demand and supply factors that are notoriously fickle. Other industry groups, including the National Milk Producers Federation (NMPF), the largest trade association representing milk producer cooperatives, prefer a more market-based approach for addressing milk pricing issues, along with changes to existing dairy programs as part of an overall adjustment to federal dairy policy. The NMPF proposes a new dairy producer income insurance program that would make indemnity payments when operation losses occur (similar to a revenue insurance program) and reform of the federal milk marketing order system, specifically the provisions for calculating minimum farm milk prices and the existing price discovery mechanism. The organization also advocates discontinuing the dairy product price support program in order to speed up market adjustments. Promoters of a market-based approach, including dairy food manufacturers, say that price volatility will be a part of the dairy industry, as it is for other commodities. As such, they claim the best approach is to find ways for producers to manage price risks without limiting the industry's ability to capitalize on domestic and international demand opportunities. Detractors expect that incentives to overproduce will aggravate the financial woes of the dairy industry indefinitely, so controlling potential price variability with supply management is necessary for long-term financial health for producers. This concern for overproduction could and has been applied to commodities such as corn and wheat. But dairy generally is more susceptible to overproduction, some dairy producers say, because current policy encourages producers to maximize production and they tend to add cows even when prices are low to improve cash flow. Current policy is set for the dairy product price support program until 2012 under the 2008 farm bill, and federal milk marketing orders are permanently authorized. However, given the difficult economic situation dairy farmers experienced in 2009, Congress may continue to monitor the dairy pricing situation through hearings and oversight. Efforts to address dairy pricing issues could be affected by the future direction of market prices. The current farm milk price cycle appears to have bottomed out in summer/early fall 2009, based on forecasts by USDA and others. If the forecasts hold, it may be difficult for policymakers and producers to support major policy changes while milk prices are climbing. In the view of some, any further intervention could disrupt an otherwise favorable price situation. In any event, discussions and policy proposals on dairy pricing may continue to be a topic of discussion in the 111 th Congress or in the next farm bill debate, which may begin as early as 2011. | A dramatic collapse in farm milk prices late in 2008, which resulted in severe financial stress for many dairy farmers, has generated congressional concerns about "dairy pricing" and the adverse effects of milk price volatility on farmers. Dairy pricing refers to the process of establishing the farm value of milk. The federal government plays a prominent role in that process. Among the dairy pricing issues are how milk producers receive price signals under existing policy and how that affects their production decisions. Some market participants say that the system does not transmit price signals to milk producers quickly enough, which can delay the response of producers needed to correct market imbalances. Another issue is farm milk price variability and managing price risks, given declines in dairy price supports and increased dependence on exports over the years, which have contributed to greater price volatility. Finally, some observers are concerned about the farm share of retail prices for dairy products and whether retail prices track changes in the farm milk price. The difference between farm and retail prices has declined in recent months after increasing in late 2008. Dairy pricing in the United States is a unique combination of market-based and administered (through public dairy programs) prices. Each influences the other to determine the overall price level and price movements to some extent. Two characteristics—perishability and production on a daily basis—create challenges for pricing and marketing milk (and the products made from it). Market-based pricing for milk and dairy products is similar to many other agricultural commodities, in that primary mechanisms for price discovery like cash and futures markets, such as those located at the Chicago Mercantile Exchange (CME), play key roles. Wholesale cash prices for dairy products (cheese, butter, and nonfat dry milk) are determined daily at the CME. The prices written into contracts nationwide between dairy manufacturers and wholesale or retail buyers of basic dairy products often reflect CME prices. Some producers have raised concerns about limited trading volumes and the potential for price manipulation at the CME. Administered farm milk prices are derived from two government policies that originated more than 50 years ago: the dairy product price support program (DPPSP) and federal milk marketing orders (FMMOs). The two policies operate independently until market prices decline to support levels. The DPPSP simply provides price support for dairy farmers through government purchases of butter, American cheese, and nonfat dry milk from dairy processors at legislated prices. In contrast, the FMMO system generally does not support prices but is designed to stabilize market conditions, which had been chaotic in the 1920s and early 1930s, through monthly, market-based minimum prices that processors must pay for farm milk. FMMO prices are based on current wholesale product prices, which are determined largely by prices established on the CME. FMMOs also provide for sharing farm revenue across producers in certain geographic areas and for balancing marketing power between milk handlers, who reportedly held an advantage prior to FMMO development, and farmers. Current policy is set for DPPSP until 2012 under the 2008 farm bill, and FMMOs are permanently authorized. As Congress, the Administration, and the dairy industry consider how to revise the dairy pricing system, two schools of thought appear to be emerging. One is to reduce price volatility through some means of supply control while raising farm prices. The other is to allow the market to fluctuate and help farmers manage the resulting price risk through hedging strategies used by farmers in other parts of the agriculture sector. |
T he manner in which staff are deployed within an organization may reflect the mission and priorities of that organization. In the House of Representatives, employing authorities hire staff to carry out duties in Member-office, committee, leadership, and other settings. The extent to which staff in those settings change may lend insight into the work of the House over time. Some of the insights that might be taken from staff levels include an understanding of the division of congressional work between Members working individually through their personal offices, or collectively, through committee activities; the relationship between committee leaders and chamber leaders, which could have implications for the development and consideration of legislation, the use of congressional oversight, or deployment of staff; and the extent to which specialized chamber administrative operations have grown over time. This report provides staffing levels in House Member, committee, leadership, and other offices since 1977. No House publication appears to officially and authoritatively track the actual number of staff working in the chambers by office or entity. Data presented here are based on staff listed by chamber entity (offices of Members, committees, leaders, officers, officials, and other entities) in telephone directories published by the House. Table 1 in the " Data Tables " section below provides data for staff listed in House directories through 2016. Data for House staff listed as joint committee employees on panels that met in the 114 th Congress (2015-2016) are provided in Table 7 . This report provides data based on a count of staff listed in House telephone directories published since 1977. Like most sources of data, telephone directory listings have potential benefits and potential drawbacks. Telephone directories were chosen for a number of reasons, including the following: telephone directories published by the House are an official source of information about that institution, and are widely available; presumably, the number of directory listings closely approximates the number of staff working for the House; while arguably not their intended purpose, the directories provide a consistent breakdown of House staff by internal organization at a particular moment in time; and the directories afford the opportunity to compare staff levels at similar moments across a period of decades. At the same time, however, data presented below should be interpreted with care for a number of reasons, including the following: There is no way to determine whether all staff working for the House are listed in the chamber's telephone directories. If some staff are not listed, relying on telephone directories is likely to lead to an undercount of staff. It is not possible to determine if those staff who are listed were actually employed by the House at the time the directories were published. If the directories list individuals who are no longer employed by the House, then relying on them is likely to lead to an overcount of staff. The extent to which the criteria for inclusion in the directories for the House have changed over time cannot be fully determined. Some editions of the House's directories do not always list staff in various entities the same way. This may raise questions regarding the reliability of telephone directory data as a means for identifying congressional staff levels within the House over time. Some House staff may have more than one telephone number, or be listed in the directory under more than one entity. As a consequence, they might be counted more than once. This could lead to a more accurate count of staff in specific entities within the House, but multiple listings may also lead to an overcount of staff working in the chamber. Chamber directories may reflect different organizational arrangements over time for some entities. This could lead to counting staff doing similar work in both years in different categories, or in different offices. A random sample of House Member offices used to develop an estimate of Member office staff working in Washington, DC, and discussed in greater detail below, may or may not be representative of the entire population of House Member offices. The extent to which the sample is representative of the population from which it is drawn will determine the accuracy of the estimated data for House Member offices. While it is unlikely that a full count would yield significantly different results, it is a possibility. House staff data were developed based on an estimate of staff working in Member offices, and a full count of staff listed in all non-Member congressional offices listed in each House telephone directory. In some years, the House published two directories. When that happened, data were taken from the earlier publication. A full count of House Member office would have exceeded available resources, and unlikely to yield a significantly different result than that which would result from a count of staff working in a random sampling of Members' offices. Since 1975, the House has limited the number of full-time staff working in a Member's office to 18 permanent employees; in 1979 up to four FTEs who may work part time were authorized. As a consequence, among all congressional entities, House Member office staffing is the least likely to show a high degree of variability. For each year, a random sample of 45 Member offices was drawn in proportion to the distribution of Member offices in the Cannon, Longworth, and Rayburn House office buildings in 2014. Staff telephone data from those offices were counted and assumed to be in Washington, DC, if they were listed as working in the Cannon, Longworth, or Rayburn buildings, and outside of Washington, DC, if they were not. The average number of staff working in Washington, DC, and in district offices was computed. Those data were multiplied by the number of Member offices to derive an estimate of the number of staff employed in personal offices who work in House Member offices. Table 2 in the " Data Tables " section below provides the computed averages from the sample data and the estimated House Member staff working in Washington, DC, and district offices. Committee data are based on a full count of all telephone directory listings for House standing, special, and select committees as described in individual directory listings. The data also include associate staff of the Committees on the Budget, Rules, and Ways and Means, and joint committee staff housed in House facilities. In the " Data Tables " section below, four tables provide staff levels in various House committees. Joint committee staff data from the House for panels that met in the 114 th Congress (2015-2016) are available in Table 7 . Data for leadership offices include a full count of staff working for Members in leadership positions. In 2016, these listings included the following: Speaker, Majority Leader, Majority Whip, Chief Deputy Majority Whip, Minority Leader, Minority Whip, Assistant Minority Leader, Senior Chief Deputy Minority Whip, and Democratic and Republican Cloakrooms. Other leadership positions included House Republican Conference, House Republican Policy Committee, House Republican Study Committee, House Democratic Caucus, and House Democratic Steering and Policy Committee. Data for chamber officers and other House officials include a full count of staff working for House officers and officials. In 2016, House officers included the Clerk, Sergeant at Arms, Chief Administrative Officer, and Chaplain. Officials included staff in the offices of Parliamentarian, Interparliamentary Affairs, Law Revision Counsel, Legislative Counsel, General Counsel, Inspector General, Emergency Preparedness and Planning Operations, and House Historian. Commissions data comprise the smallest category of House data, and are based on a full count of those entities. In 2016, commissions data included staff working for the Commission on Congressional Mailing Standards (commonly known as the Franking Commission); the Commission on Security and Cooperation in Europe (typically referred to as the Helsinki Commission); the Congressional-Executive Commission on the People's Republic of China; and the Tom Lantos Human Rights Commission (successor to the Congressional Human Rights Caucus). Between 1977 and 2016, the number of House staff grew from 8,831 to 9,420 or 6.67%. Staffing levels have ranged from a low of 8,831 in 1977 to a peak of 10,004 in 2008. The number of House staff has grown by an average of 15 individuals annually, or 0.22%. Change in House staff has been characterized by slight, but steady growth in two periods (1977-1994, 12.01%; and 1996-2011, 14.89%), separated by a brief period of sharp decline (1994-1996, -12.13%), and ending with another decrease (2011-2016, -5.67%). Figure 1 displays staff levels in five categories since 1977. These categories include staff working in the offices of Members, committees, leadership, officers and officials, and commissions. Figure 3 displays change in the distribution of staff among the categories over the same time period. Table 1 , in the " Data Tables " section below, provides detailed staff levels in those categories. Staff levels in House Member offices have grown from 6,556 in 1977 to 6,880 in 2016, or 4.94%. The level of staffing grew steadily from 1977 until peaking at 7,284 in 1994, and falling 10.74%, to 6,502, in 1995. Member staff increased between 1997 and 2011 in an uneven, but generally upward pattern before reaching its highest level, 7,360, in 2009. Since 2009, Member staff have decreased to 6,880, an 6.52% decline. Figure 2 displays the distribution of House Member staff between Washington, DC, and district offices since 1977, and the average number of staff working in a Member office at various times. From 1977 until 1994, more staff worked in Washington, DC, than in field offices. Throughout that period, however, the number of staff assigned to district offices steadily grew while Washington, DC-based staff declined in an uneven, but generally downward pattern. Since 1994, staff have been relatively evenly distributed between Washington, DC, facilities and district offices. The number of staff working in Members' offices reflects both the relatively modest overall growth of Member staff since 1977, and the changing distribution of staff from Washington, DC, to district office settings. Table 2 in the " Data Tables " section below provides the estimated House Member staff working in Washington, DC, and district offices since 1977. House Member staff comprise approximately three-quarters of all House staff. This proportion of overall staffing has been relatively steady since 1977. Figure 3 provides staff levels and distributions among categories of offices from 1977 to 2016. Committee staff levels have shown the greatest decline among House staff categories, decreasing 31.36% since 1977. Change among House committee staff was characterized by a moderate decline in 1977-1981 (-9.04%), steady growth from 1981 until 1992 (29.83%), a period of sharp decline in 1992-1997 (-42.81%), a period of slow, unsteady growth from 1997 to 2010 (18.09%), and another sharp decline from 2010 to present (13.93%). The 2016 level of 1,298 is 593 (-31.36%) fewer than 1977 levels, and 935 (-41.87%) fewer than the 1992 peak of 2,233 staff. Since 1977, committee staff have comprised a decreasing proportion of House staff, falling from 21.41% of House staff in 1977 to 13.78% in 2016. In the " Data Tables " section below, four tables provide staff levels in various House committees. Table 3 provides House committee data for 2007-2016; data for 1997-2006 are available in Table 4 . Table 5 provides data for 1987-1996; and data for 1977-1986 are available in Table 6 . Totals for each year, which include joint committee staff listed in the House directory found in Table 7 , are presented in Table 1 . The actual number of staff in House leadership offices grew from 62 in 1977 to 239 in 2016, peaking in 2011 at 241. This growth was relatively steady over time. As a proportion of House staff, leadership employees comprised 0.70% in 1977, and 2.54% in 2016. Staff working in the offices of House officers and officials has grown 254.98% since 1977. Staff levels grew steadily from 1977 to 1991, and then showed a one-year drop of 33.15%, from 537 in 1992 to 359 in 1993. In 1994, staff levels returned to a level similar to 1992, and increased again in 1995 to 818, a one-year increase of 57.01%. After dropping to 704 in 1996, levels began a steady increase to a peak of 1,056 in 2008, an increase of 50.00%, before falling 8.90% to 962 by 2016. As a proportion of House staff, officers and officials staff grew from 3.07% in 1977 to 10.21% in 2016. Congressional commission staff levels are essentially flat, and have ranged from a high of 51 in 1977 to a low of 19 in a number of years, most recently in 2001. In 2016, 41 staff worked for congressional commissions. Congressional commissions have consistently comprised less than one-half of one percent of all House staff. Since 1977, the number of staff working for the House has grown, though there has been a decrease in recent years. Overall, there have been increases in the number of staff working in chamber leadership offices, and larger increases in the staffing of chamber officers and officials. Staff have shifted from committee settings to leadership settings or the personal offices of Members. Some of these changes may be indicative of the growth of the House as an institution, or the value the chamber places on its various activities. One example that may be an indication of institutional development arguably is found in the growth of the number and percentage of staff working in leadership and officers and officials offices, even though that growth has slowed recently. A potential explanation for these changes may be found in what some might characterize as an ongoing professionalization and institutionalization of congressional management and administration. Some note that as organizations such as governing institutions develop, they identify needs for expertise and develop specialized practices and processes. In Congress, some of those areas of specialization arguably include supporting the legislative process through the drafting of measures, oversight and support of floor activities, and the management of legislation in a bicameral, partisan environment. Another potential explanation related to a more institutionalized, professionalized Congress could be the demands for professional management and support. This could arise as a result of congressional use of communications technologies, and the deployment of systematic, professionalized human resources processes, business operations, and financial management. Consequently, increased specialized support of congressional legislative and administrative activities may explain increases among staff working for chamber leaders, and officers and officials. In another example, the distribution of staff working directly for Members has shifted from committee settings to personal office settings. House committee staff has decreased. This may represent a shift from collective congressional activities typically carried out in committees (including legislative, oversight, and investigative work) to individualized activities typically carried out in Members' personal offices (including direct representational activities, constituent service and education, and political activity). | The manner in which staff are deployed within an organization may reflect the mission and priorities of that organization. This report provides staffing levels in House Member, committee, leadership, and other offices since 1977. Between 1977 and 2016, the number of House staff grew from 8,831 to 9,420, or 6.67%. Since 2008, however, the number of staff working for the House of Representatives has decreased 5.84%. These changes were characterized in part by increases in the number of staff working in chamber leadership offices, and larger increases in the staffing of chamber officers and officials. House staff working for Members have shifted from committee settings to the personal offices of Members. Some of these changes may be indicative of the growth of the House as an institution. This report is one of several CRS products focusing on congressional staff. Others include CRS Report RL34545, Congressional Staff: Duties and Functions of Selected Positions; CRS Report R43946, Senate Staff Levels in Member, Committee, Leadership, and Other Offices, 1977-2016; CRS Report R43774, Staff Pay Levels for Selected Positions in Senators' Offices, FY2009-FY2013; CRS Report R43775, Staff Pay Levels for Selected Positions in House Member Offices, 2009-2013; CRS Report R44322, Staff Pay Levels for Selected Positions in House Committees, 2001-2014; CRS Report R44325, Staff Pay Levels for Selected Positions in Senate Committees, FY2001-FY2014. |
In the United States, it is generally taken for granted that the electricity needed to power the U.S. economy is available on demand and will always be available to power our machines and devices. However, in recent years, new threats have materialized as new vulnerabilities have come to light, and a number of major concerns have emerged about the resilience and security of the nation's electric power system. In particular, the cybersecurity of the electricity grid has been a focus of recent efforts to protect the integrity of the electric power system. Power flows on the nation's electricity grid are remotely controlled by a combination of older, legacy systems and newer control technologies. Many of these legacy technologies are analog in design and were not originally connected to the Internet (although many are equipped with radio or other communications capabilities). But as the grid is modernized, the new "intelligent" technologies replacing them use advanced two-way communications and other digital advantages that likely will be optimized by Internet connectivity. While these advances will improve the efficiency and performance of the grid, they also potentially increase the vulnerability of the grid to cyberattacks. Cybersecurity is today, and will continue to be, a major issue and focus area for the electric power sector. The energy sector (i.e., electricity, natural gas, and petroleum) is one of 16 critical infrastructure sectors designated by the Department of Homeland Security. Incidents of reported cyber intrusions and attacks aimed at undermining the U.S. grid appear to be increasing. While parts of the electric power subsector have mandatory and enforceable cyber and physical security standards, some have argued that minimum, consensus-based standards are not enough to secure the system. Further, the electric grid is not isolated from attacks on other critical infrastructure sectors on which it depends (i.e., the natural gas subsector, water, and transportation), and mandatory and enforceable cybersecurity standards apply to only a few of the 16 critical infrastructure sectors. This report will discuss the current state of electric sector cybersecurity, surveying existing regulations and proposed efforts to improve cybersecurity in the wake of recently reported threats and potential vulnerabilities. The report will focus on the bulk power system under authority of the Federal Energy Regulatory Commission (FERC), which Congress directed to establish mandatory and enforceable reliability standards. Many cybersecurity standards and actions are in response to cyber events. As such, basic compliance with standards by electric utility companies may not be enough to achieve effective cybersecurity protections. Areas for possible further congressional consideration or action will be highlighted in this report. The electric utility business encompasses the process of generating electricity and sending power to the ultimate user. The electrical grid is the name given to the machinery and power lines that enable power to be sent from the power plant to the ultimate user of electricity. As seen in Figure 1 , this generally requires an infrastructure made up of generating stations (where the power is produced), step-up transformers and transmission lines (whereby transformers increase the voltage so that the electricity can be sent over very long distances), and step-down transformers and distribution lines (whereby the voltage can be lowered allowing the electricity to be sent to businesses and homes to power machinery and devices). Depending on the regulatory regime in place, these system elements may be controlled by companies under state jurisdiction or entities under federal jurisdiction (such as regional transmission organizations or federal power marketing administrations). Controlling and monitoring the various parts of the grid are industrial control (IC) systems, some of which are connected to the Internet. Other IC systems are not Internet-connected, and still rely on local area networks (LANs) or similar systems for control and reporting. The following paragraphs discuss these IC systems and potential vulnerabilities to intrusion and cyberattack. The grid relies on a number of electronic devices, switches and circuit breakers to regulate and report on the flow of electricity at different parts of the system. Together, these pieces of mechanical and automated equipment constitute the grid's IC systems, managing power plant controls, transformer yard and power bus functions, transmission system, and distribution substations. The IC system essentially operates in a "control loop" in which sensors continually check key components, with variable responses against control variables in order to ensure that the system is functioning as designed. If responses show a disturbance resulting in operation of the system outside normal operating parameters, then the system adjusts actuators to bring the system back to process norms, or sends alerts to human-machine interfaces (HMIs) to reconfigure the system or adjust operations in the control algorithms. Diagnostics and maintenance utilities are built into the system to "prevent, identify and recover from abnormal operation or failures." One IC system used to control remote operations of the power grid is the Supervisory Control and Data Acquisition (SCADA) system. SCADA systems are highly distributed systems used to control geographically dispersed assets, often scattered over thousands of square kilometers, where centralized data acquisition and control are critical to system operation ... A SCADA control center performs centralized monitoring and control for field sites over long-distance communications networks, including monitoring alarms and processing status data. Based on information received from remote stations, automated or operator-driven supervisory commands can be pushed to remote station control devices, which are often referred to as field devices. Field devices control local operations such as opening and closing valves and breakers, collecting data from sensor systems, and monitoring the local environment for alarm conditions. SCADA systems have been in use at least since the 1970s, and were adopted at a time when the focus of system design was on function and reliability. An example of a basic SCADA network is shown in Figure 2 . Historically, these systems consisted of remote terminal units which were often connected to a mainframe computer via telephone lines or radio connections. They were not typically connected to centralized networks. Utilities typically operated separate control systems created just to operate power plants and related infrastructure. Over time, modification of SCADA systems has resulted in connection of many of these older, legacy systems to the Internet. However, many of these legacy SCADA systems were not designed with security features, allowing other potential pathways for a cyberattack. As a result, these systems may be vulnerable to intrusion through data reporting pathways, or attacks (for example) using a thumb drive to download malware like the Stuxnet worm. However, some of these earlier designs and configurations may not be as vulnerable to an Internet-launched cyberattack. The security issue, for old and new systems, then becomes both how they are connected to the utility's other systems, and what levels of security exist to detect and deter potential intrusions. Distributed control systems (DCSs) are used in power plant settings where process control requires feedback to maintain process conditions automatically about a desired set point. DCSs generally use several Programmable Logic Controllers (PLCs) to establish process tolerances. PLCs are typically microprocessor- or computer-based devices that are used extensively to control industrial equipment or processes. Communications over DCS or PLC networks need to be more reliable and function at higher speeds "compared to the long-distance communication systems used by SCADA systems" because of the process control functions of DCSs. The electric grid of the United States has been called an "engineering marvel," but it is a system which in many places is becoming an "aging marvel." America relies on an aging electrical grid and pipeline distribution systems, some of which originated in the 1880s. Investment in power transmission has increased since 2005, but ongoing permitting issues, weather events, and limited maintenance have contributed to an increasing number of failures and power interruptions. While demand for electricity has remained level, the availability of energy in the form of electricity, natural gas, and oil will become a greater challenge after 2020 as the population increases. Although about 17,000 miles of additional high-voltage transmission lines and significant oil and gas pipelines are planned over the next five years, permitting and siting issues threaten their completion. In recognition of the need to deploy new technologies, Congress indicated its support for grid modernization in the Energy Independence and Security Act of 2007 (EISA) ( P.L. 110-140 ). Specifically, Section 1301 of the act states: It is the policy of the United States to support the modernization of the Nation's electricity transmission and distribution system to maintain a reliable and secure electricity infrastructure that can meet future demand growth ... which together characterize a Smart Grid... The "Smart Grid" refers to the evolving electric power network as new information technology (IT) systems and communications capabilities are incorporated. EISA Section 1301 further states that aspects characterizing a Smart Grid include Increased use of digital information and controls technology to improve reliability, security, and efficiency of the electric grid. Dynamic optimization of grid operations and resources, with full cybersecurity. Deployment of ''smart'' technologies (real-time, automated, interactive technologies that optimize the physical operation of appliances and consumer devices) for metering, communications concerning grid operations and status, and distribution automation. Figure 3 provides a conceptual illustration of what a Smart Grid network may look like. The many disparate elements and user systems also emphasize the need for secure communications pathways required for Smart Grid operation. Smart Grid networks are also potentially better able to integrate the intermittent energy from renewable electricity technologies (i.e., renewable electricity systems such as distributed solar photovoltaic [PV] and wind), distributed generation, demand response, and consumer energy efficiency programs. While the potential of the Smart Grid to revolutionize the ways power is generated and used is great, so too are the potential cybersecurity risks. Additional Smart Grid components may add to the ability to control power flows and enhance the efficiency of grid operations, they also potentially increase the susceptibility of the grid to cyberattack. Smart Grid components are built around microprocessor and other hardware devices whose basic functions are controlled by software programming. These devices and functions may be subject to manipulation over a network. The information processing and communications attributes which make the Smart Grid attractive are the very same attributes which can increase the vulnerability of the electric power system and its critical infrastructure to a possible cyberattack. This risk is potentially increased for systems connected to the Internet. The grid has other potential vulnerabilities and avenues that a cyberattacker might seek to exploit. Independent researchers are reported to have found hacking into grid computer networks to be "startlingly easy," and they have alerted authorities to their findings. While new security systems and controls are added to address known weaknesses, new vulnerabilities may emerge as new devices and avenues of access are added. Renewable electricity generation is increasing and is highly distributed to capture the best renewable resources available to maximize the amount of power generated. However, these facilities can represent potential backdoors for cyberattackers to access the grid. Renewable electricity companies in Europe reportedly were targeted by cyberattackers at a clean power website from which malware was passed to visitors, thus giving the attackers access to the power grid: The communication networks and software that link green energy sources to the grid as well as the electronic meters that send real time power usage to consumers and utilities are providing new back-door entry paths for computer hackers to raise havoc with the grid. Smart meters are an example of new systems added to the grid. While such systems are designed with security in mind (i.e., following international standards using best practices such as encryption of sensitive data, system protection from viruses and malware, access control and tamper alerts on meters, and two-party authorization), systems analysts acknowledge that such connected systems can have new vulnerabilities. Smart meters were singled out as a vulnerability by a report as potentially being susceptible to fraud from "manipulated meter readings, misuse of private customer data and a threat of power outages through a large cyberattack." One particular weakness was said to be the built-in encryption of data sent from smart meters to utilities. The meters are designed to last approximately 20 years, but it was speculated that the device's built-in cryptology system may not be secure for that long a period. However, another source says that smart meter encryption and authentication "should be readily and proactively updatable" and combined with intrusion detection to better protect networks. Supply chains are another potential vulnerability that affects old legacy systems as well as new Smart Grid hardware and software applications. Legacy systems are a particular concern because upgrades and repairs of equipment may not include installation of security upgrades. New procurement guidance for energy delivery systems focus on life cycle considerations by providing "baseline cybersecurity procurement language for use by asset owners, operators, integrators, and suppliers during the procurement process." Security of the supply chain for newer Smart Grid systems is a significant procurement concern because many components are obtained from many sources and vendors internationally. These sources may be considered targets of opportunity to compromise or counterfeit Smart Grid components. Supply chain best practices in security and resilience need to be benchmarked and shared with the power sector. These practices need to be explored and explained in dialogues between IT and supply chain professionals, and between utilities and their suppliers. The increasing frequency of cyber intrusions on industrial control systems of critical infrastructure is a trend of concern to the electric utility industry. The National Security Agency reported that it has seen intrusions into IC systems by entities with the apparent technical capability "to take down control systems that operate U.S. power grids, water systems and other critical infrastructure." These intrusions, while they have not manifested in cyberattacks capable of inhibiting or disrupting electric system operations, still have reportedly occurred with CIP mandatory standards in place. Some have asserted that consensus-based standards are not strong enough, or are not developed quickly enough, to address cybersecurity needs, while others believe the cost of meeting the standards goes beyond the perceived risks. The following paragraphs describe several recently reported incidents of cyber intrusions and examples of malware found on IC systems that are commonly used to control energy flows on the electric grid. In October 2014, the Industrial Control Systems Cyber Emergency Response Team (ICS-CERT) announced that several industrial control systems had been infected by a variant of a Trojan horse malware program called BlackEnergy. Originally designed for "nuisance spam attacks," the software for BlackEnergy was first reported in 2007 and is designed to target critical energy infrastructure. BlackEnergy is a special concern for critical infrastructure companies because the software is being used in an Advanced Persistent Threat (APT) form ostensibly to gather information. BlackEnergy specifically targets human machine interface ("HMI") software, which enables users to monitor and interact with industrial control systems such as heating, ventilation, and air conditioning systems through a dashboard or other type of graphical interface. HMI software is typically running 24/7, can be remotely accessed, and is rarely updated, thus making it a favorite target for opportunistic hackers. While no attempts to "damage, modify, or otherwise disrupt the victim systems' control processes were found," the ICS-CERT alert indicates that this APT variant of BlackEnergy is a special concern because it is a modular malware capable moving through network files onto removable storage media. [T]ypical malware deployments have included modules that search out any network-connected file shares and removable media for additional lateral movement within the affected environment. The malware is highly modular and not all functionality is deployed to all victims. Hackers are reported to have used the BlackEnergy Trojan horse to deliver plug-in modules used for several purposes, including keylogging, audio recording, and grabbing screenshots. Researchers looking at the BlackEnergy malware are reported to have identified a plug-in that can destroy hard disks, and believe that the attackers will activate the module once they are discovered in order to hide their presence. The HAVEX malware is not new, but it has been modified several times since its first reported deployment. It has targeted the energy sector since "at least August 2012." Originally, HAVEX was distributed via spam email or spear-phishing attacks. This new version of HAVEX appears to have been designed as a Trojan horse specifically to infiltrate and modify "legitimate" software from ICS and SCADA suppliers, adding an instruction to run code (i.e., the " mbcheck.dll " file) containing the HAVEX malware. In the instance discovered, HAVEX malware was used as a remote access tool (RAT) to extract data from Outlook address books and ICS-related software files used for remote access from the infected computer to other industrial servers. The cyberattack leaves the company's system in what appears to be a normal operating condition, but the attacker now has a backdoor to access and possibly control the company's ICS or SCADA operations. The HAVEX malware possibly entered the control systems of targeted companies using one or multiple levels of attack: 1. Email Campaign: Executives and senior employees were targeted with malicious PDF attachments in February-June 2013. 2. Watering Hole Attack: Websites likely to be visited by people working in the energy sector were infected such that they redirected the site visitor to another compromised legitimate website hosting an exploit kit. The exploit kit then installs the RAT. This method of distribution began in June 2013. 3. Software Downloaded from ICS-Related Vendors: At least three ICS vendors' software downloads were hacked so that they included the RAT malware. HAVEX is also called "Backdoor.Oldrea" (or the "Energetic Bear RAT"), as it contains the malware known as "Kragany" or "Trojan.Kragany." HAVEX is a product of the Dragonfly group (aka Energetic Bear), which appears to be a "state-sponsored" undertaking focused on espionage with sabotage as a "definite secondary capability." The malware allows attackers to upload and download files from the infected computer and run executable files. It was also reported to be capable of collecting passwords, taking screenshots and cataloguing documents. Sandworm is a type of Trojan horse, and it was originally focused on a vulnerability in the Windows operating system (reported as patched by Microsoft in October 2014). It was used to deliver malware through Powerpoint files on thumb drives using automatically run files, but that vector of attack has been largely closed. The primary mode of Sandworm attack was spear-phishing, using grammatically well-written emails with topics of interest to the target. The malware contained an attachment that exploited the vulnerability to deliver variants of the BlackEnergy Trojan. The focus of the Sandworm attack discovered was SCADA systems, as the malware targeted specific software used for these systems. On October 14 th , a report was publicly released regarding the Sandworm team. After beginning an investigation into the affiliated malware samples and domains, we quickly came to realization that this group is very likely targeting SCADA-centric victims who are using GE Intelligent Platform's CIMPLICITY HMI solution suite ... CIMPLICITY is an application suite that is used in conjunction with SCADA systems. A key component of any SCADA system is the HMI. The HMI (which stands for Human-Machine interface) can be viewed as an operator console that is used to monitor and control devices in an industrial environment. Sandworm can potentially have greater impacts on an enterprise, as the malware could be transferred to other corporate business systems. These devices can be responsible for automation control as well as safety operations... It is important to note that we are currently seeing CIMPLICITY being used as an attack vector; however, we have found no indication that this malware is manipulating any actual SCADA systems or data. Since HMIs are located in both the corporate and control networks, this attack could be used to target either network segment, or used to cross from the corporate to the control network. The bulk electric power system has mandatory and enforceable standards for cybersecurity. The Energy Policy Act of 2005 (EPACT) ( P.L. 109-58 ) gave the Federal Energy Regulatory Commission authority over the reliability of the grid, with the power to approve mandatory cybersecurity standards proposed by the Electric Reliability Organization (ERO). Currently, the North American Electric Reliability Corporation (NERC) serves as the ERO. NERC therefore proposes reliability standards for critical infrastructure protection (CIP) which are updated considering the status of reliability and cybersecurity concerns for the grid. FERC views grid security as a high priority, and separately established the Office of Energy Infrastructure Security (OEIS) to deal with cyber and physical security. OEIS has a mission to provide expertise to the Commission to "identify, communicate and seek comprehensive solutions to potential risks to FERC-jurisdictional facilities from cyberattacks and such physical threats as electromagnetic pulses." However, FERC still asserts that it does not have the authority to act quickly in the event of a major cyber event. NERC originally determined which electric industry facilities would be subject to mandatory reliability standards based on its definition of the term "bulk electric system" (BES). However, the regional bodies making up NERC had discretion in determining which facilities would be subject to these reliability standards under NERC's guidelines for the definition. FERC has authority over wholesale power sales and the transmission of electricity in interstate commerce, and it is responsible for the reliability of the bulk electric system. States regulate electric distribution systems. FERC was concerned that certain facilities needed to ensure bulk power system reliability were not being considered under NERC's definition of the bulk electric system. FERC acknowledged that EPACT excluded local distribution systems from its reliability mandate under Section 215 of the Federal Power Act, as not being part of the bulk power system. However, while that definition excluded facilities in Alaska and Hawaii, it also excluded virtually the entire grid in cities with large distribution systems like New York City. In 2010, FERC directed NERC to develop uniform criteria for determining which facilities were necessary for the operation of the "interconnected transmission network," with the intention of including all such systems under NERC's CIP regulations. FERC approved NERC's revised criteria and new definition of the BES in 2012. These criteria and definitions apply to all NERC regions and are a bright-line threshold including all Transmission Elements operated at 100 kilovolts (kV) or higher, and real power and reactive power resources connected at 100 kV or higher. This definition does not include facilities used in the local distribution of electric energy. The revised definition of the BES allowed the potential inclusion of some facilities typically considered as distribution level, if they were seen as necessary for the operation of the interconnected transmission network. However, there are still many areas of potential access to the BES from the distribution system (which are not necessarily important to the operation of the transmission system), and thus beyond NERC's CIP regulations and FERC's reliability mandate. Because there are no mandatory standards of protection for distribution facilities below the bright-line threshold, these potentially "less protected" seams of the BES may provide a backdoor to cyber intrusions to the grid. The current iteration of NERC's standards is CIP Version 5, which appears to be moving utility companies toward an active consideration of system security needs rather than just compliance with the standards. It is largely the result of concerns that some owner/operators were not designating their bulk electric power facilities as "critical cyber assets," leaving potential "holes" in bulk electric power system cybersecurity. The most notable change is the tiered impact rating system, which classifies bulk electric system (BES) Cyber Systems into High, Medium, and Low categories. This approach results in all cyber assets that could impact BES Facilities being in scope for the CIP standards ... Version 5's tiered classification brings all BES generating facilities into scope for at least some requirements. Cyber assets meeting certain criteria will be grouped into systems and assigned a High, Medium, or Low impact rating based upon the characteristics of the facility they support. For example, BES Cyber Systems at plants larger than 1,500 MW may receive a Medium impact rating, while most black-start units will be Low impact. All such systems, referred to officially as BES Cyber Systems, will be assigned at least a Low impact rating and will be required to comply with at least a portion of the requirements. CIP Version 5 therefore establishes new criteria and requirements for bulk electric system (BES) Cyber Systems, mandating compliance but requiring owner/operators of bulk electric systems to focus on improving the security of critical assets. BES assets, once categorized as low or high impact, must be protected according to the level of requirements for that impact category. Among other factors, CIP Version 5 now requires encryption of grid command and control signals; "role-based" instead of "risk-based" classifications requiring multiple levels of compliance considering facilities with low, medium or high-level impacts on the BES; monitoring and control of remote access Internet connections (with inclusion of serial connections); multiple-factor authentication (rather than a simple one-step password for access), incident response recovery plans; physical security of BES cyber assets to prevent unauthorized physical entry and access; and cataloging of all software and all security patches on BES devices. , Among the concerns raised with the implementation of CIP Version 5 is the potentially high cost. With the new BES designation, all facilities (whether these are low, medium, or high risk) will be covered by some level of the new requirements. Many of these facilities may not have been designated cyber assets before, so the costs of compliance likely will increase. Cooperation between the federal government and the electric power sector now extends beyond mandatory and enforceable industry standards for the bulk electric system. However, such cooperation has not always been typical. Companies apparently were not aware of other government efforts. Reports began to emerge in 2010 that the federal government has been developing the capability to detect cyber intrusions on private critical infrastructure company networks. The program dubbed Perfect Citizen reportedly was designed to detect cyber intrusions using sensors in computer networks that would be activated by "unusual activity." While a number of voluntary structures now exist for information sharing and cybersecurity strategies, the degree of adoption by electric utilities and the overall effectiveness of these programs is unknown. The FY2016 budget proposes $14 billion in cybersecurity funding for "critical initiatives and research" across the federal government. Several of the key organizations and their missions with regard to electric power sector cybersecurity are profiled below. The Department of Energy (DOE) is home to a number of voluntary initiatives and programs for electric sector cybersecurity, with the Office of Electricity Delivery and Energy Reliability (OE) having the lead role. DOE considers the security and resilience of the electric sector to be paramount " ... since it is arguably the most complex and critical infrastructure that other sectors depend upon to deliver essential services." Several of these programs are described below. In 2009, under the FY2010 Energy and Water Appropriations Act ( P.L. 111-85 ), Congress directed DOE to form a national organization which would serve as the National Electric Sector Cybersecurity Organization resource. [T]he Secretary shall establish an independent national energy sector cyber security organization to institute research, development and deployment priorities, including policies and protocol to ensure the effective deployment of tested and validated technology and software controls to protect the bulk power electric grid and integration of smart grid technology to enhance the security of the electricity grid. DOE selected two organizations to form the National Electric Sector Cybersecurity Organization (NESCO): EnergySec and the Electric Power Research Institute (EPRI). EnergySec provides support for "information sharing, professional development and collaborative programs and projects that improve the cyber security posture of all participating organizations." EPRI serves as the research and analysis resource for NESCO. NESCO's mission is to improve the "cybersecurity posture of the electric sector by establishing a broad-based public-private partnership for collaboration and cooperation" by providing a forum for cybersecurity experts, developers, and systems users. The Cybersecurity Capability Maturity Model (C2M2) was developed by DOE-OE, the Department of Homeland Security (DHS), and industry as a self-evaluation survey tool for any organization to address cybersecurity vulnerabilities. The C2M2 asks users to assess cybersecurity control implementation across 10 areas of cybersecurity "best practices" based on an evaluation of the maturity of a specific cybersecurity function. The Electricity Subsector Cybersecurity Capability Maturity Model (ES-C2M2) goes one step further, specifically tailoring the core C2M2 survey for the electricity subsector with a "maturity model, an evaluation tool, and DOE facilitated self-evaluations." Additionally, in 2006, DOE released a report titled Roadmap to Secure Control Systems in the Energy Sector . It outlined a strategic framework to be developed by industry, vendors, academia and government stakeholders to "design, install, operate, and maintain a resilient energy delivery system capable of surviving a cyber-incident while sustaining critical functions." The plan called for a 10-year implementation timeline focusing on barriers and recommended strategies for achieving effective grid cybersecurity. A five-year update released in 2011 highlighted what had been achieved to date, discussing ongoing efforts with respect to short- to long-term goals. DHS has a broad mission to make the United States safe and resilient against terrorism and other potential threats. The cyber and physical security of the grid are encompassed in this mission, and DHS has several initiatives in pursuit of these goals. The National Protection and Programs Directorate (NPPD) coordinates national efforts to protect critical infrastructure, working with partners "at all levels of government, and from the private and non-profit sectors" to share information to make critical infrastructure more secure. Under NPPD are several offices focused on cybersecurity, critical infrastructure protection, and resiliency: The Office of Cyber and Infrastructure Analysis (OCIA) uses information received from public and private sources to conduct consequence modeling, simulation, and analysis to inform cyber and physical security risk management for U.S. critical infrastructure. The Office of Infrastructure Protection (IP) helps critical infrastructure owners and operators to understand and address risks to critical infrastructure. The office provides tools and training to critical infrastructure owners to help them manage risks to their assets, systems, and networks. The Office of Cybersecurity and Communications (CS&C) is responsible for enhancing the security, resilience, and reliability of the nation's cyber and communications infrastructure. A major priority of the office is the reduction of cyber risks to federal and private Internet domains from terrorist attacks, natural disasters, or other emergencies. CS&C is also the home of the National Cybersecurity and Communications Integration Center (NCCIC). NCCIC is focused on "cyber situational awareness, incident response, and management." NCCIC acts as an information sharing forum for the public and private to improve understanding of cybersecurity and communications vulnerabilities and incidents, and mitigation and recovery from cyber events. NCCIC's mission is to reduce the likelihood and severity of incidents that may "significantly compromise the security and resilience of the Nation's critical information technology and communications networks." The NCCIC works closely with those federal departments and agencies most responsible for securing the government's cyber and communications systems, and actively engages with private sector companies and institutions, state, local, tribal, and territorial governments, and international counterparts. Each group of stakeholders represents a community of practice, working together to protect the portions of critical information technology that they own, operate, manage, or interact with. Two critical branches of NCCIC with functions important to electric grid cybersecurity are the United States Computer Emergency Readiness Team (US-CERT) and the Industrial Control Systems Cyber Emergency Response Team (ICS-CERT). US-CERT brings advanced network and digital media analysis expertise to bear on malicious activity targeting our nation's networks. US-CERT develops timely and actionable information for distribution to federal departments and agencies, state and local governments, private sector organizations, and international partners. In addition, US-CERT operates the National Cybersecurity Protection System (NCPS), which provides intrusion detection and prevention capabilities to covered federal departments and agencies. ICS-CERT reduces risk to the nation's critical infrastructure by strengthening control systems security through public-private partnerships. ICS-CERT has four focus areas: situational awareness for Critical Infrastructure and Key Resources stakeholders; control systems incident response and technical analysis; control systems vulnerability coordination; and strengthening cybersecurity partnerships with government departments and agencies. US-CERT developed the Einstein 2 intrusion detection system used by the National Cybersecurity Protection System (NCPS). NCPS intrusion detection capabilities alert DHS to the presence of malicious or potentially harmful computer network activity transiting to and from participating in federal executive branch civilian agencies' information technology networks. This capability is deployed via EINSTEIN 2 and provides for improved detection and notification capabilities to provide near real time response to cyber threats. ICS-CERT coordinates responses to control systems-related security incidents and facilitates information sharing among federal, state, and local agencies and organizations; the intelligence community; and private sector constituents, including vendors, owners and operators, and international and private sector CERTs. The focus on control systems cybersecurity provides a direct path for coordination of activities among all members of the critical infrastructure stakeholder community. The Science and Technology Directorate (S&T) was created to provide science and technology in support of DHS's mission. Since DHS assists in efforts for the security and resiliency of the grid, the Smart Grid with characteristics of self-healing from power disturbance events, and operating resiliently against physical and cyber threats is of particular interest. S&T also has a Cyber Security Division whose mission is to enhance the security and resilience of the nation's critical information infrastructure and the Internet by 1. developing and delivering new technologies, tools and techniques to enable the United States to defend, mitigate and secure current and future systems, networks and infrastructure against cyberattacks; 2. conducting and supporting technology transition; and 3. leading and coordinating cybersecurity research and development for department customers, and with government agencies, the private sector and international partners. Since recovery from cyberattacks is seen as a part of S&T's resiliency focus, S&T is working on several electric power sector specific initiatives. These include the Resilient Electric Grid (an effort to "keep the lights on" in the event of a power outage by enabling distribution level power substations to share power with one another), and the Recovery Transformer (a program developing a prototype large power transformer to enable a quicker recovery [i.e., within days instead of months or years] from an event which might damage key transformers). S&T is currently managing an effort to assess the state of the Smart Grid concept, as well as specific technologies needed to achieve goals of ensuring Smart Grid security and resiliency. The Energy Independence and Security Act of 2007 (EISA) ( P.L. 110-140 ) defined attributes of a Smart Grid and plans for its development. EISA also gave the National Institute of Standards and Technology (NIST) the role of coordinating the development of a framework to enable the development of the Smart Grid in a safe and secure manner. Because cybersecurity threats were perceived as "diverse and evolving," NIST advocated a defense-in-depth strategy with multiple levels of security and asserted no single security measure could counter all types of threats. The key to NIST's suggested approach is the determination of risk (i.e., the potential for an unwanted outcome resulting from internal or external factors, as determined from the likelihood of occurrence and the associated consequences) as quantified by the threat (e.g., event, actor or action with potential to do harm), the vulnerability (e.g., weakness in the system), and the consequences (e.g., physical impacts) to the system. NIST published its Guidelines for Smart Grid Cybersecurity as a comprehensive, voluntary framework for organizations to use in developing effective cybersecurity strategies "tailored to their particular combinations of Smart Grid-related characteristics, risks, and vulnerabilities." According to NIST, deliberate attacks are not the only threat to Smart Grid cybersecurity. Smart grid cybersecurity must address not only deliberate attacks, such as from disgruntled employees, industrial espionage, and terrorists, but also inadvertent compromises of the information infrastructure due to user errors, equipment failures, and natural disasters. The Smart Grid Interoperability Panel (SGIP) Cybersecurity Committee (SGCC) ... is moving forward in FY14 to address the critical cybersecurity needs in the areas of Advanced Metering Infrastructure security requirements, cloud computing, supply chain, and privacy recommendations related to emerging standards. This project will provide foundational cybersecurity guidance, cybersecurity reviews of standards and requirements, outreach, and foster collaborations in the cross-cutting issue of cybersecurity in the smart grid. NIST established the Smart Grid Interoperability guidelines with a primary goal of developing a cybersecurity risk management strategy to enable secure "interoperability" of technologies across different Smart Grid domains and components. NIST was asked in 2013 by Presidential Executive Order No. 13636, "Improving Critical Infrastructure Cybersecurity," to lead the development of a "Cybersecurity Framework" to reduce cyber risks. The framework was based on industry methodologies, procedures, and processes that align policy, business, and technological approaches to address cyber risks, incorporating "voluntary consensus standards and industry best practices to the fullest extent possible." The first version of the Framework was released on February 12, 2014. Sector-specific federal agencies (such as DOE) are to report annually to the President on the extent to which owners and operators of critical infrastructure at greatest risk are participating in the program. NIST also hosts the National Cybersecurity Center of Excellence, which is focused on getting better adoption of secure, commercially available cybersecurity technologies by both the public and private sectors. NERC's Critical Infrastructure Protection Committee (CIPC) is responsible for its physical security and cybersecurity initiatives. CIPC consists of both NERC-appointed regional representatives and technical subject matter experts, and serves as an expert advisory panel to the NERC Board of Trustees. It has standing subcommittees in the areas of physical security and cybersecurity. The CIPC also oversees the Electricity Sector Information Sharing and Analysis Center (ES-ISAC). ES-ISAC seeks to establish situational awareness, incident management, coordination and communication capabilities within the electricity sector through timely information sharing. The ES-ISAC works with DOE and the Electricity Sector Coordinating Council (ESCC) to share critical information with the electricity sector, enhancing its ability to "prepare for and respond to cyber and physical threats, vulnerabilities and incidents." The Electricity Sector Information Sharing and Analysis Center ... which was established in 1998 under Presidential Decision Directive 63 (President Bill Clinton), called for the establishment of an ISAC for each of the eight infrastructure industries deemed critical to our national economy and public well-being. NERC members who are "registered entities" can report information regarding cyber incidents to ES-ISAC via a secure Internet exchange, and also receive information on threats. The Electricity Sub-Sector Coordinating Council is the principal liaison between the federal government and the electric power sector. It represents the electricity sub-sector (as part of the Energy Critical Infrastructure sector) under DHS's National Infrastructure Protection Plan (NIPP). The ESCC draws its membership from all segments of the electric utility industry, and is led by three chief executive officers—one each from the American Public Power Association, the Edison Electric Institute, and the National Rural Electric Cooperative Association. Among its activities, the ESCC coordinates industry and government efforts on grid security, guides infrastructure investments and R&D for critical infrastructure protection, seeks to improve threat information sharing and processes with public and private sector stakeholders, and coordinates cross sector activities with other critical infrastructure sectors. A Senior Executive Working Group (SEWG) supports the mission and activities of the ESCC, creating ad hoc "sub teams" to address goals identified by utility and government executives. The Edison Electric Institute (EEI) as the trade association for investor-owned electric utilities has been involved with the formation of industry partnerships on cybersecurity issues with a number of federal agencies. Information sharing between public and private entities is an issue the industry considers critical in protecting the grid against cyber-threats. The industry is involved in several information sharing efforts including the ES-ISAC, ESSC, and NCCIC. As noted above, the bulk electric system has mandatory standards for critical infrastructure cybersecurity that NERC proposes, and FERC approves (or may modify and remand back to NERC). Industry compliance with these standards may be enough to prevent fines, but the question is whether existing mandatory standards result in a cybersecure grid. The grid has reportedly experienced intrusions to SCADA systems, which could possibly compromise systems operations. While the exact details and location have not been revealed, the cyberattacks demonstrate potential threats to grid reliability. Although some may believe the risks of a major cyberattack on the grid are small, FERC is obligated to consider CIP and cybersecurity as part of its reliability mandate. This section will summarize current concepts for evaluating and improving electricity subsector cybersecurity. In 2013, NESCO released the results of an analysis intended to help electric utilities plan for cybersecurity risks. The "Electric Sector Failure Scenarios and Impact Analyses" report focuses on specific events in which the "failure to maintain confidentiality, integrity, and/or availability of sector cyber assets creates a negative impact on the generation, transmission, and/or distribution of power." The report organizes the failure scenarios according to six categories, corresponding to the domains identified by the National Institute of Standards and Technology. 1. Advanced Metering Infrastructure (AMI) 2. Distributed Energy Resources (DER) 3. Wide Area Monitoring, Protection, and Control (WAMPAC) 4. Electric Transportation (ET) 5. Demand Response (DR) 6. Distribution Grid Management (DGM) A seventh, generic cross-cutting scenario was also identified which could impact any of these categories. The failure scenarios are "high-level" examples, so as not to present a cyberattacker with ideas on how to carry out an attack. The focus is on cybersecurity events, not other events which could potentially cause similar issues. Mitigations and options are suggested for the various scenarios, with a scheme for prioritization of solutions for securing control systems. The report was designed to "support risk assessment, policies, planning, procedures, procurement, training, tabletop exercises and security testing." Figure 4 lists what NESCO considered as some of the top potential failure scenarios. NESCO teams ranked the scenarios, with the darker bands indicating the potential higher risk failures. A relatively large number of potential failures came from the WAMPAC domain, a significant number from AMI, and a moderate number came from the DGM domain. Few were selected from DER or DR, and none were selected from the ET domain. In the report, each failure scenario is accompanied by a descriptive example of an action causing the breach, the relevant vulnerabilities and impacts. A possible mitigation of the AMI.24 scenario above is shown in the example of Figure 5 . Using the potential cybersecurity failure scenarios put forward by NESCO, DOE and EPRI issued a voluntary risk assessment process for utilities to consider in developing and implementing a plan to manage risks from the six failure scenarios developed by NESCO. Utility strategies for framing, assessing, responding to, and monitoring risk on a continual basis are at the center of the process. NESCO's risk assessment approach is based on DOE's ES-C2M2 model, and risk management is focused on DOE's systems security approach specific to risks from operating IT and IC systems. The electric power industry is mostly in a defensive mode regarding cybersecurity threats. One potential area of increasing importance is intrusion detection, since some reports state that cyber attackers may be on an enterprise's system for years before they are detected. Much of what is emerging from the collaborative efforts of government, industry and academia appears to be focused on changing the way the electric sector views and operates as an enterprise. Protection of the sector from deliberate disruption was not necessarily a high priority for most utilities, especially before Internet connectivity became common. Cyber and physical security are essential if the enterprise is to fulfil its function, and protection of critical infrastructure of the bulk electric system is a mandatory part of utility system operations. Because many cybersecurity actions are reactive to the last threat discovered, some experts say that mitigation of cyber threats requires a focus on attackers, not the attacks. Therefore, they suggest that higher-level cybersecurity postures are thus said to require looking beyond whether "something bad" is happening, and shifting to understanding who authored the malicious software and why. Finding an answer to these issues means understanding the reason for the attack, and then the appropriate resources can be gathered in building an effective defense. The Financial Services Information Sharing and Analysis Center (FS-ISAC) reportedly uses a team of threat analysts who base cyberattack defenses on safeguarding what they think the attackers are after. FS-ISAC operates "a centralized threat repository and an automated network for rapid distribution of threat information from government and industry sources." The ES-ISAC performs a similar function to the FS-ISAC for the electricity subsector, but is said not to match FS-ISAC in technical capabilities yet. The automated, machine-to-machine information exchange that currently exists at FS-ISAC enables a faster, finer-grained identification and analysis of suspected Internet addresses, malicious software code and other threat indicators than the ES-ISAC currently can achieve. That gives FS-ISAC the potential for advanced search and analysis capabilities, including greater insights into identities and methods of various actors. In other words, FS-ISAC has a great capability to "connect the dots" that reveal critical information about an attack and its authors, according to participants in the programs ...Adoption of faster, more automated threat processing technologies by the electric power sector's vendors may be the best hope of improving cybersecurity defenses among the hundreds of smaller utilities that can't afford in-house cyberdefense expertise. NCCIC expects to have such "machine-to-machine sharing of online threat data" capabilities available soon. Renewable electricity in distributed generation installations and microgrids have the potential to resist disruptions to the grid, whether from natural occurrences or cyberattacks, by continuing to generate power if the grid is brought down. Microgrids can be a partial solution to larger scale resilience as they are sized to meet the power needs of a local community or institution, and they may also be useful in a major cyber event as a staging point for power outage and recovery workers. But they are also another potential point of access to the grid by a cyberattacker. The Department of Defense looked at how distributed generation can harden its capabilities to maintain its mission and functions in the case of a major cybersecurity event affecting the Grid. A project called the Smart Power Infrastructure Demonstration for Energy Reliability and Security (SPIDERS) program was undertaken to help secure military installations if grid power supplies are disrupted. One of the goals of the SPIDERS project was to transition military bases from reliance on diesel generators for back-up purposes to other on-site renewable electricity technologies and hydrogen fuel cells. Thus, military facilities could function in the event of a major cyber event and serve as centers for recovery efforts. In 2013, NIST initiated the SmartAmerica Challenge to address grid vulnerabilities with a focus on using novel approaches. Since the grid relies on control centers to manage power flows in each area of operation, if that control center's operations are disrupted, reductions in service quality or power outages may occur. One SmartAmerica effort is looking at how a distributed computing approach could make the grid more resilient against both physical and cyberattacks. Because having a single control center for each section of the grid creates a significant vulnerability threat, the NC State and UNC group within the Smart Energy [Cyber-Physical Systems] team is pursuing the idea of creating a distributed computing system that would disseminate monitoring and control functions across multiple virtual machines in a cloud computing network that overlays the grid. According to a researcher leading the effort, the advantage of using distributed computing methods is "that if one element of the computing system gets compromised, the other virtual machines could step in to protect the system and coordinate their efforts to keep the Grid functioning." Preparation for recovery from a potential cyberattack requires consideration of the resiliency of the system. Cyber resiliency can be defined as "the coordinated set of enterprise wide activities designed to help organizations respond to and recover from a variety of cyber incidents, while reducing the cost, impact to business operations, and brand damage." But for electric utilities, the overall goal is system reliability, and the expenditures that may be required to ensure that the grid is functional are just beginning to be understood. Responsible entities must protect High- and Medium-Impact BES Cyber Assets and BES Cyber Systems under the access restriction provisions of the CIP rules. In some cases, this may require significant investment, such as creating secure enclosures that meet access restriction requirements. Even where capital investment is not required, resources will be needed to implement and validate protective measures as well as to manage and monitor access and, in some cases, configuration. While mandatory and enforceable reliability standards exist for BES critical infrastructure protection, electric utilities are concerned about the potential for a major cybersecurity event to result in liability concerns that could have financial ramifications. As businesses involved in a commercial enterprise, utilities are aware that they may be vulnerable from a liability standpoint. While adherence to mandatory standards provides a measure for a "standard of care," it may not be enough to protect companies from legal actions. The American Public Power Association (APPA) summarized the issue as follows: APPA is concerned that electric utilities may not be sufficiently protected from liability for negligence claims in failing to protect against such attacks even when they have taken every known precaution. Some states are considering legislation that could protect utilities from liability for cyber attacks, but no state or federal statutes currently exist to insulate electric utilities, including public power entities, from legal action in response to a cyber incident.... This and previous Congresses have considered legislation focusing on cybersecurity proposals which have included provisions that would grant liability protections to critical infrastructure owners and operators affected by cyber incident, but no such protections have been enacted into law. EEI also voiced its concern over liability protection, and additionally considered the potential for unexpected costs for utilities arising from a potential major cyber event. Costs associated with emergency mitigation are, by definition, unexpected and thus not included in a utility's rate base. To ensure emergency actions do not put undue financial strain on electric utilities, the industry supports mechanisms for recovering costs. In addition, electric utilities support liability protections for actions taken under an emergency order. Various federal, state and other jurisdictions may allow utility companies to recover costs of cyber and physical security investments. And, in the event of a major cyber or physical security attack, electric utilities also may seek recovery of these costs from their customers in a public utility commission rates filing. According to DHS, cybersecurity insurance is generally designed to mitigate losses from a variety of cyber incidents, including data breaches, business interruption, and network damage. DHS believes "a robust cybersecurity insurance market could help reduce the number of successful cyberattacks by: (1) promoting the adoption of preventative measures in return for more coverage; and (2) encouraging the implementation of best practices by basing premiums on an insured's level of self-protection." DHS goes on to state that many companies (including electric utilities) choose not to carry insurance policies, citing the perceived high cost of those policies and confusion about what they cover. In recent years, the Department of Homeland Security's (DHS) National Protection and Programs Directorate (NPPD) has brought together a diverse group of private and public sector stakeholders—including insurance carriers, risk managers, IT/cyber experts, critical infrastructure owners, and social scientists—to examine the current state of the cybersecurity insurance market and how to best advance its capacity to incentivize better cyber risk management.... An October 2012 workshop focused on the challenges facing the "first-party" market which covers direct losses to companies arising from cyber-related incidents—including cyber-related critical infrastructure loss.... Based on what it had learned, NPPD hosted an insurance industry working session in April 2014 to assess three areas where it appeared progress could lead to a more robust first-party market: the creation of an anonymized cyber incident data repository; enhanced cyber incident consequence analytics; and enterprise risk management evangelization. Some electric utilities companies view the likelihood of a major cyberattack as a potentially low risk event. However, in the opinion of one insurance industry broker, "[a] major energy catastrophe—on the same scale as ... Exxon Valdez or Deepwater Horizon—could be caused by a cyberattack, and, crucially, that cover for such a loss is generally not currently provided by the energy insurance market." Most insurance products available to utilities reportedly cover "relatively minor" occurrences such as data losses, or downtime caused by IT issues "but not major events like explosions at multiple facilities triggered remotely by hackers." The lack of coverage is said to arise from a clause in the insurance agreements of a number of energy sector companies which specifically exclude damage caused by software, viruses or malicious computer code. The lack of coverage will likely continue as long as the exclusionary clause is in effect. However, the clause is reported to remain because cybersecurity "is not well-understood by the insurance industry, making it difficult to design comprehensive products." Moreover, appraisers from the large insurance provider Lloyds of London are also reported to have found cybersecurity protection measures as "too weak" for a policy to be offered to power companies. The electric utility industry is composed of many different companies of various sizes and various ownership and financial structures. Many utilities seem at present to view the potential for a major cybersecurity event as a low probability concern and to want to balance cybersecurity efforts and expenditures with the perceived risks. NERC's CIP Version 5 seeks to address that thinking by shifting the focus of utilities to provide the necessary levels of security for BES assets with low, medium, or high system impacts. However, many other joint federal and industry cybersecurity activities are cooperative, with voluntary adoption of the measures and metrics developed. The effectiveness of strategies developed and the levels of adoption of recommendations may require congressional evaluation. Even with mandatory standards, the six failure scenario domains identified by NESCO illustrate the continuing potential vulnerability of the grid to cyber and physical attacks, or a combination of both. While improved cyber intrusion detection measures are a high priority, these are more likely to come from government-industry partnerships than from the utility industry's efforts alone. However, the advice of several initiatives and observers is essentially for electric utilities to embrace cybersecurity as part of their strategic business planning and operations. Cyber intrusions of the grid are believed to be happening, which may be seen as an indication that that more needs to be done by electric utilities to make the system secure. Whether electric utilities can make the investment financially (and recruit staff) for such a mission is also an issue. The threats facing the grid are evolving, and with each new intrusion or cyberattack, priorities to protect the system can shift. But that does not mean previous attacks can be considered past issues. SCADA and other control systems infected by worms such as HAVEX are also vulnerable to other actors who may take advantage of such incursions, using or modifying them for their own purposes. This can be a particular concern if, for example, a worm originated from a nation-state. The threat of retaliation would likely be a deterrent from its use by a nation-state, but a terrorist or similar organization would likely be undeterred by such a consequence, and may use the worm for its own purposes. Given the potential for damage to the nation's economy from a major cyberattack on the grid, some might suggest a greater focus on recovery is needed and should become as much a part of a cybersecurity strategy as are efforts to secure the system. The bulk electric system is subject to mandatory and enforceable critical infrastructure protection rules for cyber and physical security under the FERC's reliability mandate. However, the energy sector is only one of 16 critical infrastructure sectors identified by DHS. Given that the grid relies on several of the others (for example, for water and fuel transportation), the question of whether these other sectors should also have similar, mandatory standards focused on support of the electric power sector may be an issue for Congress to consider. Additionally, FERC still asserts that it does not have the ability to react to a "fast moving or imminent" cyberattack. Congress may want to consider whether FERC should have more authority to deal with cybersecurity threats in real time. Congress enacted provisions in EPACT giving the Federal Energy Regulatory Commission responsibility for the reliability of the grid. EPACT specifically restricted FERC from exercising its reliability authority over distribution systems. Even with the recent redefinition of the BES, there are many points to access the grid beyond those covered by CIP standards from which a potential cyberattack could be launched. Congress may want to consider whether further protection of the grid is necessary, especially along the seams between the newly revised BES and distribution systems beyond FERC's reliability authority. Such actions may include standards (voluntary or mandatory) or defined best practices for facilities connecting to the grid at, for example, a specified voltage level below the bright-line threshold of 120 kV. Congress may want to consider ways to help companies deal with the costs of critical infrastructure protection. All BES designated facilities (whether these are low, medium or high risk) under CIP Version 5 will be covered by some level of the new requirements. Since the regulatory jurisdictions and financial structures of companies in the electric power industry can differ considerably, Congress may want to look at ways to lessen possible financial strains on electric utility systems with legitimate cost-compliance burden concerns. Congress may also want to consider liability protection for electric utilities in the event of a major cyberattack. The coverage extended by insurance company products currently available may not extend to damage caused by a cyberattack. The following bills are related to cybersecurity issues presented in this report. While not specific to electric utilities, they address information sharing generally between federal and private sector companies. Electric utility companies would argue that the protections and two-way information sharing of the types proposed by these bills would likely promote disclosure of cyber incidents, thus potentially improving cybersecurity for all participants. H.R. 1731 among other actions would amend the Homeland Security Act of 2002 ( P.L. 107-296 ) to enhance multidirectional sharing of information related to cybersecurity risks and strengthen privacy and civil liberties protections. The bill would allow for sharing of cyber threat indicators and other information related to cybersecurity risks and incidents with federal and nonfederal entities, including across sectors of critical infrastructure. The National Cybersecurity and Communications Integration Center (NCCIC) may enter into a voluntary information-sharing relationship with any consenting nonfederal entity for the purpose of sharing of cyber threat indicators and defensive measures. A nonfederal entity, not including a state, local, or tribal government that shares cyber threat indicators or defensive measures through the NCCIC, shall be deemed to have voluntarily shared such information. H.R. 234 among other actions would direct the federal government to provide for the real-time sharing of actionable, situational cyber threat information between all designated federal cyber operations centers to enable integrated actions to protect, prevent, mitigate, respond to, and recover from cyber incidents. The bill also would allow the federal intelligence community to share cyber threat intelligence with private-sector entities and utilities possessing appropriate certifications or security clearances. H.R. 85 among other actions would direct DHS to (1) work with critical infrastructure owners and operators and other state and local authorities to take proactive steps to manage risk and strengthen the security and resilience of the nation's critical infrastructure against terrorist attacks; (2) establish terrorism prevention policy to engage with international partners to strengthen the security and resilience of domestic critical infrastructure and critical infrastructure located outside of the United States; (3) establish a task force to conduct research into the best means to address the security and resilience of critical infrastructure in an integrated, holistic manner to reflect critical infrastructure's interconnectedness and interdependency; (4) establish the Strategic Research Imperatives Program to lead DHS's federal civilian agency approach to strengthen critical infrastructure security and resilience; and (5) make available research findings and guidance to federal civilian agencies for the identification, prioritization, assessment, remediation, and security of their internal critical infrastructure to assist in the prevention, mediation, and recovery from terrorism events. The bill also directs DHS to facilitate the timely exchange of terrorism threat and vulnerability information as well as information that allows for the development of a situational awareness capability for federal civilian agencies during terrorist incidents. S. 456 among other actions would permit private entities to (1) disclose lawfully obtained cyber threat indicators to a private information sharing and analysis organization and the NCCIC; and (2) receive indicators disclosed by private entities, the federal government, or state or local governments. Liability protection would be given to entities that voluntarily share lawfully obtained indicators with NCCIC or a private information sharing and analysis organization if the organization self-certifies that it has adopted the best practices identified by the DHS-selected private entity. | In the United States, it is generally taken for granted that the electricity needed to power the U.S. economy is available on demand and will always be available to power our machines and devices. However, in recent years, new threats have materialized as new vulnerabilities have come to light, and a number of major concerns have emerged about the resilience and security of the nation's electric power system. In particular, the cybersecurity of the electricity grid has been a focus of recent efforts to protect the integrity of the electric power system. The increasing frequency of cyber intrusions on industrial control (IC) systems of critical infrastructure continues to be a concern to the electric power sector. Power production and flows on the nation's electricity grid are controlled remotely by a number of IC technologies. The National Security Agency (NSA) reported that it has seen intrusions into IC systems by entities with the apparent technical capability "to take down control systems that operate U.S. power grids, water systems and other critical infrastructure." As the grid is modernized and the Smart Grid is deployed, new intelligent technologies utilizing two-way communications and other digital advantages are being optimized by Internet connectivity. Modernization of many IC systems (in particular, the Supervisory Control and Data Acquisition [SCADA] system) also has resulted in connections to the Internet. While these advances will improve the efficiency and performance of the grid, they also will increase its vulnerability to potential cyberattacks. Black Energy, Havex, and Sandworm are all recent examples of malware targeting SCADA systems. New devices (like smart meters) and increasing points of access (such as renewable electricity facilities) introduce new additional areas through which a potential cyberattack may be launched at the grid. Many cybersecurity actions are reactive to the last threat discovered. While intrusion detection is a priority, some experts say that mitigation of cyber threats requires a focus on attackers, not the attacks. Cybersecurity strategies may shift from figuring out whether a system has been compromised to an understanding of who authored the malicious software and why. Although malware intrusions may not have resulted in a significant disruption of grid operations so far, they still have been possible even with mandatory standards in place. The North American Electric Reliability Corporation's (NERC's) current set of standards, Critical Infrastructure Protection (CIP) Version 5, is moving toward active consideration of bulk electric system security needs rather than just compliance with minimum standards. Electric utilities emphasize the need for timely information sharing and advocate for liability protection from potential damages resulting from a major cyber event. Some observers argue that it is the responsibility of electric utilities to embrace security as part of their strategic business planning and operations. The National Electric Sector Cybersecurity Organization has identified six failure scenario domains intended to assist utility cybersecurity efforts. These scenarios also illustrate the continuing vulnerability of the grid to potential cyber and physical attacks, or a combination of both. This report highlights several areas for congressional consideration to improve grid cybersecurity. One issue is whether electric utilities have the resources to make the financial investment and recruit staff to reduce vulnerabilities. Another issue is that NERC CIP standards do not apply to all points of grid connection to the distribution system, and these connections still may represent cyber vulnerabilities. The adequacy of current standards where they do apply is also an issue. |
Most civilian federal employees who were hired before 1984 are covered by the Civil Service Retirement System (CSRS). Under CSRS, employees do not pay Social Security taxes or earn Social Security benefits. Federal employees first hired in 1984 or later are covered by the Federal Employees' Retirement System (FERS). All federal employees who are enrolled in FERS pay Social Security taxes and earn Social Security benefits. Federal employees enrolled in either CSRS or FERS also may contribute to the Thrift Savings Plan (TSP); however, only employees enrolled in FERS are eligible for employer matching contributions to the TSP. Congress passed the Civil Service Retirement Act of 1920 (P.L. 66-215) to provide pension benefits for civilian federal employees. In 1935, Congress created the Social Security system for workers in the private sector. During the 1950s, Congress allowed state and local governments to bring their employees into Social Security, and today about three-fourths of state and local employees are covered by Social Security. Federal employees remained outside of Social Security until Congress passed the Social Security Amendments of 1983 ( P.L. 98-21 ). This law required all civilian federal employees hired into permanent employment on or after January 1, 1984, to participate in Social Security. Enrolling federal workers in both CSRS and Social Security would have resulted in substantial duplication of benefits and would have required employees to contribute more than 13% of pay to the two programs. Consequently, Congress directed the development of a new retirement system for federal workers with Social Security as its cornerstone. The new plan was designed to include many features of the retirement plans of large private-sector employers. The result of this effort was the Federal Employees' Retirement System Act of 1986 ( P.L. 99-335 ), enacted on June 6, 1986. The FERS has three elements: Social Security, the FERS basic retirement annuity and the FERS supplement, and the Thrift Savings Plan. The FERS covers employees initially hired into federal employment on or after January 1, 1984, and employees who voluntarily switched from CSRS during "open seasons" in 1987 and 1998. Former federal employees who had completed at least five years of service under CSRS and were later rehired by the government after a break in service could either join FERS or participate in the "CSRS offset plan." Under the CSRS offset plan, 6.2 percentage points of the employee's payroll contribution and an equal share of the employer contribution are diverted from CSRS to the Social Security trust fund. Later, the retiree's CSRS annuity is reduced (offset) by the amount of his or her Social Security benefit. Both CSRS and the CSRS offset program will terminate with the death of the last worker or survivor still covered under that program, which the Office of Personnel Management (OPM) estimates will occur around the year 2090. Employers establish retirement plans both to help them attract workers with valuable skills and to enable older workers to retire without facing the prospect of inadequate income. Employers must balance the goals of providing adequate retirement income with controlling the cost of the retirement plan. For private-sector employers, another important consideration is the regulatory environment in which their retirement plans must operate. Private-sector retirement plans must comply with the relevant provisions of federal law, including the Employee Retirement Income Security Act (ERISA), the Age Discrimination in Employment Act (ADEA), and the Internal Revenue Code. Retirement programs generally can be classified as either defined benefit (DB) plans or defined contribution (DC) plans. In a defined benefit plan, a worker's retirement benefit is typically paid as a life annuity based on years of service and average salary. A defined contribution plan is much like a savings account maintained by the employer on behalf of each participating employee. The employer and/or employee contribute a specific dollar amount or percentage of pay into an account, which is usually invested in stocks and bonds. When the worker retires, he or she receives the balance in the account, which is the sum of all the contributions that have been made plus interest, dividends, and capital gains (or losses), net of fees and expenses. The retiree usually may choose to receive these funds as a series of payments over a period of years or as a lump sum. An important difference between the two types of retirement plans is that in a defined benefit plan the employer bears the financial risk, whereas in a defined contribution plan the employee bears the financial risk. In a defined benefit plan, the employer promises to provide retirement benefits in the form of a life annuity or its actuarial equivalent. To pay the promised benefit, the employer must make contributions to a pension fund, which is invested in stocks, bonds, and other assets. The employer's contributions plus the expected investment earnings on the contributions must be sufficient to pay the pension benefits that workers have earned under the plan. The employer is at risk for the full amount of retirement benefits that have been earned by employees. If the pension plan is underfunded, the employer must make additional contributions so that the promised benefits can be paid. In a defined contribution plan, the employee bears the investment risk. For example, if the contributions to the plan have been insufficient or if the securities in which the contributions have been invested lose value or appreciate too slowly, the employee might reach retirement age without the financial resources needed to maintain his or her desired standard of living in retirement. If this occurs, the worker might have little choice but to delay retirement. CSRS is a DB plan that provides a standalone annuity. FERS includes both DB and DC plan elements (i.e., the FERS annuity and the TSP, respectively). Under both CSRS and FERS, the date of an employee's eligibility to retire with an annuity depends on age and years of service. The amount of the retirement annuity is determined by three factors: (1) the number of years of service, (2) the accrual rate at which benefits are earned for each year of service, and (3) the salary base to which the accrual rate is applied. Under CSRS, a worker with at least 30 years of service can retire at the age of 55; a worker with at least 20 years of service can retire at the age of 60; and a worker with 5 or more years of service can retire at the age of 62. Federal employees are fully vested in the FERS basic retirement annuity after five years of service. The FERS minimum retirement age (MRA) for an employee with 30 or more years of service was 55 for workers born before 1948. The MRA under FERS began to increase in 2003 for workers born after 1947. The MRA for employees born between 1953 and 1964 is 56. It will increase to 57 for those born in 1970 or later. (See Table 1 .) A worker who has reached the MRA and has completed at least 30 years of service can retire with an immediate, unreduced annuity. A worker with 20 or more years of service can retire with an unreduced annuity at age 60, and a worker with at least 5 years of service can retire at age 62. Under FERS, an employee can retire with a reduced benefit at the minimum retirement age with at least 10 years of service. The retirement benefit is permanently reduced by 5% multiplied by the difference between 62 and the retiree's age at the time the annuity begins. For example, an employee with at least 10 years of service who retires at 56 would receive a pension benefit that is reduced by 30% below the amount that would be paid to an individual with the same salary and years of service who retired at the age of 62. A commonly used measure of retirement income adequacy is the percentage of pre-retirement income replaced by pension income. This measure—the replacement rate —is expressed by the following ratio: Replacement rates usually are based on the sum of the employee's pension benefit and Social Security benefit. Because retirees do not have the expenses that are associated with having a job, most people are able to maintain their previous standard of living with less income than they had while working. Although there is no fixed rule about what comprises an adequate replacement rate, most pension analysts believe retirement income should replace at least 70% to 80% of pre-retirement income. Workers who had low-wage jobs generally need a replacement rate near the high end of this range because a higher proportion of their income is expended on non-discretionary items, such as food, clothing, shelter, health care, and taxes. The basic retirement annuity under both CSRS and FERS is determined by multiplying three factors: the salary base , the accrual rate , and the number of years of service . This relationship is shown in the following formula: Pension Amount = salary base x accrual rate x years of service In both CSRS and FERS, the salary base is the average of the highest three consecutive years of basic pay. This is often called "high-three" pay. The accrual rate is the pension benefit earned for each year of service, expressed as a percentage of the salary base. Under FERS, workers accrue retirement benefits at the rate of 1% per year; or, for employees in FERS who have at least 20 years of service and who work until age 62, the accrual rate is 1.1% for each year of service. For example, a worker under FERS who retires at 61 with 29 years of service would receive an annuity equal to 29% of his or her high-three average pay. Delaying retirement by one year would increase the annuity to 33% of high-three average pay (30 x 1.1 = 33). CSRS pension accrual rates increase with length of service. CSRS pensions equal 1.5% of high-three average pay for each of the first 5 years of service, 1.75% for the 6 th through 10 th years, and 2.0% for each year of service after the 10 th year. This formula yields a replacement rate of 56.25% for a worker who retires with 30 years of service. FERS accrual rates are lower than those under CSRS because employees under FERS pay Social Security payroll taxes and earn Social Security retirement benefits. Some Members of Congress and congressional staff and all federal law enforcement officers, firefighters, and air traffic controllers accrue benefits at higher rates under both CSRS and FERS than do other federal employees. Under CSRS, all Members of Congress and congressional staff accrue benefits at the rate of 2.5% for each year of service. This results in a replacement rate of 75% after 30 years of service. All law enforcement officers and firefighters, and air traffic controllers enrolled in CSRS accrue benefits at the rate of 2.5% for each of their first 20 years of service and 2.0% for each year thereafter. Under FERS, Members of Congress and congressional staff first covered by FERS before 2013 accrue pension benefits at the rate of 1.7% per year for their first 20 years of service and 1.0% for each year of service after the 20 th year. All law enforcement officers, firefighters, and air traffic controllers also accrue pension benefits at the rate of 1.7% per year for their first 20 years of service and 1.0% for each year of service after the 20 th year. These accrual rates yield a pension equal to 34% of the FERS salary base after 20 years of service and 44% after 30 years of service. With enactment of P.L. 112-96 , Members of Congress and congressional staff first covered by FERS in 2013 or later, accrue pension benefits at the same rate as regular FERS employees (i.e., 1% per year; or, for Members and congressional employees in this category with at least 20 years of service and who work until age 62, the accrual rate is 1.1% for each year of service). The replacement rate for these Members and congressional staff is, therefore, the same as for regular FERS employees. For a regular federal employee with 30 years of service, CSRS provides a replacement rate equal to 56.25% of high-three average pay. Estimating replacement rates under FERS is complicated by the fact that income from two of its components—Social Security and the TSP—will vary depending on the individual's work history, contributions to the TSP, and the investment performance of his or her TSP account. Because Social Security retirement benefits cannot begin before the age of 62, Congress included in FERS a temporary supplemental benefit for workers who retire before age 62. This "FERS supplement" is paid to workers who retire at the age of 55 or older with at least 30 years of service or at the age of 60 with at least 20 years of service. It is also paid to law enforcement officers, firefighters, and air traffic controllers who retire at the age of 50 or later with 20 or more years of service. The supplement is equal to the estimated Social Security benefit that the individual earned while employed by the federal government. It is paid only until the age of 62, regardless of whether the retiree chooses to apply for Social Security retired worker benefits at 62 years old. Cost-of-living adjustments (COLAs) protect the purchasing power of retirement benefits from being eroded by inflation in the prices of goods and services. In 1972, Congress passed legislation providing for automatic COLAs for Social Security. COLAs have been in effect since 1962 for CSRS. Social Security COLAs and CSRS COLAs are equal to the annual change in the Consumer Price Index for Urban Wage and Clerical Workers (CPI-W). As a cost-control measure, Congress limited the annual COLA applied to the FERS retirement annuity. Under FERS, the basic retirement annuity is fully indexed if inflation is under 2% per year and partially indexed if inflation exceeds 2%. If the CPI-W increases by up to 2%, then the FERS annuity increases by the same percentage. If the CPI-W increases by 2% to 3%, the FERS annuity increases by 2%. If the CPI-W increases by more than 3%, the FERS annuity increases by the rise in the CPI-W minus one percentage point. Under FERS, COLAs are applied only to annuities of retirees aged 62 or older, individuals who retired by reason of disability, and to survivor annuitants. Non-disabled, non-survivor FERS beneficiaries under the age of 62 receive no COLAs. The TSP is a defined contribution (DC) retirement plan similar to the 401(k) plans provided by many private-sector employers. The TSP is a key component of FERS, especially for workers in the middle and upper ranges of the federal pay scale, who are unlikely to achieve adequate retirement income—as measured by the replacement rate—from Social Security and the FERS basic annuity. In 2015, federal employees can contribute up to $18,000 to the TSP. Employees aged 50 and older can contribute an additional $6,000. These employee contributions may be made on a pre-tax basis, in which case neither the contributions nor investment earnings that accrue to the plan are taxed until the money is withdrawn. Alternatively, P.L. 111-31 authorized a qualified Roth contribution option to the TSP. Under a Roth contribution option, employee salary deferrals into a retirement plan are made with after-tax income. Qualified distributions from the Roth TSP plan option—generally, distributions taken five or more years after the participant's first Roth contribution and after the age of 59½—are tax-free. For all federal workers under FERS, the employing agencies contribute to the TSP an amount equal to 1% of each employee's base pay, whether or not the employee contributes anything to the plan. In addition, employees enrolled in FERS can receive employer matching contributions equal to 4% of pay, according to the schedule shown in Table 2 . Federal workers covered by CSRS also may contribute to the TSP, but they receive no matching contributions from their employing agencies. TSP participants are immediately vested in their contributions to the plan, all federal matching contributions, and any interest, dividends, or capital gains attributable to those contributions. Participants are fully vested in the 1% agency automatic contribution to the TSP after three years (two years for congressional employees and executive branch political appointees). The value of an individual's TSP account at retirement will depend on how much he or she contributed to the TSP each year, the number of years over which contributions were made, and the investment earnings of the TSP funds. Participants in the TSP may choose among five funds in which they can invest their TSP contributions: The "C" fund invests in a stock market index fund that replicates the Standard and Poor's 500 Index of 500 large to medium-sized U.S. companies. The "F" fund invests in bonds in the same proportion as they are represented by the Barclays Capital U.S. Aggregate Bond Index. The "G" fund invests in U.S. government securities and pays interest equal to the average rate of return on government securities with maturities of four years or more. The "S" fund invests in a stock index fund that tracks the Dow Jones U.S. Completion Total Stock Market Index of small to medium-sized U.S. companies not included in the "C" Fund. The "I" fund invests in a stock index fund that replicates the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index. In 2005, the TSP added a "Lifecycle Funds" option. Lifecycle Funds are invested in various combinations of the five existing TSP funds. According to the Federal Retirement Thrift Investment Board, participants who invest in these funds "benefit from having professionally designed asset allocation models available to optimize their investment performance by providing portfolios that are appropriate for their particular time horizon." The participant's time horizon is based on the future date he or she expects to begin withdrawing money from the TSP. There are currently four TSP Lifecycle Funds: 1. Lifecycle 2050 (with a target date for leaving federal service of 2045 or later); 2. Lifecycle 2040 (with a target date of 2035 through 2044); 3. Lifecycle 2030 (with a target date of 2025 through 2034); and 4. Lifecycle 2020 (with a target date of now through 2024). When a particular Lifecycle Fund reaches its target date, it is automatically rolled into the "L Income Fund," to produce income for TSP participants who anticipate withdrawing from their TSP accounts in the near term or who are already receiving TSP monthly payments. Historical rates of return for the TSP are shown in Table 3 . For the years before 2001, the rates of return for the S and I funds are the rates of return for the indices on which those funds are based. An employee can withdraw funds from the TSP in three ways. Funds can be withdrawn as a life annuity, in a single lump-sum payment, or in a series of monthly payments, either for a fixed number of months or in a fixed dollar amount until the account is depleted. A retiree can choose to have payments begin immediately or at a later date. There is a 10% tax penalty for those who withdraw funds before the age of 59½. The penalty does not apply if the individual has retired and is aged 55 or older, or if the withdrawals are taken as a series of substantially equal periodic payments based on the person's remaining life expectancy. Both CSRS and FERS require participants to contribute toward the cost of their future pensions through a payroll tax. Under CSRS, employees contribute 7.0% of base pay to the Civil Service Retirement and Disability Fund (CSRDF). Under FERS, employees first hired before 2013 contribute 0.8% of pay to the CSRDF and they also pay Social Security taxes (6.2% on salary up to the maximum taxable wage base of $118,500 in 2015). FERS employees first hired in 2013 contribute 3.1% of pay to the CSRDF as well as Social Security taxes. FERS employees first hired after 2013 contribute 4.4% of pay to the CSRDF as well as Social Security taxes. Participants in CSRS are not covered by Social Security. See Table 4 for a summary of FERS employee contribution rates by date of hire. Members of Congress contribute 8.0% of salary to the CSRDF if covered by CSRS; 1.3% of salary to the CSRDF if under FERS and first covered prior to 2013; 3.1% of salary to the CSRDF if under FERS and first covered in 2013; or 4.4% of salary to the CSRDF if under FERS and first covered after 2013. All Members of Congress pay Social Security taxes, regardless of whether they are under CSRS or FERS. In the private sector, employers are required by the Employee Retirement Income Security Act of 1974 (ERISA; P.L. 93-406 ) to pre-fund the benefits that workers earn under defined benefit plans. Pre-funding of future pension obligations is required because there is always the possibility that a firm could go out of business. A firm that closes down will no longer have revenues to pay its pension obligations, and if these obligations were not fully funded, retirees and employees of the firm would lose some or all of their pension benefits. Private-sector employers with defined benefit pensions are required to pay premiums to the Pension Benefit Guaranty Corporation (PBGC), which insures the pensions of workers whose employer terminates a pension plan that has unfunded liabilities. For plans that terminate in 2015, the PBGC guarantees a maximum annual benefit of approximately $60,136 for a worker retiring at the age of 65. The maximum benefit is lower for workers who retire before the age of 65. The PBGC does not insure federal, state, or local government pensions. The ultimate guarantors of government pensions are the taxpayers. The federal government requires private-sector firms to pre-fund employees' pension benefits to ensure that if a firm goes out of business, there will be funds available to pay its pension obligations. Although the federal government is unlikely to "go out of business," there are other reasons that Congress has required federal agencies and their employees to contribute money to the CSRDF. First, by providing a continuous source of budget authority, the CSRDF allows benefits to be paid on time, regardless of any delays that Congress may experience in passing its annual appropriations bills. Secondly, the balance in the trust fund acts as a barometer of the government's future pension obligations. Given a fixed contribution rate and benefit structure, a rising trust fund balance indicates that the government is incurring obligations to make higher pension payments in the future. Finally, prefunding pension obligations forces federal agencies to recognize their full personnel costs when requesting annual appropriations from Congress. Otherwise, these costs would be recognized only in the central administrative accounts of the Office of Personnel Management, and not by the agencies where the costs are incurred. Contributions to CSRS and FERS are not deposited into individual employee accounts. Nor is the amount of a federal worker's pension based on the amount of his or her contributions. All contributions are paid into—and all benefits are paid out of—the Civil Service Retirement and Disability Fund. Employee contributions pay for a comparatively small part of the retirement annuities paid by CSRS and FERS. There are, however, both budgetary and actuarial reasons that federal employees are required to contribute to CSRS and FERS. Employee contributions are revenues of the federal government. These revenues reduce the proportion of pension costs that must be borne by the public. In FY2014, employee contributions to CSRS and FERS totaled an estimated $2.8 billion, equal to 2.9% of the total income of the CSRDF. The other major sources of revenue to the CSRDF are agency contributions, contributions of the U.S. Postal Service on behalf of its employees, interest on the federal bonds held by the fund, and transfers from the general revenues of the U.S. Treasury. These transfers are necessary because the costs of the older of the two federal retirement programs, the CSRS, are not fully covered by employee and agency contributions. FERS benefits are required by law to be fully funded by the sum of contributions from employees and their employing agencies and the interest earnings of the CSRDF. Actuaries calculate the cost of defined benefits pension plans in terms of "normal cost." The normal cost of a pension plan is the level percentage of payroll that must to be set aside each year to fund the pension benefits that participants have earned. Normal cost is based on estimates of attrition and mortality among the workforce, future interest rates, salary increases, and inflation. OPM has estimated the current normal cost of CSRS to be 29.3% of payroll. The federal government's share of the estimated normal cost of CSRS is 22.3% of payroll. The Civil Service Retirement Amendments of 1969 (P.L. 91-93) require participating employees and their employing agencies each to contribute an amount equal to 7.0% of basic pay to the CSRDF to finance retirement benefits under CSRS. The combined contribution of 14% of employee pay does not fully finance the retirement benefits provided by the CSRS. The costs of the CSRS that are not financed by the 7.0% employee and 7.0% agency contributions are attributable mainly to increases in future CSRS benefits that result from (1) employees' annual pay raises and (2) annual COLAs to CSRS annuities. In actuarial terms, the employee and agency contributions totaling 14% of pay are equal to the static normal cost of CSRS benefits. This is the benefit that would be paid if employees received no future pay raises and annuitants received no future COLAs. The dynamic normal cost of CSRS pensions includes the cost of financing future benefit increases that result from pay raises and COLAs provided to annuitants. Contributions from employees and their employing agencies meet about 48% of the normal cost of CSRS (14.0/29.3 = .478). The remaining 52% of the cost of CSRS is paid from the interest earned by bonds held by the retirement and disability trust fund, special contributions by the U.S. Postal Service for retired postal workers, and transfers from the general revenues of the U.S. Treasury. If each federal agency were to pay the full cost of CSRS benefits on an accrual basis, as is done under FERS, they would contribute an amount equal to 22.3% of payroll. This represents the dynamic normal cost of CSRS minus the required employee contribution of 7.0% of pay. Effective beginning FY2015, OPM has estimated the normal cost of the FERS basic annuity to be 14.0% of payroll for employees first hired before 2013 and 14.2% of payroll for employees first hired in 2013 or later. Federal law requires agencies to contribute an amount equal to the normal cost of FERS minus employee contributions to the program. Employees first hired before 2013 contribute 0.8% of pay toward their FERS annuities. Consequently, the normal cost of the FERS basic annuity to the federal government for these employees is equal to 13.2% of payroll (14.0 - 0.8 = 13.2). Under P.L. 112-96 , FERS employees first hired in 2013 contribute 3.1% of pay toward their FERS annuity. The cost for this category of FERS employees is equal to 11.1% of payroll (14.2 - 3.1 = 11.1). Under P.L. 113-67 , FERS employees first hired after 2013 contribute 4.4%, while their employing agencies still contribute 11.1%. (The additional amounts provided by the increased employee contributions are applied toward reducing the CSRS unfunded liability until it is eliminated.) The federal government has three other mandatory costs for employees enrolled in FERS: (1) Social Security, (2) the 1% agency automatic contribution to the TSP, and (3) agency matching contributions to the TSP. Social Security taxes are 6.2% of payroll on both the employer and the employee up to the maximum taxable amount of earnings ($118,500 in 2015). All agencies must contribute an amount equal to 1% of employee pay to the TSP. The normal cost of FERS to the federal government is therefore is at least 20.4% (13.2 + 6.2 + 1 = 20.4) of pay for employees first hired before 2013 and 18.3% (11.1 + 6.2 + 1 = 18.3) for employees hired in 2013 or later. Federal matching contributions to the TSP can add up to 4 percentage points to that amount. For an employee enrolled in FERS and first hired before 2013 who contributes 5.0% or more of pay to the TSP, the employing agency must finance retirement costs equal to 24.4% (13.2 + 6.2 + 1 + 4 = 24.4) of employee pay. For an employee enrolled in FERS and first hired in 2013 or later who contributes 5.0% or more of pay to the TSP, the employing agency must finance retirement costs equal to 22.3% (11.1 + 6.2 + 1 + 4 = 22.3) of pay. CSRS and FERS differ in the way that each federal agency must budget its contributions toward employee pension benefits. Under FERS, each agency must include the full normal cost of the FERS basic benefit (13.2% of pay for FERS employees hired before 2013 and 11.1% of pay for FERS employees hired in 2013 or later) in its annual budget request. In addition, each agency must include in its budget request the cost of the employer share of Social Security payroll taxes, the 1.0% automatic contribution to the TSP, and employer matching contributions to the TSP. Under CSRS, each agency must budget only a 7.0% contribution to the CSRDF, even though this is less than the full cost of the program. The costs associated with CSRS that are not paid by the employee contribution of 7.0% and the agency contribution of 7.0% are treated as a general obligation of the U.S. Treasury. In both CSRS and FERS, government contributions to the CSRDF result in the Treasury issuing securities that are credited to the fund. The contributions for both programs are commingled, and benefits for retirees and survivors in both programs are paid from the CSRDF. In contrast, government contributions to the TSP are deposited into individual accounts for each TSP participant. The accounts are managed by the Federal Retirement Thrift Investment Board. The TSP is not a trust fund of the U.S. government. TSP accounts are individually owned by participants in the TSP in the same way that 401(k) accounts are owned by workers in the private sector. As of September 30, 2013, the CSRDF had net assets of $844.6 billion available for benefit payments under both CSRS and FERS. At the same time, the civil service trust fund had an unfunded actuarial liability of $785.0 billion, with $751.4 billion in unfunded liability attributable to CSRS and $33.6 billion in unfunded liability attributable to FERS. Federal law has never required that employee and agency contributions must equal the present value of benefits that employees accrue under the CSRS. In contrast, the FERS Act requires that the benefits accrued each year by employees must be fully funded by contributions from employees and their employing agencies. Although the CSRDF has an unfunded liability, it is not in danger of becoming insolvent. According to the projections of OPM's actuaries, the assets of the CSRDF will continue to grow over the next 75 years. The fund's assets are projected to reach $1.1 trillion in 2020, $2.2 trillion in 2040, $5.0 trillion in 2060, and $9.6 trillion in 2080. Actuarial projections indicate that the CSRDF will be able to meet its financial obligations in perpetuity. According to OPM, "the total assets of the CSRDF, including both CSRS and FERS, continue to grow throughout the term of the projection, and ultimately reach a level of about 5.3 times payroll, or about 20 times the level of annual benefit outlays." One reason that the CSRDF will not exhaust its resources is that all federal employees hired since 1984 are enrolled in FERS. By law, the benefits that employees earn under FERS must be fully funded by the sum of employer and employee contributions and interest earnings. The CSRDF is similar to the Social Security Trust Fund in that 100% of the monies deposited must be used to purchase special-issue U.S. Treasury bonds. This exchange between the trust fund and the Treasury does not result in revenues or outlays for the federal government. It is an intra-governmental transfer, which has no effect on the size of the government's budget surplus or deficit. Federal trust funds are not a "store of wealth" like private pension funds. The assets of the civil service retirement trust fund are U.S. Treasury bonds that function solely as a record of available budget authority. The bonds cannot be sold by the trust fund to the general public in exchange for cash. They can only be returned to the Treasury, which recognizes each bond as representing an equivalent dollar-value of budget authority to be used for the payment of benefits to federal retirees and their survivors. The Office of Management and Budget (OMB) has stated that These [trust fund] balances are available for future benefit payments and other trust fund expenditures, but only in a bookkeeping sense. The holdings of the trust funds are not assets of the Government as a whole that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury. From a cash perspective, when trust fund holdings are redeemed to authorize the payment of benefits, the Department of the Treasury finances the expenditure in the same way as any other Federal expenditure—by using current receipts or by borrowing from the public. The existence of large trust fund balances, therefore, does not, by itself, increase the Government's ability to pay benefits. Put differently, these trust fund balances are assets of the program agencies and corresponding liabilities of the Treasury, netting to zero for the Government as a whole. Government trust funds, however, can ease the burden of future benefit payments if an increase in the trust fund balance represents a net increase in national saving. Again, quoting OMB: From an economic standpoint, the Government is able to prefund benefits only by increasing saving and investment in the economy as a whole. This can be fully accomplished only by simultaneously running trust fund surpluses equal to the actuarial present value of the accumulating benefits while maintaining an unchanged Federal fund deficit, so that the trust fund surplus reduces the unified budget deficit or increases the unified budget surplus. This would reduce Federal borrowing by the amount of the trust funds surplus and increase the amount of national saving available to finance investment. As long as the increase in Government saving is not offset by a reduction in private saving, greater investment would increase future national income, which would yield greater tax revenue to support the benefits. Many state and local government pension funds invest in stocks, bonds, mortgages, real estate, and other private assets. If Congress were to permit the CSRDF to acquire assets other than U.S. Treasury bonds—such as the stocks and bonds issued by private corporations—these assets could be sold to the public for cash as pension liabilities come due. This would represent a major change in public policy that would have important effects on the federal budget and on private businesses that would, in effect, be partly owned by an agency of the federal government. Among the possible drawbacks of allowing the CSRDF to invest in private assets are that the stocks and bonds purchased by the trust fund would displace purchases of these assets by private citizens, so that while civil service retirement benefits would be prefunded, it would be at the cost of reducing the amount of private-sector assets held by private citizens. In a scenario of "full displacement," there would be no net increase in the amount of saving and investment in the economy, just a reallocation of assets in which the government would own more private-sector stocks and bonds and private investors would hold more Treasury bonds. A second issue that would have to be considered if the trust fund were to purchase private investment securities would be the fund's management and investment practices. It is unclear who would make the investment decisions, and what the acceptable level of investment risk for the funds would be. The most fundamental risk is that poor investment choices would result in the trust fund losing value over time. Another question would be how the fund would decide what assets to purchase. Deciding what would constitute an appropriate investment for a fund that consists mainly of monies provided by taxpayers could be controversial. Not all companies, industries, or countries would be seen by the public as appropriate places to invest these funds. In short, the question of investing trust fund assets in securities other than U.S. Treasury bonds is one that would deserve close and careful consideration of all the possible ramifications. Allowing the civil service retirement trust fund to invest in private-sector securities also would have implications for the federal budget. Currently, the trust fund is credited by the Treasury with agency contributions on behalf of covered employees, and it receives revenue in the form of employee contributions. Agency contributions are intra-governmental transfers, and have no effect on the size of the government's annual budget deficit or surplus. Employee contributions, however, are revenues of the U.S. government. As it now operates, the only outlays of the trust fund are payments to annuitants and relatively minor outlays for administrative expenses. If the trust fund were to purchase private assets such as corporate stocks and bonds rather than U.S. Treasury bonds, there would be an immediate outlay of funds. This outlay by the trust fund would be paid for in part by employee contributions that would be diverted from the general fund of the Treasury. The remainder of the purchase, financed by agency contributions, would replace an intra-governmental transfer with a direct outlay of federal funds. Because the Treasury would no longer receive employee contributions toward CSRS and FERS as revenue, it would have to borrow an equal amount from the public. Consequently, without an offsetting reduction in outlays elsewhere in the budget or an increase in revenues of other sources, the net effect of these transactions would be an increase in the government's budget deficit (or a decrease in the budget surplus). If the budget accounting period extended over a long enough time, these transactions would cancel one another out because the long-term effect would merely move some outlays from the future, where they would have occurred as payments to annuitants, to the present, where they would occur partly as outlays to purchase assets and partly as a reduction in revenues that currently go to the general fund of the Treasury. | Most civilian federal employees who were hired before 1984 are covered by the Civil Service Retirement System (CSRS). Federal employees hired in 1984 or later are covered by the Federal Employees' Retirement System (FERS). Both CSRS and FERS require participants to contribute toward the cost of their pensions through a payroll tax. Employees who are covered by CSRS contribute 7.0% of pay to the Civil Service Retirement and Disability Fund (CSRDF). They do not pay Social Security taxes or earn Social Security benefits. Employees enrolled in FERS and first hired before 2013 contribute 0.8% of their pay to the CSRDF, in 2013 contribute 3.1% of pay to the CSRDF, and after 2013 contribute 4.4% of pay to the CSRDF. All FERS employees contribute 6.2% of wages up to the Social Security taxable wage base ($118,500 in 2015) to the Social Security trust fund. The minimum retirement age (MRA) under CSRS is 55 for workers who have at least 30 years of service. The FERS MRA is 55 for employees born before 1948. The MRA for employees born between 1953 and 1964 is 56, increasing to the age of 57 for those born in 1970 or later. Both FERS and CSRS allow retirement with an unreduced pension at the age of 60 for employees with 20 or more years of service and at the age of 62 for employees with at least 5 years of service. The Thrift Savings Plan (TSP) is a retirement savings plan similar to the 401(k) plans provided by many employers in the private sector. In 2015, employees covered under either CSRS or FERS can contribute up to $18,000 to the TSP. Employees aged 50 and older can contribute an additional $6,000 to the TSP. Employees under FERS receive employer matching contributions of up to 5% of pay from their federal employing agency. Federal workers covered by CSRS also can contribute to the TSP, but they receive no matching contributions from their employing agencies. The Office of Personnel Management (OPM) estimates the cost of CSRS to be an amount equal to 29.3% of employee pay. Of this amount, the federal government pays 22.3% and employees pay 7.0%. Effective for FY2015, OPM estimates the cost of the FERS basic annuity at an amount equal to 14.0% of pay for employees first hired before 2013 and 14.2% for employees first hired in 2013 or later. Of this amount, for FERS employees first hired before 2013, the federal government contributes 13.2% and employees pay the other 0.8%, in 2013 or later, the federal government contributes 11.1% and employees pay the remaining 3.1%, and after 2013 pay 4.4% (with the additional sums above the cost of FERS going to pay down the CSRS unfunded liability). Employers pay three other costs for employees under FERS: (1) both the employer and employee pay Social Security taxes equal to 6.2% of pay up to the maximum taxable amount; (2) agencies automatically contribute an amount equal to 1% of employee pay to the TSP; and (3) agencies make matching contributions to the TSP equal to up to 4% of pay. At the end of FY2014, the CSRDF had an unfunded liability of $785.0 billion, consisting of a $751.4 billion deficit for CSRS and a $33.6 billion deficit for FERS. Although the civil service trust fund has an unfunded liability, it is not in danger of becoming insolvent. OPM projects that the balance of the CSRDF will continue to grow through at least 2080, at which point it will hold assets equal to more than 5.3 times total payroll and about 20 times total annual benefit payments. This report provides an overview of current benefits and financing under CSRS and FERS. For summary information on recent reform proposals related to CSRS and FERS, see CRS Report IF10243, Civilian Federal Retirement: Current Law, Recent Changes, and Reform Proposals, by [author name scrubbed]. |
Afghanistan has begun the slow process of reconstruction. According to many observers, themost serious challenge facing Afghans and Afghanistan today remains the lack of security. Whilethe Taliban regime fell and the new government has celebrated its first anniversary, Afghanistan isstill in a peacebuilding process, an essential part of which is reconstruction. Most observers agreeon the need for substantial, long-term reconstruction and the need for international support, butquestions are raised about the funds required, the priorities, and the coordination necessary for thisprocess. This report examines U.S. foreign aid to Afghanistan in the context of the internationaleffort and explores the major issues for Congress. The United States, other countries, and international relief organizations have long been active in providing assistance to the Afghan people. (1) During the 1980s, the United States along with othercountries had funded, through Pakistan, the mujahedin forces fighting against the Soviet Union, aswell as providing humanitarian aid to the large refugee camps in Pakistan. After the Soviet Unionleft Afghanistan and dissolved, the United States sharply reduced its programs. From FY1994, theUnited States Agency for International Development (USAID) did not have a mission inAfghanistan, but continued to provide aid mainly through U.N. agencies and non-governmentalorganizations (NGOs). During the violent civil war that lasted throughout the 1990s, the UnitedNations continued to seek a peace agreement, which would allow for sustained reconstruction. However, with the failure of several peace agreements, the international donor community focusedprimarily on humanitarian aid because the conditions were not stable for long-term development anddonors did not want to provide assistance to the Taliban, which came to power in 1996. Between1996 and 2001, the United States alone provided half a billion dollars in emergency aid toAfghanistan. (2) The assistance situation changed dramatically once the Taliban was removed from power, allowing for the implementation of humanitarian assistance and the development of reconstructionplans. These plans quickly took shape with the Bonn Accord on December 5, 2001, which led to theformation on December 22, 2001 of an interim government led by Hamid Karzai. The centralgovernment was further strengthened in June 2002 through the loya jirga , which was attended by1,550 delegates. It chose a new government to run Afghanistan for the next two years during whichtime a new constitution is to be drafted and elections are to be held. At the loya jirga , Karzai waschosen to lead the new government named the Islamic Transitional Government of Afghanistan(ITGA). The Afghan government has been working with the international donor community onreconstruction programs and plans, since a major donor conference in January 2002 in Tokyo andsubsequent ongoing meetings with international donors. As a result of decades of violent conflict, Afghanistan is in great need of substantial reconstruction, from roads and schools to a broad range of development projects encompassing thewhole country. According to USAID, the decades of civil war and proxy regional war have createdfour intertwining and competing economies in Afghanistan. (3) These economies create conflictingincentives for Afghans and their neighbors and have a determining influence on the future ofAfghanistan. There is the war economy, an economy of arms trafficking, looting, kidnaping, black market activity, and the brokering of violence. Different factions, funded by neighboringcountries, control border crossings, generate revenue from trade and illicit smuggling, supportmilitias through arms purchases, and thus fuel violence. Some contend that this economy createsincentives for the continuation of conflict; Connected with the first is the drug economy. (4) Poppy trade provides substantialincome for some Afghans, but also has led to skyrocketing addiction rates in the region and createdincentives leading away from other forms of agriculture critical to the sustained livelihood of thecountry; As a result of decades of conflict, deep poverty, and on-going drought, manyAfghans rely on the benevolence of the international community, which has created a humanitarianaid economy. While humanitarian aid is essential in the short-term, the influx of money and peoplecan create distortions in local markets and provide few incentives for local production. As a result,development aid agencies will be critical to assisting Afghans with local production; Agriculture has always been a mainstay of the Afghan economy, and, before the civil war, Afghanistan had been self-sustaining in agricultural production. In addition,Afghanistan also has other economic sectors, though much weakened by war. The most vibrantsector is transportation, which has long traversed Afghanistan and connected Central Asia with theMiddle East and South Asia, but Afghanistan also has coal mines, oil and natural gas reserves, anda carpet weaving industry. Effective reconstruction assistance could reconfigure these economies, reduce the war and drug economies, and provide incentives for viable economic growth. Before reconstruction recently got underway, the United States and the international community provided other forms of assistance: humanitarian, military, and security. During the height of theanti-Taliban war and with the preparations for both winters (2002 and 2003), the focus of assistancewas on the continuation of the war and on humanitarian aid and quick-impact projects. Humanitarian, military, and security assistance continue. Humanitarian Assistance. The United Nations and other organizations have provided Afghans humanitarian assistance since at least 1979, whenthe Soviet Union invaded Afghanistan. (5) As a resultof this long-term involvement, the UnitedNations and other organizations had a basic institutional network in the region to provide and expandhumanitarian assistance. Since the fall of the Taliban regime and the establishment of a new government, this institutional network has been utilized. The Afghan government and the international donorcommunity have sought to focus on reconstruction, but humanitarian relief assistance continues tobe greatly needed. The overwhelming majority of assistance (outside of military aid) to date hasbeen spent on humanitarian needs. The United States has been the largest contributor ofhumanitarian assistance to Afghans. (6) Refugees and internally displaced persons (IDPs) have been the focus of much humanitarian assistance. These groups have been returning to their homes in unexpectedly high numbers. The U.N.High Commissioner for Refugees (UNHCR) reports that since March 1, 2002, more than two millionAfghan refugees have repatriated mainly from Pakistan but also from other neighboring countries. This is more than double the number expected by UNHCR. As of August 2002, another 230,000IDPs returned to their homes with the assistance of the International Organization for Migration(IOM). (7) Returnees require continuing humanitarianaid, but they also need transitional assistancefor resettlement, such as housing supplies, seeds and agricultural resources, jobs, and other services.With the return rate higher than expected, UNHCR and other aid agencies remain very concernedthat they cannot provide returnees with the same level of resources as previously and that returneesare also returning to a lack of adequate resources. At the same time, there are many other refugees and IDPs who have still not returned to their homes and require humanitarian assistance. The difficulties of winter are affecting large proportionsof the Afghan population, not only returning refugees and IDPs. In response, aid agencies haveprepositioned food, clothing, and other items, particularly in areas typically isolated during thewinter. Furthermore, the region has been affected by a severe drought since 1999. While some areashave improved, the drought continues, which means that some areas cannot return to previous levelsof agricultural production and continue also to rely on humanitarian assistance. Military Assistance. The international military involvement in Afghanistan, Operation Enduring Freedom (OEF), began on October 7, 2001.Twenty-seven nations have deployed more than 14,000 troops in support of OEF. (8) Of these twentyseven, 14 NATO members, NATO Partners, and other countries have been involved through specialoperations forces, the provision of planes and ships, and operations involving surveillance andinterception. OEF continues with 9,000 U.S. troops and about 2,500 non-Afghan, non-Americantroops. These troops in Afghanistan continue to search for Taliban and al Qaeda fighters andweapons caches in southern and eastern Afghanistan. (9) According to the Department of Defense(DOD), the cost of the war in Afghanistan has been $12.595 billion for the United States inFY2002. (10) According to the Afghan government, the United Nations, and international NGOs, the lack of security remains the most serious challenge. (11) Former commanders maintain control over their ownareas and continue fighting with their rivals, which further makes difficult the extension of thenational government, the provision of humanitarian assistance, and the initiation and implementationof reconstruction. With the continued fighting and insecurity, the process of demobilization andintegration of combatants has been slow, but on January 10, 2003, the United Nations and theAfghan government announced a plan for 250,000 militiamen to hand over their weapons inexchange for cash, vocational training, and employment assistance. (12) The main programs to improve the security situation have been the insertion of the International Security Assistance Force (ISAF) and the creation of an Afghan National Army (ANA) and policeforce. (13) ISAF is a U.N.-mandated, multinationalforce deployed in and around Kabul as apeacekeeping force since December 20, 2001. Twenty-three countries, mostly NATO allies, havecontributed troops or personnel to the 4,500-strong force. The mission of the ISAF is to (1) assistthe interim Afghan government in building a national security infrastructure, (2) assist in thecountry's reconstruction, and (3) assist Afghanistan in training its future security forces. At the endof June 2002, the United Kingdom handed over to Turkey the command of ISAF. Germany and theNetherlands took over command of ISAF on February 10, 2003. U.S. troops provide some assistanceto the ISAF (i.e., logistical, intelligence, and quick reaction force support), but they do not engagein peacekeeping. President Karzai, U.N. officials, and others have asked that ISAF be expanded, so that peacekeeping could take place outside of Kabul, but there has been a lack of international consensuson this issue. (14) In response to security concerns,the Pentagon has initiated a shift from an emphasison military action to one on reconstruction and security. While U.S. military action continues underOEF, by February 2003 the U.S. military planned to put 75% of its effort towards reconstructingsecurity services and supporting civil reconstruction through "provincial reconstruction teams,"which would join civilian and military efforts in regional areas outside Kabul. (15) The United Stateswill also be centrally involved in the training of the ANA. According to government officials, theUnited States will keep some troops in Afghanistan for several years. (16) The international recovery and reconstruction effort in Afghanistan is immense and complicated, with the Afghan government, numerous U.N. agencies, bilateral donors, manyinternational organizations, and countless NGOs working to help Afghanistan. The internationalcommunity and the Afghan government have sought to establish a common set of goals in order toutilize donor funds most effectively. In agreement with many in the international donor communityduring its six-month tenure, the first transitional government identified intended outcomes of thereconstruction process: political stability and security, access to basic services, an adequate standardof living for its people, economic growth, and, in the long term, independence from foreign aid. (17) However, these goals are broad and abstract because Afghanistan not only experienced 23 years of war but also was one of the less developed countries even before the war. Particularly in the caseof Afghanistan, humanitarian assistance, reconstruction, and development are not easily separable. Humanitarian assistance can overlap with the goals of reconstruction, such as by repairing watersystems to provide clean water or by providing basic building materials to repair housing. Reconstruction and development further blend in the case of Afghanistan. These efforts run onparallel and sometimes overlapping tracks. To understand the reconstruction process in Afghanistan, it is useful to be familiar with thedifferent institutions involved in the process and their own particular institutional mechanisms forconducting and coordinating post-conflict reconstruction. Many of these mechanisms were put intoplace during earlier reconstruction attempts in Afghanistan or were a result of lessons learned fromother post-conflict countries. Building on these initiatives, the international community seesAfghanistan as a test case for new forms of donor coordination. As a result, not only is Afghanistanthe beneficiary of past practices, but also the international community, including the United States,has invested itself in the success of Afghan reconstruction. Before 2001, U.S. aid to Afghanistan mainly flowed through U.N. agencies and NGOs, but the U.S. role increased dramatically since Operation Enduring Freedom (OEF) began. (18) U.S.government funding has come from three main agencies - USAID, the State Department, andDepartment of Defense (DOD) - and follows several routes to Afghanistan. First, the United Statesprovides bilateral aid to Afghanistan. These bilateral funds are either distributed to NGOs, whichprovide services in Afghanistan, or directly to the Afghan government. At USAID, funds aredistributed through the Office of Foreign Disaster Assistance (OFDA), the Office of TransitionInitiatives (OTI), the Office of Food for Peace (FFP), Economic Growth Agriculture and Trade(EGAT) Bureau, and the Asia Near East (ANE) Bureau. (19) At the State Department, funds aredistributed through the Bureau for Population, Refugees, and Migration (PRM), Bureau forInternational Narcotics and Law Enforcement Affairs (INL), and Humanitarian Demining Programs(HDP). DOD provides funding through its Overseas Humanitarian, Disaster and Civic Aid(OHDACA) program, which includes three segments: the Humanitarian Mine Action Program, theHumanitarian Assistance Program, and Foreign Disaster Relief Assistance. (20) Military and securityassistance are also provided through the DOD. Other funds are distributed through U.S. Departmentof Agriculture (USDA) and the Centers for Disease Control and Prevention (CDC). Second, Afghanistan also receives U.S. aid through multilateral institutions. The most important avenue is through the United Nations and its affiliated agencies, such as U.N. HighCommissioner for Refugees (UNHCR), U.N. Development Program (UNDP), the World FoodProgram (WFP), and World Health Organization (WHO), and through international financialinstitutions, such as the World Bank and the International Monetary Fund (IMF). Some U.S. fundingfor Afghanistan comes from U.S. dues and additional voluntary donations to the United Nationsthrough the State Department's International Organizations account or, in the case of UNHCR,through the State Department's Migration and Refugee Assistance (MRA) account and EmergencyRefugee and Migration Assistance (ERMA) Fund. Funds for the World Bank and other internationalfinancial institutions are allocated through the Treasury Department within the foreign operationsappropriation bill. For countries emerging from conflict, the international donor community has established a series of institutional mechanisms for developing and coordinating reconstruction. Though adaptedto specific situations, these institutional mechanisms are generally the same. In general, theinternational donor community is considered to be made up of international organizations and donorcountries. This section provides an overview of the institutional map of the international donorcommunity working with Afghanistan. Pre-existing Institutions. Many institutions were in place before September 11, 2001. The United Nations and the World Bank demonstrate thelargest institutional presence in conflict and post-conflict areas, though many NGOs and otherinternational actors have long played an essential assistance role in Afghanistan. In Afghanistan in1988, the Geneva Peace Accords were signed, which led to the Soviet withdrawal. With the peaceaccord in place, the United Nations established an active presence in Afghanistan. The UnitedNations commonly maintains separate offices for (1) political and peace processes (Pillar I) and (2)humanitarian and reconstruction operations (Pillar II). Since 1988 in Afghanistan, these offices hadreceived a series of different names, but most recently the Pillar I office was run by the UnitedNations Special Mission to Afghanistan (UNSMA) and the Pillar II office was run by the UnitedNations Office for Coordination of Humanitarian Affairs (UNOCHA). With each attempt at a sustainable peace, the United Nations sought to implement reconstruction. As the U.N.'s development agency, UNDP in 1993 conducted a major study for theimmediate rehabilitation and long-term reconstruction of Afghanistan in response to peace accordsin that year. As a result, UNDP and others had systematically examined the humanitarian andreconstruction needs of a post-war Afghanistan, but the peace process did not hold and fightingbegan again. In 1997, there was hope again for a peace accord. (21) In Afghanistan, UNDP developed itsStrategic Framework, a new coordinating structure aimed to bring coherence to multilateral, bilateral,and non-government efforts. The UNDP planned to reorient international development accordingto this new structure, and thus Afghanistan played an important role in these new ideas andprograms. As part of this framework, the United Nations organized the International Forum onAssistance to Afghanistan in Turkmenistan, which led to the Afghanistan Support Group (ASG).Made up of the 15 largest donor countries and the EU, ASG met (until recently) twice per year andfocused on coordination of humanitarian relief efforts. (22) Since September 11, 2001, this formalcoordinating structure for humanitarian and reconstruction efforts has been utilized. The World Bank has also had a continuing role. For countries in conflict, the World Bank generally puts them in "Watching Brief" status, during which the World Bank monitors the country'seconomy and provides analytical support to international relief agencies at work within its borders,thus supporting preparation efforts for reconstruction. In 1997, Afghanistan entered Watching Briefstatus, which, beyond monitoring, also provided funds for training of Afghan women'snon-governmental organizations based in Pakistan and for training of Afghan teachers in refugeecamps also in Pakistan. New Coordinating Institutions. In November 2001, with the possibility of the fall of the Taliban and a potential opening for sustainablereconstruction work, the international donor community quickly began new initiatives. The donorcountries formed the Steering Group for Assistance in the Reconstruction of Afghanistan inWashington, DC, chaired by the European Union, Japan, Saudi Arabia, and the United States. TheSteering Group began an assessment of Afghanistan's needs. To coordinate donor activities on amore operational level, the Steering Group in January 2002 formed the Implementation Group,which met quarterly in 2002 in Kabul, providing further support to the Afghan government. The World Bank with other multilateral organizations organized several conferences where Afghans, NGOs, and donors discussed reconstruction. The World Bank also prepared a TransitionalSupport Strategy (TSS) that outlines a range of tasks, while the UNDP organized an ImmediateTransitional Assistance Program (ITAP). The ITAP sets out immediate tasks and quick-impactprograms. In March 2002, the United Nations formed United Nations Assistance Mission inAfghanistan (UNAMA) bringing together the political (Pillar I) and humanitarian/reconstruction(Pillar II) efforts. Lakhdar Brahimi, Special Representative for the Secretary-General to Afghanistan,organized the Bonn Accord signed on December 5, 2001 and now directs UNAMA. (23) Currently, the international donor community has put great emphasis on "ownership" - meaning leadership and control - of reconstruction efforts by the country itself. The Afghan government hastaken on an increasingly central role in reconstruction planning and the management of aid funds. In February 2002, the Afghan government established the Afghan Assistance Coordination Authority(AACA) that interacts with donor coordination groups to regulate aid traffic and seeks to ensure thatthe aid provided supports some government programs and is not fragmented or subject to donorcompetition. AACA monitors aid flows through a database - funded and provided by UNDP - thattracks donors, their pledges, and programs. (24) Thedatabase is considered to be about 70% accurate.The Afghan government has also developed its own priorities in its National DevelopmentFramework (NDF), which is going through further revision to become the National DevelopmentBudget (NDB) by March 2003. Consultative Groups are institutional mechanisms associated with the World Bank that provide more control to countries receiving assistance than the "Watching Brief" status because countryrepresentatives are members of consultative groups. On December 18, 2002, the ASG dissolveditself and turned over its responsibilities to the new Consultative Group based in Kabul and led byAfghan finance minister, Ashraf Ghani. (25) ThisConsultative Group will differ from the usual modelin that consultative Groups primarily focus on economic development, but the Afghan group willalso maintain an emphasis on humanitarian needs because of continuing serious humanitarianconcerns. (26) Donor Conference and Trust Funds. In addition to providing their own assistance to Afghanistan, international organizations and internationalfinancial institutions have administered donor conferences, trust funds, and humanitarian andreconstruction programs. With the Bonn accord and interim government in place, the UNDPorganized a donor conference, in which the interim government presented its reconstruction plansand country representatives and international NGOs made pledges in order to show internationalsupport for those plans. These pledges represent amounts that countries were willing to earmark forAfghanistan. At the first major donor conference, which took place in January 21-22, 2002 in Tokyo,the ITAP was presented and funds pledged. Sixty-one countries and twenty-one internationalorganizations pledged $1.8 billion for 2002. The U.S. government alone pledged $297 million, justunder 25% of total pledges. The cumulative total was $4.5 billion, with some states making pledgesover multiple years and commitments of different time frames. The next major donor conferenceis scheduled for March 2003, during which the Afghan government will present its NationalDevelopment Budget (NDB) and donors direct their pledges toward specific priorities in the NDB. (27) The international community has placed great emphasis on paying the Afghan government's current expenditures, most importantly the salaries of government employees, in order to build upgovernment capacity and sustain momentum. Towards this end, several trust funds have beenestablished. Trust funds allow for rapid distribution of monies because they remove theadministrative requirements of multiple funds. Donor countries decide to contribute to these trustfunds and urge others to make contributions. UNDP created the Afghan Interim Authority Fund(AIAF) for donor contributions to the first six months of governmental operations and other relatedactivities, mobilizing $65.8 million for immediate operating costs. AIAF paid the salaries of over100,000 civil servants in the first two months of the government, repairs of ministry and statebuildings, the operation of the Emergency Loya Jirga Commission, the provision of basic equipmentand vehicles for ministries, and the preparation work of experts for the establishment of a CivilService Commission. (28) On July 22, 2002, the Afghanistan Reconstruction Trust Fund (ARTF) succeeded the AIAF. ARTF provides funds for the government's budget, investment activities and programs includingquick-impact recovery projects, funding to support the participation of Afghan experts residingabroad, and training programs for Afghans. Contributions from donors to date have totaled some $95million, and over $200 million more is expected. (29) In addition, the Law and Order Trust Fund forAfghanistan (LOTFA) is beginning to cover the basic needs of the police in the Kabul region. UNDPmanages this fund in cooperation with the Afghan government and the UNAMA. Activities to becovered through LOTFA include the rehabilitation of police facilities, payment of salaries, trainingand capacity-building, and procurement of non-lethal equipment. The idea is that sufficientresources will be provided to this fund to allow funding activities to be expanded to other provincessoon. (30) Coordination Challenges. From decades of experience in Afghanistan, the international community has developed coordinating mechanisms andinstitutions, which have helped to move the reconstruction process forward. Coordination is animportant goal and, as has been demonstrated in previous conflicts, coordinated activities generallylead to fewer unintended consequences, quicker learning processes, and more effective results. (31) Theinstitutional networks have altered over time with UNAMA taking on the main coordinating role inMarch 2002. Some observers argue that the Afghan government, international organizations, NGOs, donor countries, and others are following their own priorities and programs, and are not coordinatedenough. (32) Some have suggested that completecoordination may be both unnecessary and ineffective,especially when different organizations do not share common goals or strategies. (33) For example, theUnited Nations, the United States, and others have supported regime change in Afghanistan, whichhas led to a specific strategy to bolster the regime change with reconstruction. For those inAfghanistan and the region who do not support this goal of regime change or for those who havebeen marginalized by regime change (such as former supporters of the Taliban regime), supposedlyneutral, non-partisan humanitarian assistance could appear partisan. Coordination is a complicatedmatter, but some would argue that there should be coordination only among like-mindedorganizations, such as among humanitarian groups, separate from the coordination of politicalgroups, and separate from the coordination of military oriented groups. (34) Areas of concern include whether the funding levels to Afghanistan are adequate and whether funding is being used for reconstruction. The Afghan government's donor assistance database,which keeps track of aid flows, provides a picture of international funding levels. (For a list of thefunds committed and disbursed by country, see the appendix of this report.) It should be recognizedthat these numbers are self-reported by countries, may include double counting (such as countrypledges that flow through U.N. organizations), and may cover non-monetary items (such as food aidor donation of used goods). In addition, some new projects have not yet been included, such as aroad project proposed by Iran. Donor countries have committed $1.7 billion and, from that, disbursed $1.5 billion. The top donor countries (in descending order by funds committed) are as follows: the United States,European Commission, Japan, Germany, United Kingdom, Saudi Arabia, the Netherlands, Italy,France, and China. (35) Pledge Fulfillment Problems. With donor countries committing $1.7 billion and disbursing $1.5 billion, the numbers approach the $1.8 billionpledged at the donor conference in Tokyo in January 2002. Throughout the year, however, theAfghan government expressed disappointment and even exasperation for delays in the delivery offunds that slowed reconstruction and, therefore, undermined popular support of the government.According to the Afghan government, as of October 11, 2002, about 67% of the pledges had beendisbursed. (36) Some of these delays could beexplained by the donor countries' need to obtainCongressional or Parliamentary support and appropriations for funds, which takes time. Yet, effortshave been needed to make certain countries deliver their pledges. In addition, some countries havechanged their pledges. For example, for the Kabul-Kandahar-Herat road project, Saudi Arabia haschanged its $50 million pledge to a $30 million low-interest loan. (37) In response to Afghangovernment requests, the U.S. Defense Department and State Department have assigned seniorofficials to raise money from other countries for reconstruction, particularly for the training,equipping, and housing of the Afghan national army. Two of these senior officials went to thePersian Gulf to fund-raise and obtained several new pledges. (38) Questions about Funding Levels. Despite the seemingly large pledges, many observers have argued that even the pledged amounts are notadequate. According to the preliminary needs assessment presented in January 2002 by the UNDP,the World Bank, and the Asian Development Bank (ADB), Afghanistan would need $15 billion overthe next 10 years. (39) U.S. Secretary of State ColinPowell stated that Afghanistan would need $8billion over the next five years. (40) The Afghangovernment, however, seeks much more money andresources for reconstruction, arguing that 23 years of war necessitates increased funds. The Afghangovernment seeks $22 billion over the next decade and $45 billion over twenty years. (41) Donorcountries at the Tokyo conference pledged around $4.5 billion, about one third of theUNDP-WB-ADB $15 billion estimate, though the $1.8 billion pledge for the first year met theestimated levels. The U.N. Secretary-General has criticized these pledging levels: "the [Afghan]Government, regrettably, remains very much under-resourced. The total needs of a countryrecovering from over two decades of conflict, destruction and drought outstrip even the $1.8 billiongenerously pledged at the donor conference held in Tokyo on 21 and 22 January 2002." (42) In sum,the long-term funds pledged have not reached the amount deemed necessary by the UNDP, WorldBank, and ADB. Observers also have found that, in comparison with other countries, Afghanistan has received smaller pledges and less funding. The pledges calculated as per capita annual allocations are farsmaller in Afghanistan than in many other post-conflict situations - $42 for Afghanistan, versus$195 for East Timor, $288 for Kosovo and $326 for Bosnia. (43) As part of this funding, the numbersof peacekeepers have also been comparatively low. The number of people per peacekeeper has beenin Kosovo 48 people, in Bosnia 58 people, in Sierra Leone 304 people, and in Afghanistan 5,380people. (44) Making Reconstruction a Funding Priority. The Afghan government has particularly complained that donors have not provided adequate funding forreconstruction. The overwhelming majority of U.S. funding dedicated to Afghanistan has gone toDOD's spending for the war against the Taliban and al Qaeda and DOD's continued activities. ForFY2002, the amount is $12.595 billion. (45) Thattotal is about 24 times greater than the $531 millionthat the U.S. government spent in FY2002 on humanitarian and reconstruction assistance. (46) The Pentagon has indicated that some troops are now aiding in road construction and other reconstruction projects as well as performing their normal duties. The $6.1 billion that DODreceived for Afghanistan and the global war on terrorism in H.J. Res 2, P.L. 108-7 , the FY2003Consolidated Appropriations Resolution, covers DOD's continuing costs of deploying forces inAfghanistan and heightening security in the United States in the first quarter of FY2003. In non-military assistance, most funding - some say 70% of FY2002 funds - went towards humanitarian aid-usually considered urgent food, shelter, and medical care. (47) The majority of thisassistance was food aid, which is essential for humanitarian crises but, according to experts, isproblematic in the longer term for reconstruction. According to this view, food aid in anon-emergency situation undercuts market prices for food and decreases the incentive for agriculturalproduction. (48) In addition, the Afghan government argues for a different process of funding. Since humanitarian aid generally moves through the United Nations and non-governmental organizations,the Afghan government does not have access to these funds or control over how they are distributed. Moreover, it cannot use these funds to increase capacity building in the government and thereforecannot demonstrate government effectiveness to the Afghan population. FY2001 Appropriations. The United States has long been the major donor and contributor to the Afghan people. According to USAID, duringFY2001 the U.S. government provided $184.3 million in humanitarian assistance to Afghanistan. FY2002 Appropriations. On October 4, 2001, President Bush announced an initial U.S. commitment of $320 million in humanitarian assistanceto Afghans both inside and outside Afghanistan's borders. Multiple U.S. agencies are providingsome form of humanitarian and reconstruction assistance, which cover a wide variety of aid,services, and projects. Overall, the United States provided over $530 million in FY2002 Afghanhumanitarian assistance directly through government agencies or as a result of grants to internationalorganizations and NGOs, a total above the original commitment of $320 million. At the first major donor conference held in Tokyo in January 2002, donor countries and other organizations pledged a total of $1.8 billion for 2002. The cumulative total pledged at Tokyo was4.5 billion with some states making pledges over multiple years and commitment of different timeframes. The U.S. government pledged $297 million, funds which were drawn from existing sources- either from the $40 billion Emergency Terrorism Response supplemental ( P.L. 107-38 ) that waspassed shortly after the September 11, 2001 attacks (49) or from regular FY2002 appropriations, P.L.107-115 , passed on January 10, 2002. FY2002 Supplemental Appropriations. Both the House and the Senate proposed higher aid levels for Afghanistan reconstruction and security fundingthan the President's FY2002 $250 million Emergency Supplemental request. The FY2002Supplemental ( P.L. 107-206 , H.R. 4775 ) did not set a specific amount for Afghanistan,but it appears that amounts for economic, humanitarian, and security aid intended by Congresstotaled $304 million. Because of an executive-legislative dispute over "contingent emergency" fundsin the Supplemental Appropriation, including some money for Afghanistan, not all of the amountintended by Congress was available. In September 2002, the Administration allocated $258 millionfor Afghanistan, slightly above the requested level, but below the amount assumed by Congress. This assistance is in addition to the $297 million in FY2002 funding previously allocated. FY2003 Appropriations. No figures were provided in the Administration's request for Afghanistan for FY2003, although the Administrationtold Congress that its request included about $140 million, $98 million of which would come fromForeign Operations appropriations accounts. On September 12, 2002, the Administration pledgedan additional $80 million for road reconstruction through USAID. The Senate version of the FY2003 foreign aid appropriations ( S. 2779 , S.Rept. 107-219 ) recommended a slightly higher level, $157 million for Afghanistan, and the House version( H.R. 5410 ) recommended almost double the request, $295.5 million. Recentindications by the Pentagon of a likely shift in strategy in Afghanistan, where troops will assist withinitial reconstruction projects, raise the possibility of additional funds being made available throughthe Department of Defense. However, both House ( H.R. 5410 ) and Senate( S. 2779 ) Foreign Operations bills, as reported in 2002, expired with the end of the 107thCongress. On January 23, 2003, the Senate adopted a revised FY2003 Foreign Operations measure as part of H.J.Res. 2 , a continuing appropriation bill to which the Senate had added full textof the 11 funding measures that had not been enacted for that fiscal year. The new bill was similar,but modified in several ways what the Senate Appropriation Committee had reported last year in S. 2779 . H.J.Res. 2 recommended $220 million for Afghanistan, morethan double what the Administration had assumed in its request and $63 million higher than theSenate bill in the 107th Congress. The Senate measure further included several provisionsemphasizing the needs of Afghan women and children by earmarking as much as $75 million of thetotal for these groups. The House bill from the 107th Congress ( H.R. 5410 ) hadrecommended $295.5 million for Afghanistan, nearly triple the Administration's request. In H.J.Res.2, P.L. 108-7 , the FY2003 Consolidated Appropriations Resolution, $295.5 million wasappropriated for humanitarian and reconstruction assistance in Afghanistan. Other Legislation. There have been several authorizing bills. The Afghan Women and Children Relief Act of 2001 ( P.L. 107-081 ) is legislationsigned into law on December 12, 2001 to authorize the provision of educational and health careassistance to the women and children of Afghanistan. No specific amount was authorized. (50) The Afghanistan Freedom Support Act of 2002 ( P.L. 107-327 , S. 2712 ), passed by Congress on November 15, 2002 and signed by the President on December 4, 2002, authorizesan additional $3.3 billion for Afghanistan over four years. Included is $2 billion for humanitarian,reconstruction, and enterprise fund assistance through FY2006 and $300 million in drawdown fromU.S. military stocks of defense articles and equipment for Afghanistan and other countries andorganizations participating in restoring Afghan security. The legislation also includes a Sense ofCongress that calls for an expanded ISAF with an authorization of an additional $1 billion over twoyears. The Afghan government and the international community are seeking to move more quicklyto reconstruction. As already stated, reconstruction must cope with the destruction of 23 years of warand with the distortions in the Afghan economy, in which the war and drugs compete to thedetriment of agriculture and other economic activities. The Afghan government faces a dauntingtask. Reconstruction is seen as the single most important factor in sustaining peace. (51) According tomany observers, successful reconstruction will stop disillusionment with the new system inAfghanistan and will keep Afghanistan from again becoming a haven for terrorists. It is importantto remember that, while Afghans signed the Bonn Accord in December 2001, Afghanistan is still ina crucial peace-building stage. Some point out that the collapse of law and order in the 1990s wasa key factor behind the Taliban's military successes in subsequent years. (52) Quick-impact programs (with a time frame of four to six months) initiated the post-emergency transition toward reconstruction and constituted the initial part of more long-term programs ineducation, health, poppy eradication, and other areas. These projects also provide an important basisfor further reconstruction. (53) Numeroussmall-scale and some large longer-term, mostly road, projectsare underway. There are several issues of concern for the international community, the Afghan government, and observers beyond the funding challenges discussed above. First, the lack of security hasthreatened the progress of reconstruction. Second, not much obvious progress has been made onreconstruction because there have been many small programs and few large programs. Accordingto some observers, Afghans have become frustrated with what they perceive as little evidence ofreconstruction. There are many possible explanations for the perceived lack of progress: lack ofsecurity, lack of human and physical capacity to implement substantial reconstruction, inadequatefunding levels, and funding predominately going towards the continuing humanitarian crisis andtowards the administrative costs of the international donor community, rather than towardsreconstruction projects. Both security and progress on reconstruction are necessary in order tomaintain international donor interest in Afghan reconstruction, encourage private investment inAfghanistan, and maintain Afghans' hope in improvement in their country and their own lives. The goals of the reconstruction process are broad and abstract. These goals cover recovery, reconstruction, and development. The international community and the Afghan government havesought to establish priorities. The international community initially divided up the reconstructioneffort so that each donor country was the lead for specific project areas. Table 1 shows thedistribution of the reconstruction effort. Table 1. Lead Countries by Sector In 2002, the Afghan government has established its national priorities in the National Development Framework (NDF) and other documents. These priorities are as follows: 1. National Solidarity Program and Emergency Public Works Program 2. Education Infrastructure Program 3. Urban Infrastructure Program 4. Water Resource Investment Program 5. National Governance Infrastructure Program: government building construction,transparency, and capacity building. 6. Transport Project: roads, bridges, and airports. (54) At the same time, the TAPA put together by UNDP and the Afghan government incorporated these priorities and added other programs. The TAPA is broader than the NDF, including funds forrefugee and IDP returns, culture and media, mine action, and narcotics control. Below there is adiscussion of most cited priority areas. Government Capacity Building. A representative national government that is considered legitimate by the majority of the population and that caneffectively provide services is considered an essential element of reconstruction in Afghanistan. Formany decades, Afghanistan has been a failed state. Critical to the strength and sustainability of thegovernment, Afghanistan established and continues to develop many national institutions, such asthe Loya Jirga , effective ministries, a Central Bank, and a national army. The international community has placed great emphasis on paying the Afghan government's current expenditures, most importantly the salaries of government employees. Towards this end,UNDP created the Afghan Interim Authority Fund (AIAF) and the Afghanistan Reconstruction TrustFund (ARTR), as well as the Law and Order Trust Fund for Afghanistan (LOTFA). To develop andstrengthen government institutions, the international community has entered into partnerships withministries and organizations in the Afghan government in order to do capacity building and thustransfer needed skills and knowledge. The Bonn Agreement also mandates the establishment of anumber of commissions to create new institutions in the government and implement major reformsof existing institutions. These commissions include a Human Rights Commission, a JudicialCommission, a Constitutional Drafting Commission, a Defense Commission, and numerous othercommissions. (55) The United States is giving $5million to help facilitate the work of thesecommissions. (56) U.N. High Commissioner forHuman Rights (UNHCHR) and international donorshave sought to strengthen the Human Rights Commission so that it can implement an effectivehuman rights program, which would include investigating past and present abuses, educating thepublic about human rights, and training Afghans in the principles of international human rights law. (57) As the lead country in army training, the United States has worked with other countries to provide training and assistance in the formation of the ANA. The plans are for an army of 70,000soldiers, and as of January 9, 2003, the U.S. and other forces had trained and equipped fourbattalions with 1,600 soldiers. (58) The U.S.government is also providing additional money formilitary infrastructure, including $16 million for barracks, dining facilities, and training areas. (59) On October 7, 2002, the Central Bank of Afghanistan introduced its new currency, the Afghani, in the hopes of stabilizing prices and exchange rates. The new notes were printed in Germany. (60) TheUnited States has been the primary donor in the currency conversion process, providing technicalexpertise, equipment, transportation for delivery of currency, monitors to ensure the destruction ofold notes, and other activities. The Central Bank has had to extend the currency exchange periodand continues to exchange and destroy old notes. The United States is providing $3.3 million tocover the costs of this extended exchange period. (61) However, the value of the Afghani has beenunstable. At least as of late November, the value of the Afghani had plunged and caused consumerprices to rise sharply. (62) Women's Programs. U.S.-funded projects emphasize women's participation in general, and some also benefit women's programs specifically,such as refugee care and resettlement, health, and job training. (63) Overall, the situation for womenin Afghanistan has seen improvement since the fall of the Taliban, but a great deal needs to be doneto change the basic standard of living and means of livelihood for the average Afghan woman. Thisinvolves a wide range of issues, from education, family care, and health to participation in thepolitical process. (64) With regard to reconstruction in FY2002, USAID announced two grants totaling $64,000 to support the refurbishing of the Ministry of Women's affairs building and to provide the then AfghanWomen's Affairs Minister, Sima Samar, with basic office equipment, a vehicle, phone and otherstart-up capital. Coordinated through its implementing partner, the International Organization forMigration (IOM), the project has two goals: to rehabilitate the building complex and to providetechnical advisors to help establish operations and programs. In the FY2002 Emergency Supplemental ( P.L. 107-206 , H.R. 4775 ), $2.5 million was appropriated from ESF funds to support the construction of women's resource centers. (65) Theplan is to establish one center in each of Kabul's districts with a long-term goal of building one ineach of Afghanistan's 32 provinces. These centers are to provide a range of training and otherinitiatives focused on women, including health and education. (66) The FY2002 EmergencySupplemental also allocated $1.6 million to the State Department in support of the U.S.-AfghanWomen's Council, which focuses on programing and implementation of projects at the women'scenters mentioned above. Established in January 2002, the Council draws on leaders from business,government, and the media in both the United States and Afghanistan who work together to facilitatepublic-private partnerships between the two countries, to develop resources, and to provideopportunities for the participation of women in the rebuilding of Afghanistan. In The Afghanistan Freedom Support Act of 2002 ( P.L. 107-327 ), $15 million is authorized "to be appropriated to the President to be made available to the Afghan Minister of Women's Affairs." No specific figures for women's programs in Afghanistan were provided in the Administration'sbudget request for FY2003. The Senate measure (revised FY2003 Foreign Operations measure aspart of H.J.Res. 2 ) included several provisions emphasizing the needs of Afghan womenand children by earmarking as much as $75 million of the total for these groups. (67) In H.J.Res. 2 , P.L. 108-7 , the FY2003 Consolidated Appropriations Resolution, $5 millionwas earmarked from the Economic Support Fund for the Afghan Ministry of Women's Affairs,including support for the establishment of women's centers in Afghanistan. Employment Generation. As many as 4 million refugees have not returned to Afghanistan. While lack of security partly explains this, Afghanistanalso lacks employment opportunities. Many Afghans have migrated to Iran because of the economicopportunities there. Some refugees in Pakistan near the Afghan border refuse to return because theyhave employment and jobs are scarce in Afghanistan. (68) According to Andrew Natsios, head of USAID, the largest employers in Afghanistan are the Afghan government and the U.N. Mine Action Center. (69) Beyond these employers, the rehabilitationof the agricultural sector could provide many Afghans with some form of livelihood. A rehabilitatedagricultural sector could offer not only much needed food and cash, but also employment fordemobilized fighters, returning refugees, and many others. This in turn could diminish theattractiveness of returning to war or drug production and strengthen the basis for peace-building. International organizations and NGOs have been providing both food-for-work and cash-for-work programs to reconstruct Afghanistan and to provide resources to Afghans. Many arenow calling for a focus only on cash-for-work programs because these programs do not underminelocal agricultural prices. The Afghan government and others are calling for a mass cash-for-workprogram to combat both the high levels of unemployment and the "cash famine." (70) Road Construction. Road and bridge construction, as well road clearing, particularly during the winter snows, have been another majoremployment area for Afghans. Such infrastructural work is also important for the Afghan economyand the extension of the Afghan government across the nation. Afghanistan lies at the intersectionof historic trade routes connecting Central Asia, the Middle East, Pakistan, India, and China.Transportation has long been an important revenue creator for Afghanistan. After years of civil war,major roads are now a focus of reconstruction work. The United States, Saudi Arabia, and Japan have funded the reconstruction of the major Kabul-Kandahar-Herat road, which was originally built by the United States and the Soviet Unionin the 1960s. While Japan and Saudi Arabia are providing $50 million each, the United States hasprovided $80 million, making it the United States' largest single aid project in Afghanistan since theanti-Taliban war. Reconstruction of this road began on November 10, 2002 and is expected to becompleted in three years. (71) The Russians helpedrebuild the Salang Tunnel, connecting Kabul withNorthern Afghanistan and on to Central Asia, while the United States is providing $1.6 million tokeep it open during the winter. Recently, Iran announced it will fund and oversee the reconstructionof a 62-mile road from Herat to the Iranian border. (72) The European Commission, the Swedishgovernment, and Pakistan have begun emergency rehabilitation of the Kabul-Jalalabad-Torkhamroad in Eastern Afghanistan, and full construction will start next year. (73) Other road construction, aswell as bridge construction, is taking part in different areas of the country. Agricultural Rehabilitation. Rehabilitation of theagricultural sector is one key element in the reorientation of the Afghan economy away from the warand drug economies. In the past, Afghanistan has demonstrated the ability to be not onlyagriculturally self-sufficient, but also an agricultural exporter. As of 1978, Afghanistan was largelyself-sufficient in food and was a significant exporter of agricultural products, especially high-qualityfruit, silk, cotton, and other products. Wheat is grown in every region. Fruit trees (such as apricots,almonds, and walnuts) and grapevines were almost universally found as recently as 2001. Differentregions produce a variety of crops: corn, barley, rice, cotton, beans, onions, potatoes, sugarcane, andvegetables. In 1997-1998, Afghanistan was 70 percent self-sufficient in cereals. Beginning in 1998,however, a severe drought hit Afghanistan. The drought has now lessened in a few regions, andagricultural production has increased there, but the consequences of the successive years of droughtpersist and, in many regions, the drought itself continues. The drought and decades of war havemade self-sufficiency and export production a longer-term goal requiring substantial resources forcrop substitution and the rehabilitation of agricultural production. One significant and complicated issue is the drug economy. The British government is the lead in this area and focuses on eradication of poppy and on the training of eradication officers. The U.S.government has emphasized providing incentives for alternative forms of agricultural production,such as cotton and grape farming. However, aggressive poppy eradication programs couldexacerbate political tensions (by terminating essential cash income for large segments of thepopulation, including powerful vested interests) and precipitate new armed internal conflicts. (74) Therefore, drug eradication programs raises significant security concerns as well. To facilitate agricultural production, it is generally accepted that Afghan farming needs substantial infrastructural reconstruction. In addition to road construction and poppy eradicationprograms, the agricultural sector would benefit from: Water Access. Lack of water is the most serious obstacle to agricultural production. The irrigation systems need to be reconstructed by drilling wells, rebuilding localirrigation systems, canals, and reservoirs, and promoting water conservation. De-mining. Land mines remain a huge problem throughout Afghanistan. Afghanistan is believed to have one of the worst mine and unexploded ordnance problems in theworld, with 5-7 million still littered about the country. Some say it will take 12 more years andanother $500 million to remove most of the mines. (75) With over 80% of the Afghan populationrelying on agriculture for its livelihood, this is a substantial obstacle not only to refugee and IDPreturns, but to the basic recovery and reconstruction plans as well. Farming Resources. Afghan farmers need the means to farm: seeds, new trees to replace those killed by drought, fertilizer, and livestock. USAID has recently funded theimplementation of Famine Early Warning System (FEWS) in Afghanistan, which has long been usedin other regions, monitoring drought and famine conditions. Debt Relief. In order to survive the twin devastations of war and drought,farmers and others accumulated substantial debt. (76) With opium as a significant cash crop distortingthe rest of the agricultural economy, farmers need credit and loans to buy seeds, trees, and otheritems to survive and work outside the drug economy. Urban Reconstruction. The overwhelming majority of refugees and IDPs are returning to Kabul and other major cities because much of thehumanitarian and reconstruction resources are there. This urbanization trend has resulted in an acutehousing shortage and the need to invest in basic services, including water, sanitation, and power. Adding to this problem, the international aid community in Afghanistan has enabled an artificialeconomy to flourish by increasing housing rents, reducing availability, and thus making the currentsituation even more difficult. Energy. As of spring 2002, seventy percent of Afghanistan's power was hydroelectric, but the long-term drought has meant that hydroelectricplants have been running at less than full capacity. In addition, years of war significantly damagedthe power network. To provide energy to the country, the Afghan government has recently signedagreements with its neighbors to connect its power grids with those of Turkmenistan andUzbekistan. (77) USAID, ECHO, and IOM have alsoprovided money for a coal mining and distributionprogram. Furthermore, Turkmenistan, Pakistan, and Afghanistan have signed an agreement to builda $3.2 billion natural gas pipeline through Afghanistan. Education. An initial effort in the area of primary education has been the Back-to-School Campaign run by the United Nations Children's Fund(UNICEF). In March 2002, the Afghan schools officially opened. UNICEF's goal was to help 1.78million children return to school, but, according to UNICEF, up to three times that number may havereturned. (78) This Campaign has provided Afghanschools with essential materials, includingtextbooks, blackboards, pencils, notebooks, teaching aids, tents for use as makeshift classrooms, andother teaching and learning materials. USAID provided 10.6 million textbooks at a cost of $7.75million, as well as support for the airlift of these textbooks to Afghanistan at a cost of $742,000. TheState Department also contributed $2 million to the Back-to-School Campaign. While there have been many successes in primary education, other areas have received less attention and funds. For the further expansion of the primary school system, more teachers areneeded. In response to this, the World Bank has been funding tertiary education, especially theteaching of teachers. In addition, secondary education is in need of further funding. Health. Inoculations and basic medical care have helped improve living standards in Afghanistan. For example, nearly six million children have beenimmunized against polio through a program conducted by the Afghan Ministry of Public Health,WHO, and UNICEF. Over four million children have been immunized against measles. Moredirectly related to reconstruction is building the health care capacity in rural areas and therehabilitation of hospitals and clinics. Many hospitals and hundreds of clinics have beenrehabilitated, especially in Kabul. With these areas receiving funding from many sources, USAIDhas turned to rural health care, including the training of midwives and planned construction andrehabilitation of up to 600 primary health care facilities. Communications and Media. A key component of the coordination of reconstruction and the everyday function of the Afghan government iscommunication. Afghanistan relies on cell phone service - which works best in major cities and isprovided through a partnership of the Afghan government and a New Jersey-based company - andsatellite phones. Telecommunications is a sector attracting private foreign investment. (79) Considering radio an important way to connect the country, the United States has taken the lead theradio sector and provided technical and financial support to Radio Afghanistan. As the lead in thetelevision sector, Japan has helped rebuild a television station and supplied technical support andequipment for satellite broadcasting of the Emergency Loya Jirga throughout Afghanistan. What should be the goals of reconstruction in Afghanistan where humanitarian assistance, reconstruction, and development initiatives overlap? Not only did Afghanistan experience a decadeslong war, it also was a developing country before the war. Therefore, reconstruction anddevelopment blend in the case of Afghanistan. There are several issues that Congress couldconsider. For the United States, is the goal merely "aid-induced pacification" (giving funds toAfghanistan in order to pacify the population and reduce possible security threats fromAfghanistan)? (80) Or is the goal some form ofdevelopment, providing incentives for livelihoodsoutside the drug and war economies? How much development should the United States fund underthe aegis of reconstruction, leaving other areas to formal development agencies like UNDP? In addition to the Administration, some in Congress have talked about developing a Marshall Plan for Afghanistan. So far the calls for a Marshall Plan seems to mean only a sustained, long-termcommitment to reconstruction, which in the case of Afghanistan, includes nation building. TheMarshall Plan for Europe was substantially different from what is evident in Afghanistan. First, theEuropean Marshall Plan would have been $103 billion in today's money spread out over four years,which is much more than the amount currently provided by the United States, even including themilitary assistance. Second, the European Marshall Plan was also a regional strategy for WesternEurope, as opposed to a national strategy. Third, Afghanistan is much less developed than WesternEurope was at the time, which means that reconstruction will entail much more development. Senator Biden proposed a kind of Marshall Plan for Central and South Asia, providing a regional approach to Afghan reconstruction and drawing in its neighbors. (81) Afghanistan's neighbors andother countries have repeatedly supported the decades-long civil war. Pakistan, Iran, Russia, theCentral Asian countries, India, and the United States sought to influence the war's outcome. Fromexperiences in other similar situations in Rwanda, Somalia, and Kosovo, scholars have argued thatpeace processes are most threatened in countries with intervening neighbors. As a result, thesescholars have argued for reconstruction efforts in Afghanistan to be coordinated with relevantofficials in neighboring countries, so that conflicting programs do not provide opposing incentivesand negative consequences. The Congress took steps in this direction with the Afghanistan andCentral Asian Republics Sustainable Food Production Trust Fund Act of 2001 ( H.R. 3566 ), but the last action on this bill was in January 2002 when it was referred to the HouseSubcommittee on International Monetary Policy and Trade. Furthermore, on December 22, 2002,Afghanistan and its six neighbors signed the Kabul Declaration on Good Neighborly Relations, anon-aggression pact. (82) Security is a top priority in Afghanistan. Plans for the U.S. military to be a part of provincial reconstruction teams stands in contrast to the sense of Congress put forth in the AfghanistanFreedom Support Act, which calls for the expansion of ISAF. With the provincial reconstructionteams now being put together, how does Congress view ISAF? Demobilization of local militia could be further encouraged through employment generation programs. These programs could also provide incentives for economic activities beyond the drugand war economies. Employment generation is also a priority area for the Afghan government. (83) The Afghan government and others are calling for a mass cash-for-work program to combat both thehigh levels of unemployment and the "cash famine." (84) This mass program might resemble the U.S.Civilian Conservation Corps, established in the 1930s to cope with unemployment from the GreatDepression. It employed about three million young men to work full-time for cash on a variety ofprojects. (85) The contribution of food aid by the United States and other countries is also an issue for Congress. On the one hand, food aid can undermine market prices and provide disincentives foragricultural production and thus some parts of reconstruction. Other forms of assistance, such ascash-for-work programs, could help Afghanistan reduce its dependence on international assistance. On the other hand, food aid and humanitarian assistance are considered essential in some parts ofAfghanistan. The form of assistance is a significant issue for Congress. In March 2003, the next major donor conference for Afghanistan will take place. The pledges at the first donor conference in Tokyo in January 2002 nearly met the first year needs assessmentconducted by the World Bank, UNDP, and ADB. However, these pledges were primarily used forhumanitarian assistance. Furthermore, reconstruction is just now slowly beginning, and there isconcern about maintaining donor interest in Afghan reconstruction. Therefore, the pledges at theMarch conference are particularly important. In regard to U.S. funding, the Administration's request for FY2004 for Afghanistan totals $531 million, not including disaster assistance. (86) Somemembers of Congress believe the amounts shouldbe greater with fewer constraints. The Afghanistan Freedom Support Act of 2002 ( P.L. 107-327 )authorizes $3.3 billion over four years. In addition, if a Marshall Plan were to be planned forAfghanistan, then much more money is likely to be necessary. In any case, the amount of the U.S.contribution, and the framework under which it will be provided, remain key questions for Congress. In addition to concerns about the necessary U.S. aid levels, Congress and others have been concerned about burden sharing. The donor conferences have often not produced the necessaryamounts of funds in a timely manner. Late in 2002, the United States had to play a role infundraising. What level of funding should the United States and other countries provide? Shouldother countries be encouraged to contribute more? How can interest in Afghanistan from the donorcommunity be sustained? Many inside and outside the Afghan government have criticized donors for not following through on their pledges. However, donor conferences in general exhibit problems, such as slowdisbursement of funds, weak mechanisms for pledging and mobilizing assistance, inadequate devicesfor tracking aid flows, inappropriate forms of aid conditionality, poor articulation between relief anddevelopment efforts, and weak coordination within the donor community. (87) Donors over-pledge,pledge already allocated funds, and slowly or never fulfill their pledges. In the case of Afghanistan,the international community has sought to avoid some of these problems, such as through thecreation of the AACA aid database, which has made pledging, tracking, and monitoring moretransparent. Whether donor conferences and trust funds are the best way to fund reconstruction hasbeen questioned by some observers who also ask if the United States should give more money to thetrust funds. If not, then other potential methods must be examined. As of this fall, the Pentagon announced that it was transforming its strategy from military to security and reconstruction goals. DOD has been providing humanitarian assistance to Afghanistansince OEF began, and it seems that this role in a reconstruction framework will increase. In general,militaries worldwide are increasingly providing such assistance because humanitarian agenciesincreasingly work in war-torn areas. However, many NGOs have argued that the provision ofhumanitarian assistance by militaries comes at a high cost. Military provision of this assistanceassociates humanitarian agencies and actors, as well as refugees and other victims, with militaryobjectives and activities, even with particular sides in the war. It is argued that this association mayput these agencies and actors in danger. On the other hand, security remains a key factor in thedistribution of aid itself and often requires a military presence for it to be effective. It would beuseful to examine the costs and benefits of the increased humanitarian programs conducted by DODin Afghanistan and elsewhere to understand better the impact of the military on non-militaryassistance programs. There is a consensus that Afghanistan requires long-term international attention in order to receive adequate donor funds, have successful reconstruction, and avoid another civil war. Someargue that Afghanistan's situation is precarious. However, discussions and attention have turned toIraq with the possibility of war there. While a war in Iraq is projected to cost many billions ofdollars, President Bush has stated that the United States will continue to fund and organizereconstruction in Afghanistan. How will the Congress seek to reconcile these two costly programswith the rest of the foreign aid budget and the general budget? Some, including the internationalcommunity, have raised doubts about the U.S. commitment to Afghanistan as the United Statesfocuses on Iraq and visa versa. Can the United States manage maintain a central focus onAfghanistan at the same time that it takes on Iraq? Appendix - Afghanistan Assistance Donor Funds Committed andDisbursed by Country as of February 10, 2003 Source: AACA donor assistance database, Feb. 10, 2003, http://aacadad.undp.org . | Afghanistan has taken the first step toward reconstruction. According to many observers, the most serious challenge facing Afghans and Afghanistan today remains the lack of security. Mostexperts agree on the need for substantial, long-term reconstruction with international support, butquestions are raised about the funds required, the priorities, and the coordination necessary for thisprocess. This report examines U.S. foreign aid to Afghanistan in the context of the internationaleffort and explores the major issues for Congress. As a result of decades of violent conflict, Afghanistan is in great need of substantial reconstruction, from roads and schools to a broad range of development projects encompassing thewhole country. Decades of civil war and proxy regional wars have created four intertwining andcompeting economies in Afghanistan revolving around war, drugs, agriculture, and humanitarian aidthat drive conflicting incentives for Afghans and their neighbors. Effective reconstruction assistancecould reconfigure these economies and provide incentives for viable economic growth. The international recovery and reconstruction effort in Afghanistan is immense and complicated, with the Afghan government, numerous U.N. agencies, bilateral donors, manyinternational organizations, and countless non-governmental organizations (NGOs) working to helpAfghanistan. The international community and the Afghan government have sought to establishcoordinating institutions and a common set of goals in order to utilize donor funds most effectively. Officially, international assistance is coordinated through the United Nations Assistance Mission inAfghanistan (UNAMA), though there are other coordinating institutions tied to the Afghangovernment. Donor countries have committed $1.7 billion and, from that, disbursed $1.5 billion. Key areas of concern include whether the funding levels to Afghanistan are adequate and how much is beingused for reconstruction. Some have argued that the majority of FY2002 funds-as much as 70%-went towards humanitarian aid. The next major donor conference for Afghanistan will take place in March 2003. Some of the major reconstruction programs are government capacity building, women's programs, employmentgeneration, road construction, agricultural rehabilitation, urban reconstruction, energy, education,health, communications, and media. There is concern about creating enough momentum behindreconstruction initiatives in the short term and sustaining international focus on Afghanistan in thelong term, particularly in light of a possible war in Iraq. This report will be updated as eventswarrant. |
The cornerstone of income support for unemployed workers is the joint federal-state Unemployment Compensation (UC) program, which may provide income support through UC benefit payments. UC benefits may be extended at the state level if certain economic situations under the Extended Benefit (EB) program within the state exist. The UC program has a direct impact on almost every business in the United States as most businesses are subject to state and federal unemployment taxes. An estimated $7.4 billion in federal unemployment taxes and $36.1 billion in state unemployment taxes were collected in FY2007. In FY2007, the federal appropriation for the UC program was $3.7 billion. In FY2007, states spent an estimated $31.4 billion on UC benefits. Approximately 133.4 million jobs are covered by the UC program. In March 2008, 3.2 million unemployed workers received UC benefits in a given week and the average weekly UC benefit amount was $291. Originally, the intent of the UC program, among other things, was to help counter economic fluctuations such as recessions. This intent is reflected in the current UC program's funding and benefit structure. When the economy grows, UC program revenue rises through increased tax revenues while UC program spending falls as fewer workers are unemployed. The effect of collecting more taxes than are spent dampens demand in the economy. This also creates a surplus of funds or a "cushion" of available funds for the UC program to draw upon during a recession. In a recession, UC tax revenue falls and UC program spending rises as more workers lose their jobs and receive UC benefits. The increased amount of UC payments to unemployed workers dampens the economic effect of earnings losses by injecting additional funds into the economy. Other programs that may provide workers with income support are more specialized. These programs may target special groups of workers; be automatically triggered by certain economic conditions; be temporarily created by Congress with a set expiration date; or target typically ineligible workers through a disaster declaration. Unemployment Compensation is a joint federal-state program financed by federal taxes under the Federal Unemployment Tax Act (FUTA) and by state payroll taxes under the State Unemployment Tax Acts (SUTA). The underlying framework of the UC system is contained in the Social Security Act. Title III of the act authorizes grants to states for the administration of state UC laws, Title IX authorizes the various components of the federal Unemployment Trust Fund (UTF), and Title XII authorizes advances or loans to insolvent state UC programs. The federal government appropriates funds for federal and state UC program administration, the federal share of EB payments, and federal loans to insolvent state UC programs. In FY2008, the appropriation is $3.7 billion. The states will receive an estimated $2.29 billion from the federal government for the administration of their UC programs. The U.S. Department of Labor (DOL) administers the federal portion of the UC system, which operates in each state, the District of Columbia, Puerto Rico, and the Virgin Islands. Federal law sets broad rules that the 53 state programs must follow. These include the broad categories of workers that must be covered by the program, the method for triggering the EB program, the floor on the highest state unemployment tax rate to be imposed on employers (5.4%), and how the states will repay UTF loans. If the states do not follow these rules, their employers may lose a portion of their state unemployment tax credit when their federal unemployment tax is calculated. The federal tax pays for both federal and state administrative costs, the federal share of the EB program, loans to insolvent state UC accounts, and state employment services. The states may only use their state tax revenues for UC benefits and not for administrative costs. States determine UC benefit eligibility, payments, and duration through state laws and program regulations. Generally, UC benefits are based on wages for covered work over a 12-month period. Most state benefit formulas replace half of a claimant's average weekly wage up to a weekly maximum. Weekly maximums in January 2008 ranged from $210 (Mississippi) to $600 (Massachusetts) and, in states that provide dependent's allowances, up to $900 (Massachusetts). In March 2008, the average weekly benefit was $291. Benefits are available for up to 26 weeks (30 weeks in Massachusetts). The average regular UC benefit duration in March 2008 was 15 weeks; the average regular UC benefit duration in FY2007 was 15.2 weeks. In April 2008, approximately 3.0 million unemployed workers received UC benefits in a given week. The Extended Benefit (EB) program, established by P.L. 91-373 (26 U.S.C. 3304), may extend UC benefits at the state level if certain economic situations within the state exist. The EB program is triggered when a state's insured unemployment rate (IUR) or its total unemployment rate (TUR) reaches certain levels. The weekly EB benefit is identical in value to the regular weekly UC benefit. The EB program provides for additional weeks of UC benefits, up to a maximum of 13 weeks during periods of high unemployment and up to a maximum of 20 weeks in certain states with extremely high unemployment. As of July 21, 2008 the EB program is active in Alaska and Rhode Island. On June 30, 2008, the Emergency Unemployment Compensation (EUC08) program was created by P.L. 110-252 . This new temporary unemployment insurance program provides up to 13 additional weeks of unemployment benefits to certain workers who have exhausted their rights to regular unemployment compensation (UC) benefits. The program began July 6, 2008, and will terminate on March 28, 2009. No EUC08 benefit will be paid beyond the week ending July 4, 2009. The EUC08 program should not be confused with the similarly named EB program. The EUC08 program is temporary and applies to all states. The EB program is permanently authorized and applies only to certain states on the basis of state economic conditions specified in law. EUC08 and EB Interactions . The EUC08 program allows states to determine which benefit is paid first. Thus, states may choose to pay EUC08 before EB or vice versa. States balance the decision of which benefit to pay first by examining the potential cost savings to the state with the potential loss of unemployment benefits for unemployed individuals in the state. It may be less costly for the state to choose to pay for the EUC08 benefit first as the EUC08 benefit is 100% federally financed (whereas the EB benefit is 50% state financed). However, if the state opts to pay EUC08 first, individuals in the state might receive less in total unemployment benefits if the EB program triggers off before the individuals exhaust their EUC08 benefits. Alaska has opted to pay EB before EUC08 benefits. In contrast, Rhode Island has opted to pay EUC08 benefits before EB. UC benefits are financed through employer taxes. The federal taxes on employers are under the authority of the Federal Unemployment Tax Act (FUTA), and the state taxes are under the authority given by the State Unemployment Tax Acts (SUTA). These taxes are deposited in the appropriate accounts within the Unemployment Trust Fund (UTF). If a state UC program complies with all federal rules, the net FUTA tax rate for employers is 0.8% on the first $7,000 of each worker's earnings. The 0.8% FUTA tax funds both federal and state administrative costs as well as the federal share of the EB program, loans to insolvent state UC accounts, and state employment services. Federal law defines which jobs a state UC program must cover for the state's employers to avoid paying the maximum FUTA tax rate (6.2%) on the first $7,000 of each employee's annual pay. Federal law requires that a state must cover jobs in firms that pay at least $1,500 in wages during any calendar quarter or employ at least one worker in each of 20 weeks in the current or prior year. The FUTA tax is not paid by government or nonprofit employers, but state programs must cover government workers and all workers in nonprofits that employ at least four workers in each of 20 weeks in the current or prior year. (States are reimbursed for expenditures related to federal workers by the federal government.) An estimated $7.3 billion in FUTA taxes were collected in FY2007. After the payments to the state accounts for administrative expenses, the expected net balance in the UTF of the Employment Security Administration Account, the Extended Unemployment Compensation Account (for the EB program), and the Federal Unemployment Account (for federal loans to the states) was expected to be $35.2 billion at the end of March 2008. Expiring Provision: P.L. 110-140 . On December 19, 2008, the President signed P.L. 110-140 . Among many other items, P.L. 110-140 includes a one-year extension of 0.2% FUTA surtax. At the end of CY2008, the effective FUTA tax on employers for each employee will decrease to 0.6% (down from 0.8%) on the first $7,000 of wages. SUTA taxes are not directly affected by the expiring provision. States levy their own payroll taxes on employers to fund regular UC benefits and the state share of the EB program. These state UC tax rates are "experience-rated," in which employers generating the fewest claimants have the lowest rates. The state unemployment tax rate of an employer is, in most states, based on the amount of UC paid to former employees. Generally, in most states, the more UC benefits paid to its former employees, the higher the tax rate of the employer, up to a maximum established by state law. The experience rating is intended to ensure an equitable distribution of UC program taxes among employers and to encourage a stable workforce. State ceilings on taxable wages in 2008 range from the $7,000 FUTA federal ceiling (eight states) to $32,200 (Idaho). The minimum rates range from 0% (six states) to 1.69% (Rhode Island). The maximum rates range from 5.4% (17 states) to 12.27% (Massachusetts). Approximately $33.7 billion in SUTA taxes were collected in FY2007. State UC revenue is deposited in the U.S. Treasury. These deposits are counted as federal revenue in the budget. State accounts within the UTF are credited for this revenue. The U.S. Treasury reimburses states from the appropriate UTF state accounts for their benefit payments. These payments do not require an annual appropriation, but the reimbursements do count as federal budget outlays. If a state trust fund account becomes insolvent, a state may borrow federal funds. As of this writing, no state has an outstanding loan. The net balance of the state accounts in the UTF at the end of March 2008 was approximately $32.4 billion. | A variety of benefits may be available to unemployed workers to provide them with income support during a spell of unemployment. When eligible workers lose their jobs, the Unemployment Compensation (UC) program may provide income support through the payment of UC benefits. Many workers who have exhausted their rights to regular UC benefits may have their unemployment insurance benefits extended for up to 13 additional weeks through the temporary Emergency Unemployment Compensation (EUC08) program. In addition, the Extended Benefit (EB) program may extend UC benefits at the state level if certain economic situations within the state exist. This report briefly summarizes the UC program, its authorization, appropriations, benefit determination, and funding. For a comprehensive summary of all income support programs available to unemployed workers, consult CRS Report RL33362, Unemployment Insurance: Available Unemployment Benefits and Legislative Activity, by [author name scrubbed] and [author name scrubbed]. |
Distributional effects are often central policy issues in debates over tax legislation. Although economic analysis can be used to estimate the distribution of the tax system, or a tax change (a positive or descriptive analysis), it cannot be used to provide a normative or prescriptive analysis. Descriptive analyses indicate the expected effects of policies, but normative analyses indicate the optimal policy. Most normative analysis in economics is focused on efficiency. Even in the case of distribution issues, however, economic analysis can be used to facilitate the understanding of desirable distributions, measure them correctly, and determine the implications of different assumptions about social welfare for the optimal distribution of the tax burden. The first section of this report, which is normative in nature, therefore discusses different philosophies about how the tax burden should be distributed, and what those philosophies imply for the shape of the tax system. In particular, it addresses the question of the justifications for a progressive tax system (one where the share of income collected as a tax rises as income rises). This section is presented for the interested reader, but is not a necessary preliminary to examining the analysis in the second section, which presents estimates of the distribution of the federal and total U.S. tax burden. The third section of the report discusses the measures that can be used to characterize the distributional effects of tax changes. There are two separate, albeit related, questions about tax burden distribution. One of them is how to pay for the goods that the government provides (such as national defense, or highways). The second issue is whether the tax system should be used for direct income redistribution; in that case the optimal tax burden depends on the degree to which redistribution is deemed desirable. Even if an economy had no redistribution, it would be necessary to provide "public goods" (such as defense or roads) and to determine how taxes should be collected to pay for these goods. A public good, in its purest form, is one that each person can enjoy without detracting from anyone else's consumption and where there is no way to exclude a person from enjoying it. As a result of the last effect, in most cases, such goods would not be provided by the private market or would not be provided efficiently. Many goods are not pure public goods, but have aspects of public goods in that person A benefits from person B's expenditure—such quasi-public goods (or goods with positive external effects) would be provided in the private economy but not in sufficient amounts. To supply these and pure public goods, it is necessary to raise revenues through taxes and distribute the resultant taxes' burden somehow among the society's members. The distribution of the tax burden with respect to taxpayers' incomes may be characterized as progressive, proportional, or regressive. The behavior of the effective tax rate—the share of income paid in taxes—determines this classification. If the share rises with income, the distribution is called progressive; if it stays constant, it is proportional; and if the share falls, the distribution is called regressive. Federal taxes, taken one by one, fall into all of the three categories. For the working population, the payroll tax is first proportional, then regressive, because its rate falls once the ceiling of taxable wages is reached. For the population as a whole, the payroll tax rate rises initially, and would therefore be first progressive, then essentially proportional, and for higher-income ranges, regressive. Excise and sales taxes are generally regressive, especially those imposed on products primarily consumed by lower-income individuals, such as cigarettes. The income tax is progressive, and even provides subsidies (negative taxes) for lower-income working individuals, often through the earned income credit. The corporate income tax is imposed on corporate profits as a proportional tax, but its burden on individuals depends on behavioral responses, as discussed subsequently in the " Incidence Assumptions " subsection of this report. Most people would judge that a tax-collection system is fair if it satisfies two limited criteria: horizontal and vertical equity. The criteria state respectively that it is desirable (1) for taxpayers with the same "capacity to pay" to face the same tax liability in dollar terms and (2) for liability to increase with ability to pay. The application of both depends critically on definitions of the same "capacity to pay," which is difficult to determine for the families of different size and other characteristics. Even under a regressive tax system, a higher-income taxpayer may pay higher taxes in dollar terms than a lower-income taxpayer. What decreases is the share of the tax paid to the income. Therefore a regressive system could still satisfy the principles of vertical and horizontal equity. Traditionally, there are two theoretical notions of how tax payments should be assigned. One is the benefit principle and another is the "ability-to-pay" principle. The benefit principle simply states that taxpayers who benefit from government services should bear the burden of the tax used to finance the services. The benefit principle seemingly has its roots in market-inspired solutions to paying for public goods. It is commonly associated with such taxes as the gasoline tax, used to finance highways. Although such taxes are not voluntary, as free-market purchases are, they are directly related to the value individuals receive from public goods. The benefit principle has a much broader reach, if one allows individuals to pay variable prices reflecting their willingness to pay, rather than each individual paying the same amount. Higher-income individuals have a greater willingness to pay for social goods because they have more income. They also might find some goods, such as defense and police protection, more valuable because they have more property to protect. Under this principle, the distribution may be regressive, proportional, or progressive, depending on whether the taxpayers' income elasticity is greater than, equal to, or less than the price elasticity. Unfortunately, it is difficult to estimate these elasticities, particularly for national level expenditures where there is no cross-sectional variation. Some studies of municipal spending or spending on local education generally indicate that income elasticity exceeds the price elasticity, providing some support for progressive taxes using the benefit principle. There is also some international evidence that tax shares rise as income rises: according to the World Bank , high-income countries have taxes as a share of output that are over twice as high as low-income countries, and expenditure shares that are almost twice as large. The "ability-to-pay" principle suggests that people with higher incomes should pay more than those with lower incomes. Yet the standard does not answer the question of how much more. Its policy implications are based on a diminishing marginal benefit of a dollar assumption—the widely accepted belief that the value of an additional dollar of income falls, as income rises (i.e., a rich man values an additional dollar less than a poor). Notions of ability to pay have generally appealed to some measure of equal sacrifice. Potential measures of "equal sacrifice" include equal absolute sacrifice (each person's welfare declines by the same amount), equal proportional sacrifice (each person's welfare declines by the same proportion), and equal marginal sacrifice (each person's "displeasure" from taking away an additional dollar is the same). Equal absolute sacrifice would suggest proportional taxation if the marginal benefits of a dollar of income fell proportionally with income. That is, following this principle, if person A with five times as much income as person B values a dollar approximately a fifth as much as B, then for every dollar one collects from B, one collects $5 from A. In this example, the principle implied a proportional tax system. If the marginal benefit of a dollar diminishes, but at a fairly slow rate, a regressive tax system could also be consistent with the principle, whereas if it diminishes at a faster rate, a progressive tax would be appropriate. An alternative measure of sacrifice is equal proportional sacrifice. This method is much more likely to justify a progressive tax system, but it too depends on how fast the value of an additional dollar declines with income. There are many reasonable functional forms that do not support progressivity. The equal marginal sacrifice principle suggests steeply progressive taxes that will collect the least valued dollars in the economy. The result also uses the assumption that the value of a dollar falls as income rises. Under this principle, in contrast with the previous two cases, the progressivity does not depend on the rate with which the value declines. Thus, without further information on the nature of welfare and the exact standard to be used, the ability to pay criterion does not necessarily justify regressive, proportional, or progressive taxes. The equal marginal sacrifice principle suggests an extreme degree of progression. Before discussing general principles of a "just" income distribution, direct redistribution itself as a public good is discussed. There is normally a natural conflict between equity and efficiency objectives when the equity criterion suggests redistribution or progressive tax rates. That conflict occurs because taxes distort behavior and reduce economic efficiency. It means that the "size of the pie" becomes smaller. There are, however, circumstances in which redistribution can enhance rather than reduce efficiency—when redistribution itself is a public good. Recall that a pure public good can be characterized as a good where one person can benefit from the good without detracting from another's benefit. Redistribution can, in fact, be characterized as a public good. Suppose that higher and middle income individuals care about the poor and their welfare—that is, they benefit from knowing that the poor have more income. In this case, redistribution is a public good because A's contribution to the poor benefits B. Such redistribution is under-supplied in an open economy, and so there is justification for redistributing to the poor—based not on a concern about the welfare of the poor, but rather about the welfare of the rich. The non-poor may also benefit in other ways from providing income to the poor, such as a reduction in crime. Secondly, some redistribution that occurs in the economy may be justified as insurance in circumstances where private insurance markets do not work well. A social safety net may be regarded as insurance against falling, for whatever reason, on hard times. Certain features of our social safety net, such as unemployment compensation, need-based transfers (such as food stamps and Medicaid), and retirement benefits (Social Security and Medicare) may be justified in part as an attempt to deal with failure of private insurance markets. It is possible to go beyond the issue of the provision of public goods (including redistribution) and ask a more general question: should income in society be redistributed to achieve a more equitable society—that is, a "just income distribution." There are three basic philosophical approaches to the question of a just income distribution: the endowment approach, the utilitarian approach, and the egalitarian approach. There are also permutations of each approach. The endowment approach says that people should get what they earn. In its simplest form, it would imply no redistribution at all. Variations include allowing people to get what they earn in a competitive economy, so that excess profits arising from market power should be redistributed; to keep their labor earnings, so that assets and earnings from assets should be redistributed; or to keep what they would earn if they started equally in terms of wealth and family status. The last would, in theory, permit differences in income based on effort and willingness to take risk and innate earning ability, in contrast to the first approach that would also permit differences in income based on inherited wealth. Although the endowment philosophy does not support direct redistribution to yield a just society, the benefit principle is philosophically consistent with endowment notions of income redistribution and may support progressive taxation. The endowment approach suggests there should be little or perhaps no redistribution, which is difficult to argue as a case of distributive justice. For example, it suggests that people with mental and physical disabilities that prevent them from working at a normal wage and who have no family to rely upon, should have little or no income. Given that people do have different innate physical endowments, many would argue that there is nothing especially fair about a system that allows individuals to have varied earnings based on inherited characteristics. At the same time, it seems unfair to penalize higher-income people who have those incomes because they worked harder or undertook more risk. On the whole, there may be a lot of support in our culture for allowing people to keep most of the fruits of their labor, but also a distaste for allowing individuals limited by circumstances of birth to suffer poverty. The absolute lack of redistribution may also be inefficient, because of the presence of public goods in externalities in the real world, as discussed above. It means that everyone can be made better off, or not worse off, by allowing some redistribution. The utilitarian approach says that society chooses to maximize welfare in the economy—a "greatest good for the greatest number" philosophy. The simplest utilitarian welfare measure is simply one that adds up all the welfare of the individuals in the economy and tries to make shifts that will make that welfare sum the greatest. Such an approach suggests that income should be shifted to those who are able to benefit the most from it at the margin. This sort of assumption also implies an extremely progressive tax system in some circumstances: if we assume that all individuals are otherwise identical and that the value of each dollar of income declines as income rises (i.e., a dollar is more valuable to a poor man than to rich one), and ignore behavioral responses, then total welfare is greatest when all individuals incomes are equal. This redistribution would require a 100% tax on incomes above a certain level to be redistributed until everyone has the same income—a super-progressive tax system, with positive taxes at the top and negative taxes at the bottom. Although the idea of the "greatest good for the greatest number" sounds attractive, its practical implementation is ambiguous, because there is no objective measure of "welfare" and no objective method of describing a maximum social welfare. The assumption of identical individuals may be a reasonable approximation for policymaking, but in reality individuals are not identical. The third type of approach is the egalitarian approach , which says that everyone should be equally happy. In this case, the government would make transfers to the poor and also transfer more money to those who enjoy it less so as to raise their level of happiness. As with the case of the utilitarian measure, if one assumes all people are identical and that the value of an additional dollar of income falls as income rises, an aggressive redistribution scheme should be called for to equalize everyone's income. Both utilitarian and egalitarian welfare functions are consistent with the ability-to-pay principle. A variation of the egalitarian approach that takes into account behavioral responses is called the "maximin" or "Rawlsian" criteria. With this approach, society redistributes so as to maximize the welfare of the poorest individual. With no behavioral responses, and identical enjoyments of income, society would again equate income by taxing away all income above the average and giving it to those below the average, but with behavioral response, a 100% marginal tax on the rich would not work because it would cause individuals to reduce their work effort. In the Rawlesian system one would raise the tax just high enough so that the revenue to be distributed was greatest. It has been argued that this approach would reflect the choices risk-averse individuals would make as a social contract if they had to decide on the distribution of income before they knew which position they would fill in society. One of the problems with using a welfare function, such as the utilitarian function, which might be persuasive to people as a practical guide to dealing with income distribution, is that it does not take account of the possibility that income varies because people differ in their work effort and risk taking. Although many people might feel it is appropriate to redistribute income to lower-income individuals because they do not have the capabilities to earn a higher income, they are less likely to favor redistribution to people who earn less because they work less or because they do not work as hard as the average person. Similarly, even if everyone were identical in wealth, and innate ability and work effort, incomes would vary if some people took more risks than others. Taxing away the returns to risky projects and providing a guaranteed cushion against any risk would make risk-taking irrelevant to economic decisions. As a result, individuals might be willing to take more or less risk than appropriate, and an optimal level of risk-taking is important to the efficient operation of an economy. Because differences in income that arise from innate capabilities or inherited wealth (whether financial and physical wealth, or human wealth provided by one's family) cannot easily be separated from those that arise from work effort and risk-taking, it is more difficult to assess the appropriate level of redistribution. Nevertheless, it is clear that appeals to a social welfare function do suggest that income redistribution may be appropriate. The U.S. tax system including all government layers actually engages in very little means-based redistribution, however. Unfortunately, these guidelines about redistribution and about rules for paying for government expenditures do not provide a concrete answer as to how the tax burden should be distributed. What is perhaps most interesting about the analysis is that certain social welfare philosophies that might seem compelling do potentially support progressive taxation, as does the benefit principle of charging for public goods. The ability to pay criteria for charging for public goods, while often invoked to support progressive taxes, however, provides little guidance without more information on individuals' preferences, unless the marginal equal sacrifice form is assumed. It is also important to keep in mind that even if the federal tax is progressive, such progressivity may be needed to offset state and local taxes that tend to be regressive, in order to avoid an overall regressive U.S. tax system. Several public and private organizations have produced distributional tables. The governmental entities include the Treasury Department, the Congressional Budget Office (CBO), and Joint Committee on Taxation (JCT). Some of the private researchers involved in this work include the Urban Institute and Brookings Institution Tax Policy Center (TPC) and the Institute on Taxation and Economic Policy (ITEP) of Citizens for Tax Justice (CTJ). Their analyses vary in several ways, including how they define income, the definition and ordering of tax units, and the taxes included. The following several sections discuss the rationale behind certain methodological choices and report the results of distributional analyses for different organizations, for different time periods, and for different kinds of taxes. These measures are presented as effective tax rates, which makes comparison meaningful despite the methodological differences. The effective rates are simply the ratio of taxes paid to the income measure. They are different from the statutory marginal rates that apply to an extra dollar of taxable income only. When effective tax rates rise with income a tax system is progressive, it is proportional when effective tax rates are relatively constant, or regressive, if effective tax rates fall as income increases. The theoretical discussion of the previous sections operated with a concept of "income," but what is the practical meaning of this word? There are several "incomes" mentioned in instructions to a single tax form—gross, adjusted gross, and taxable—to mention just three of them. Most states have state-specific income measures, such as "Wisconsin Income," usually different from the federal analogs. Other, non-tax, entities may use their own definitions of income better suited to their objectives. Economic income encompassing all sources regardless of their taxability would be the best descriptor of the taxpayer's access to economic resources, but, unfortunately, none of the accounting or tax concepts of income exactly matches it. The discrepancy may happen for many reasons; one of them is statutory exclusions of certain items from income. For example, employees may have an option of purchasing their medical insurance through their employers with "pre-tax" dollars. "Pre-tax dollars" clearly represent income in the economic sense of this word, because employees can use them to consume, in this case—medical coverage. Yet they do not enter the calculation of "gross income" for individual income tax purposes, because of the special treatment of these transactions by law. Organizations providing distributional analyses use measures of income that are expanded from tax measures, such as adjusted gross income (AGI). They estimate a more comprehensive income using various techniques. One of them, Treasury's Office of Tax Analysis (OTA), used Family Economic Income (FEI) as taxpayers' income measure in a 1999 paper. The starting point of the intended income measure was the definition of income as the sum of consumption and the change in net-worth in a given period—commonly referred to as Haig-Simons income. This measure would include both cash and non-cash income, such as imputed rent on owner-occupied homes—the payments homeowners would have to make if they rented their dwellings instead of owning them. OTA modified this definition in several ways. First, under the definition some retirees drawing largely on their savings would appear to have no or little income, because their consumption would be offset by a change in their net worth. At the same time, this money may be taxable, depending on the savings vehicle used. Their tax burden relative to their comprehensive income would appear extremely high because for several types of retirement accounts income is taxed on withdrawal. To correct for this mismatch, Treasury includes pension benefits in FEI. Another departure from the definition of income is exclusion of non-cash transfers, such as Medicare benefits, caused primarily by data limitations. Other analyses use measures of income that may not be as broad as economic income, but broader than AGI. In its distributional table in 2003, Treasury used a slightly narrower measure than in its 1999 study, cash income. CBO measures income as pretax cash income plus in-kind transfers. JCT expanded AGI by adding tax-exempt interest, employer contributions for health plans and life insurance, employer share of FICA tax, worker's compensation, nontaxable social security benefits, insurance value of Medicare benefits, alternative minimum tax preference items, and excluded income of U.S. citizens living abroad. The Brookings Urban Tax Policy Center initially used a narrower measure, but their current measures use both economic income and cash income. The choice of the income measure is influenced by data availability and other technical considerations as well as the types of taxes being distributed. Using an expanded AGI or cash income measure is simpler and requires fewer assumptions, but it can mislead. For example, individuals may be accruing huge gains in assets, such as their houses, relative to their cash income. These problems with measuring income are reduced, however, when distributions are reported based on population shares (such as quintiles) rather than dollar amounts. On the other hand, dollar amounts lend a concreteness to a distribution table. The overall tax burden measured as a share of AGI, or expanded AGI, would always appear higher than when measured as a share of comprehensive income. Also, any change in the distribution would appear to be more pronounced when measured as a percentage of AGI, because AGI would normally be lower than comprehensive income. For example, the comparison between AGI and FEI measures for 2000 shows that the former is smaller than the latter: $5,649 billion versus $8,419 billion. This relationship between the two measures is likely to persist across time. Some distributions may be reported based solely on AGI, which may be a good choice for a quick "back-of-an-envelope" analysis, but it is preferable to use more comprehensive income measures whenever technically feasible. None of the organizations engaged in regular distributional analysis rely solely on AGI, however. The measure of income can also affect impressions of tax burden unless distributional tables are presented based on population shares rather than measures of income. Another question facing the researchers is how to measure the unit of analysis, and also whether and how to account for differences in tax unit composition, especially when ordering data by population share (such as lowest quintile, second quintile, etc.). The unit may be the family, the household, or the taxpayer unit. In many cases, these units would be the same, but in others they would not. For example, an adult working child living in the parent's home may be part of the household, but would be a separate tax-filing unit. In addressing unit composition, regardless of method of classification, issues arise with respect to ordering taxpayers. It is obvious that a large family may have more income than a single person, but still have the same ability to pay. Where is that family to be placed in ordering units for distributional analysis—with the same families by ability to pay or with the same by income but of different size? Researchers differ in their answers. The first approach, used by most organizations, is not adjusting for the size of the unit at all. This approach can be argued to implicitly assume that income necessary to maintain a given standard of living for one person is the same as the one for four persons, which is certainly not realistic. Nevertheless, this approach is common. It is straightforward, eliminates some sources of ambiguity, and is the easiest to implement from a technical standpoint. If households' positions in the income distribution are to be adjusted by family or household size, researchers must determine how to make adjustments. One possibility is dividing the burden by the number of persons, in other words conducting the analysis on a per capita basis. This approach fails to recognize the economies of scale larger tax units enjoy: buying a four-bedroom residence is usually less than twice as expensive as buying a two-bedroom unit. A price of a bedroom in the first case would be lower than in the second. In a way, the purchasing power of a dollar would be higher for a large household compared with a small one. Several adjustment methods lie between these extremes. CBO orders households by ability to pay using this method: it divides income by the square root of the household's size. In this case a four-person family would need to have twice as much income as a single taxpayer to be as well off. Another methodology is to normalize income by expressing it in terms of the applicable poverty level. For example, if the poverty level for a single person is $9,000, and for a four-person family—$19,000, then a single taxpayer with $27,000 of income would be equated to the four-person family earning $57,000, because both of them would be making three times the poverty level for a household of the respective size. These ordering procedures and unit measures probably do not make a great deal of difference in the overall qualitative pattern of the effective tax rates. Another important factor in distributional analysis is the economic incidence of taxes. It reflects the notion that a tax burden is not necessarily borne by the taxpayers legally responsible for paying the tax. For example, imposing an excise tax may lead to a price increase. Thus, even though the seller would be legally responsible for paying the tax, the economic cost would be split between the sellers and the buyers in some way, possibly with the buyers bearing all of it. Researchers have to make reasonable assumptions about incidence, because calculating the precise shares in every case is impossible. They depend on factors specific to every market segment and may fluctuate across segments and in time within every market. Table 1 lists the assumptions about tax incidence incorporated in the models of OTA, CBO, JCT, and TPC. Even though the variations in income, unit definition and incidence assumptions would cause the quantitative results to be different in every case, the implications about the tax system are actually quite similar. The incidence of the corporate tax, in particular, has been the subject of a considerable economic literature, with the distributional effects depending on the responses of investors and workers and the technology of the firm. The incidence of all taxes, even individual income and payroll taxes, depends, however, on behavioral responses. If savings and labor supply are relatively insensitive to taxes, as much evidence suggests, these taxes will fall on the individual who pays them. Note that the same assumptions about incidence are used (given the tax is distributed at all) for the different taxes except in the case of excise taxes. CBO and JCT allocate the tax based on the consumption of the taxed items. The Treasury allocates the tax to income, and also adjusts at the consumption level by imposing a burden for taxed items and a benefit for non-taxed items that nets to zero. Table 2 , Table 3 , and Table 4 reproduce the burden distribution estimates from different sources for 2000, 2005 and 2006 ordered by population shares. Because of the methodological differences described above, the data are not precisely comparable. In addition, there is also timing discrepancy. TPC does not have a 2000 law distribution table using 2000 incomes, so the appropriate column uses 2004 incomes but 2000 law. OTA does not have the table for 2005. Note that the absolute measures of effective tax rates can be affected by the income measure and the composition of included taxes. Table 4 differs from Table 3 in that the tax rates are based on cash income for the TPC rather than economic income, and this difference results in much more similar tax rates. At the same time, all sources depict a similar qualitative picture about the progressivity of the federal tax burden distribution. For example, in every case the effective tax rates for the lowest quintile are estimated in the low to middle single digits. The highest quintile in 2000 faced an effective rate of close to or above 25%. The numbers for other quintiles and the general pattern seem consistent, too. Tax rates rise more slowly, however, at the top of the distribution. Table 5 and Table 6 present data from the Joint Committee on Taxation, reflecting the tax burden at 2003 levels of income, based on tax law prior to the 2003 tax cut and the tax burden in 2008 without incorporating the 2008 rebates. The tables are arrayed by income level rather than population proportion, but again present a very similar picture of the federal total effective tax rates. The federal tax system contains two major types of taxes, payroll and income taxes, and two minor ones, excise and estate taxes. Income taxes can be divided into individual taxes that are applied to wage income, passive capital income (interest, dividends and capital gains), and profits of unincorporated businesses, along with a separate flat rate tax on corporate profits. Each kind of tax has a different degree of progressivity (or regressivity) and therefore, the distribution of the burden depends on the mix of taxes within the system. Table 7 and Table 8 show the distribution of the tax burden by type, before the 2001-2003 changes. Table 7 reports the Treasury (1999) estimates and Table 8 reports the CBO estimates, for all but the estate tax. Table 9 reports the distribution for 2006. The slight differences in the two 2000 distributions reflect differences in the income measures, in the taxes covered, and in the way in which families are ordered. For example, CBO places more larger families in the lowest quintile because they order by ability to pay, while Treasury orders by income. Since large families are likely to have larger benefits from the earned income credit, the tax rates of the individual tax are larger negatives in the CBO analysis than in the Treasury analysis. This effect also causes the lowest quintile to have higher payroll taxes because larger families are more likely and elderly individuals less likely to be represented in the CBO ordering. The updated numbers in Table 9 show similar patterns by tax types from CBO (data are not available from Treasury), but with some changes. Most significant is the income tax, whose burden is smaller at every level, but particularly at higher incomes, due to the 2001 tax cuts. Some effects are due to the shifting of income across the brackets as well, which reduces income (and effective tax rates) in the lower incomes and raises them in the higher ones. Without these incomes shifts, the tax cuts would be smaller in the higher brackets and larger in the lower ones. This effect due to income redistribution can be seen with the corporate tax, whose overall level rose due in part to cyclical factors, but whose burden at lower incomes fell. Table 7 , Table 8 , and Table 9 show that the degree of progressivity is very different among the types of federal taxes. The effective rate of the individual income tax rises from a negative tax in the lowest quintile to 20% or so for the top 1%. As noted earlier, the earned income credit can lead to subsidies at low levels. Payroll, or social insurance, taxes rise slightly and then fall. This pattern occurs because the tax rate is flat with a dollar ceiling, but only applies to workers. Tax rates are lower at the bottom of the distribution because of the greater share of retired people, and are lower at the top because of the dollar ceiling. So the tax is regressive at the higher end of the distribution. Another important observation is that for the four bottom quintiles the effective rates of payroll taxes are higher than for the income tax. Conversely, the effective rates of the corporate income tax increase with income from 0.9% to 2.8% in the Treasury analysis, from 0.5% to 3.7% in the CBO 2000 analysis, and from 0.4% to 4.9% in the CBO 2005 analysis. The rates are even higher for the top10%, top 5%, and top 1%. These rates are well below the statutory rates, because a relatively small share of taxpayers receive income from the source, and their tax payments are dispersed among all taxpayers in the class. The progressivity of the corporate tax is due not to the progressive tax structure, but to the allocation of capital income to higher-income individuals. Excise taxes' effective rates vary markedly between the two research organizations, reflecting the allocation of the tax to factor incomes for the Treasury and to consumption for CBO. The Treasury analysis depicts this tax as largely proportional, while the CBO analysis shows it to be regressive. (The CBO approach, which is also used by JCT, is probably the more widely used in distributional analysis). The regressivity of consumption taxes under this incidence assumption occurs because consumption tends to decline with income. The estate tax is the most progressive of all, although it is small. Since most estates are exempt or largely exempt from the estate tax, only relatively high-income people pay this tax. (The estate tax does not appear in Table 8 and Table 9 because CBO does not include the estate and gift tax in its analysis.) Another important issue is the change in the distribution in time. This issue is particularly relevant after the recent tax law changes of 2001-2003, but even in a more stable statutory environment the distribution evolves continually in response to economic and demographic developments. Table 10 shows the historic effective rates for selected years made in December 2007. The years shown include the first year that CBO provided such analysis, and years after major tax changes and economic changes (the 1981 tax cut phased in over three years, the 1986 tax reform phased in 1987-88, the 1993 tax increase, the year prior to the 2001 tax cuts, and the most recent year). Over this period, the tax system continued to be progressive, although overall taxes today are slightly lower than was typical earlier. Table 11 examines the current and projected burden around the period of the recent tax changes and into the future. Tax rate cuts are still being phased in as one moves from 2004 to 2008, with 2008 the last year for the lower capital gains taxes and dividend taxes. The year that the original 2001 tax cut is fully phased in is 2010. As currently scheduled, none of the tax cuts would be effective in 2014. Note that effective tax rates are higher in 2014 than in 2000 because of real bracket creep—the failure to adjust the tax system parameters to the real income growth. It affects the lower quintiles most, while the legislative changes have benefitted the higher-income groups the most, and that effect would be more pronounced if the CBO burden tables included the estate tax, which, according to Table 7 , accounted for 1.3% of income of the top 1% prior to recent tax changes. The estimates in Table 11 reflect current federal law; the actual pattern of tax changes will depend on whether and to what extent the 2001 and 2003 tax cuts are made permanent and what changes might be made to the alternative minimum tax, which, if it is not addressed, will eventually apply to a very large fraction of taxpayers, especially those with large families. Consideration of the tax burden would be incomplete without taking into account the burden from state and local taxes. It is difficult to draw consistent comparisons among all states, because their public finance systems are different. ITEP calculated U.S. average effective combined state and local rates for non-elderly taxpayers. Table 12 presents these results. Table 12 demonstrates that the overall state and local taxation system is regressive, at least as far as non-elderly taxpayers are concerned. It is difficult to make broad generalizations, but the main reasons for the result may be a relative "flatness" of state and local income tax schedules, high reliance on sales and use taxes, and the relative importance of excise taxes. Both sales and excise taxes are regressive when allocated to consumption. States and localities are not as flexible as the federal government in their ability to choose their tax structure, because they face competition from other states and localities. It is relatively easy to move from one state to another, and even easier to move across local jurisdictions. Large differences in tax rates would induce taxpayers, especially higher-income taxpayers, to move to states with lower taxes. Thus, one can argue that it is primarily the federal government's role to ensure that the overall burden distribution is progressive, if progressivity is desired. The combined total U.S. tax system appears to be progressive but not steeply so, as regressive state and local taxes are combined with the progressive federal tax. So far, discussion in this report has centered around the analysis of the tax burden at a single point in time, but there is an alternative view that cumulative lifetime tax burden is a better representation of the concept. Lifetime tax burden is simply the sum of all taxes paid each year during the lifetime. In most cases, individual income grows with time and then drops after retirement. That pattern means that the lowest percentile may include a very heterogeneous taxpayer mix: younger people still in school, retirees, and mid-career low-income earners. From the policy perspective, each of these groups is different and bundling them together makes little practical sense. For example, a policy redistributing the tax burden from the higher to the lower quintiles may have different effect on a younger taxpayer and a retiree. It is conceivable that a younger taxpayer may welcome the policy, because of the lower tax on an anticipated higher future income. In the meantime, a retiree would be unambiguously worse off, because he or she has a small chance of benefitting from the lower future burden. The issue of lifetime burden distribution is especially important in the analysis of intergenerational fairness, and in conjunction with national debt issues. The debt incurred today would have to be paid off in the future, meaning that the taxes of the future generations could be lower in its absence. At the same time, the approach does not take into account the fact that a marginal unit of money is likely to have a higher value to the lower-income individuals than to the higher-income ones. Even though a younger taxpayer in the previous example may pay a lower aggregate lifetime tax bill, he or she might still prefer to pay less taxes when income is low rather than when it is high. So, in order to compensate the taxpayer for the reduction in his or her disposable income today, the increase in the disposable income in the future should be more than today's loss. Each taxpayer's rate of intertemporal substitution is different, and incorporating it into the analysis would add another hard-to-verify assumption. Another reason that simple addition of tax liabilities throughout lifetime is not an ideal indicator is the time value of money principle. Under this principle, a dollar today is worth more than a dollar tomorrow. Although the complication can be circumvented in theoretical analysis, it may be another source of contention in the analysis of real-life events. Nevertheless, examining tax burdens from a lifetime perspective is likely to reduce the progressivity of the tax system, as some of the progressivity observed in a single cross section reflects the tendency of individuals to have lower incomes in the early and later years of life. Although it is straightforward to describe what makes a tax system regressive, proportional, or progressive, it is more difficult to characterize changes to an existing tax system. Indeed, it is difficult even to determine the degree of progressivity or regressivity of a system so that the old and new tax systems can be compared based on their degree of progressivity. Although a variety of progressivity indices and measures have been proposed, none has been entirely satisfactory and they can lead to different conclusions about relative progressivity. This report will instead examine the measures that are often used to characterize tax changes. Reports of the distributional effects of tax cuts sometimes appear to depict the same tax change very differently. This difference in how the cut is perceived for distributional purposes arises from the choice of distributional measure. Some of the measures that have been presented include (1) the share of taxpayers benefitted that fall below an income level; (2) the percentage reduction in taxes paid; (3) the tax cut as a percentage of income (both pre-tax and disposable); (4) the distribution of the tax cut by income class; and (5) the average tax cut. The first of these measures is most likely to tend to depict a tax change as favoring lower-income individuals relative to higher-income ones; the second measure is next most likely, and so forth. To illustrate this point, consider a 10% across-the-board income tax cut (all positive net tax liabilities reduced by 10%). Assuming that the bottom quintile of the distribution does not have tax liability, this tax cut could be described as one in which three quarters of the beneficiaries have cash income below $80,000, which might make the cut appear not to be particularly targeted to high-income individuals. Almost any tax cut that is a general one will benefit, in numbers, those outside the high-income taxpayers, because high-income taxpayers are, by definition, not very numerous. But this description of the tax cut does not reveal anything about how much of a tax cut different groups receive. Table 13 illustrates how such quantitative measures of the types described above would look assuming everyone in each quintile and group has the same average income (an assumption that allows the calculation of measures in the lower brackets where some individuals have negative tax liability because of the earned income tax credit). Based on percentage changes reported in the second column, the tax cut as a percentage of income tax liabilities, the tax cut may appear to be fairly equal across income classes (except for the lowest group). But that measure does not reveal very much about distribution, because people in the lower-income categories may have extremely small tax liabilities and a tiny change in tax could result in a very big percentage change. Expanding the measure to a percentage reduction in all taxes shows that a proportional cut in income taxes reduces total taxes proportionally more for high-income individuals. Even in this case, however, measuring the percentage reduction in tax liability has not demonstrated anything about the effect on income equality; it merely reveals that individual income taxes are more progressive than total taxes. In discussing these measures that do relate to effects on income inequality, it is important to distinguish between absolute measures and relative measures. For example, average tax reductions per unit provide information on the absolute size of a tax benefit across the income classes, which is a straightforward measure, and is shown in the last column of Table 13 . In this example, the second quintile has a tax cut of $21 per person and the highest quintile a cut of $2,841. Another way of examining this same effect is to compare the distribution of the tax benefit with the distribution of the population in the first column of Table 13 . If each taxpayer class is getting 20% (one-fifth) of the benefit, then the benefits are evenly distributed. But the 10% tax cut distributes benefits disproportionally to higher-income individuals, indicating that incomes are becoming more unequal on an absolute basis. Both of these measures can inform us about how a tax cut is changing income without being misleading, although it is important to remember that existing income and tax payments are more concentrated among high-income individuals. Thus, there is a tendency for absolute measures to show most across-the-board tax cuts as favoring higher-income individuals—because these individuals have a larger proportion of the income and pay an even larger fraction of the income tax. Moreover, unless a tax provision is refundable, it will have little benefit for the bottom fifth of the population. A different type of measure is a relative one that tries to examine how the tax benefit is changing the overall relative distribution of income in the country—that is, is it making income shares more equal or less equal? In this case, a tax change that does not alter distribution provides tax benefits to different income classes in proportion to some measure of income. (Higher-income individuals would still receive high absolute tax cuts, but not higher tax cuts as a percentage of income.) In general, the best method for measuring this type of effect on inequality is to examine the percentage change in disposable (after-tax) income. If the percentage change is equal, then the tax change is not making incomes shares more equal or less equal. If the percentages are higher among higher-income individuals the change is making income shares less equal. Clearly, the across-the-board proportional tax cut is increasing inequality measured by the relative concept: incomes in the lower brackets are increased by considerably less than 1%, whereas incomes in the higher brackets are increased by 2% or more. These different measures have been used to report different tax cuts, sometimes with very different depictions, which are illustrated from distributional data provided for two recent individual tax cuts: the 2001 tax cut (originally H.R. 1836 ) and the 2003 tax cut (originally H.R. 2). The 2001 tax cut was a multi-year phased in tax cut, which sunsets after 2010. Table 14 , Table 15 , and Table 16 provide data from the three sources we are aware of that provided distributional data for the 2001 tax cut. The first table presents data from the Joint Tax Committee for the latest year provided, 2006, when most provisions would be fully phased in. The percentage change in federal tax liability was reported directly. The percentage change in after-tax, or disposable, income, the measure suggested above as conceptually the best measure of changes in distribution, was derived from data in the JCT table. As suggested in the previous section, the percentage change in federal tax liability shows the largest percentage changes at the lower income and the smaller ones at higher levels, except for the very top level. These numbers give the appearance of a tax cut favoring lower-income individuals. The numbers showing the percentage change in after-tax income suggest, however, that the largest benefit was in the highest income class. Both patterns show that benefits fell, and then rose at very high-income levels, but the percentage change in tax liability suggests the biggest benefits for the lower-income class, while the percentage change in after-tax income measure shows the biggest benefits for the top measure. Table 15 shows the percentage increase in after-tax income, based on data from CBO. CBO provided effective tax rates and distributional shares, but did not present any direct comparisons of the effects of tax changes; our distributional measures could be derived from their data, however. The effect of the 2001 tax cut is approximated by comparing 2010 and 2011, because the provisions of the 2002 and 2003 tax cuts that add to the 2001 cuts would be phased out before 2010. The analysis indicates that the largest percentage changes in after-tax income were received by the highest income classes. Table 16 shows a distribution of the tax cut measure provided directly and a percentage of income that was derived from the Citizens for Tax Justice (CTJ) data. The CTJ measures are a percentage of pre-tax income rather than disposable income, which tends to make all percentages slightly smaller. In contrast with the JCT table, the CTJ data show fully phased-in taxes. Unlike both the JCT and the CBO data, it also included the effect of the cut in estate taxes, which was a significant part of the 2001 tax cut. The distribution of the tax cut shows, as expected, a very large share of the cut going to high-income individuals—almost 40% went to the top 1% of individuals. The tax cut as a percentage of income, a measure similar to the last column of Table 14 , shows the lowest decile with the smallest amount, the broad middle receiving slightly less than average, and higher benefits in the top decline, particularly the top 1%—clearly showing a cut skewed to the rich. The larger effect for the top 1% as compared with Table 15 probably reflects the estate tax. For the 2003 tax cut, the JCT did not produce a distributional table, but the Treasury Department did. CBO's effective tax rate tables cannot be used because they mix phase-ins from 2001 in the data. For the Treasury data, the only measure of distributional change presented (and no other could be derived from their data) was the percentage change in individual income taxes. Like the JCT, they present a percentage change in taxes, but unlike the JCT the change is confined to income taxes. Note that, unlike the analysis presented in their 1999 study, the income measure is cash income, rather than economic income. The Treasury analysis, shown in Table 17 , confronted a problem that illustrates the difficulty of reporting distributional effects through percentage change when the base can approach zero or become negative, as in the case with percentage change in income tax liability. The lower part of the income distribution actually had negative taxes, when refundable items such as the child credit and earned income credit were taken into account. Therefore, what Treasury actually reports for that class is a percentage increase in negative taxes; technically speaking (as a mathematical issue) the percentage increase should have been positive change, because negative taxes became larger. There is really no way to compare this number with the other changes; moreover, the class of under $30,000 probably accounts for almost half (about 40%) of the population. So it is difficult to know what to make of this analysis. For the remaining classes, however, the measure appears to favor the lower-income individuals. A very different picture is presented with the distributional effect measured as a change in after tax income based on analysis by the Brookings-Urban Tax Policy Center (TPC), using the measure they favor, percentage change in after tax income. Table 18 and Table 19 present this data for income classes and population shares. At that point, the TPC was using adjusted gross income as their income measure, although they later developed expanded income measures. Among a variety of statistics released by the Urban-Brookings Tax Policy Center, one statistic presented is the average tax change among income quintiles. Their discussion cautions the reader in using this measure (as would the authors of this report), but it is included here for comparison purposes and to lend some concreteness to understanding the problem with percentage change in tax liability. As Table 20 demonstrates, the average tax change in the lowest quintile, a group accounting for about half of the under $30,000 cash income group in the Treasury table, is only a dollar. Clearly, this group gained essentially nothing from the tax change. The entire under $30,000 group probably gained an average of about $20—again, a very negligible amount. Thus, while the Treasury table seems to suggest that this group benefitted more than average ("15%" as compared with an overall benefit of 11%), many people would not characterize the relative benefits in this way. The percentage change in after tax income, by contrast, suggests that these lower-income groups gained very little. It is particularly in these lower-income classes where average tax liabilities are small or negative, that percentage changes in tax liability can be highly misleading. | Distributional issues often lie at the center of tax policy debates. Distributional analysis may address several issues: How should the tax burden be distributed or, are progressive (increasing as a share of income as income rises) taxes justified? What is the estimated distribution of the current system? How does a particular proposal change that distribution? Unlike many analyses that study optimal behavior related to allocative issues and economic efficiency, economic analysis cannot be used to answer the questions of how the tax burden should be distributed. Such an answer would depend on social preferences. Economic analysis can, however, identify trade-offs and frame the issue analytically. For example, a number of plausible answers to this question could justify progressive tax structures. Methodological issues, such as the income classifier, the unit of analysis, and assumptions regarding incidence all affect the estimates of the distribution of the current tax burden. Yet all show a similar qualitative result: the federal tax system is progressive throughout its range, although it tends to get much flatter at the top. This pattern is primarily due to the individual income tax, which is quite progressive, and actually provides subsidies at lower-income levels. The other major tax is the payroll tax, which is a larger burden than the individual income tax for more than 80% of the population. This tax is first progressive and then regressive (effective tax rates fall with income). The corporate income and the estate taxes, while much smaller, are also progressive, whereas excise taxes are regressive. This overall progressive pattern has been in place historically, and is expected to continue in the future, although effective tax rates are currently low compared with other periods. Unlike the federal tax system, state and local taxes tend to be regressive. Thus, a progressive federal tax system would be necessary to prevent overall U.S. taxes from being regressive. The combined taxes appear slightly progressive. Looking at taxes from a lifetime perspective would move the system more toward a proportional tax because average lifetime incomes reduces the variability of income. Studies have suggested that overall lifetime taxes are roughly proportional to income. Many different measures have been used to characterize the effects of a particular tax change on the distribution of income. A very different impression of tax changes may be obtained depending on the measure used. One popular measure, the percentage change in tax, can be misleading, because as taxes become very small even a negligible absolute change in taxes leads to a very large percentage change. For measuring the relative distribution of income, percentage change in disposable income provides a better measure of how resources are distributed. By this measure, the recent tax cuts made incomes less equal. This report will not be updated. |
Average U.S. gasoline prices have risen sharply during 2004, beginning the year at $1.50 pergallon and peaking at $2.06 in late May. They subsequently declined to $1.87 in August asinventories increased. Among the factors causing 2004's gasoline price volatility has been a shortage of domesticrefining capacity, which has affected gasoline supply availability, creating a need for substantialimports. U.S. gasoline imports -- in the form of conventional gasoline, reformulated gasoline, andgasoline components -- currently make up slightly more than 10% of the nation's supply. Potential policy concerns raised by growing reliance on gasoline imports include theavailability of foreign supplies that meet U.S. specifications, the speed at which incremental foreignsupplies can be provided to meet shifting domestic demand, and the delivered price of importedsupplies. The nation's stressed gasoline supply capacity has attracted recent legislative interest. In the House, the Gasoline Price Reduction Act ( H.R. 4545 ) was brought to thefloor under suspension of the rules (passage requires a two-thirds vote) on June 15, but failed by236-194. The bill was intended to increase gasoline availability by limiting the number of fuel blendsrequired to meet clean air standards and by allowing waivers of fuel blend requirements duringsupply disruptions. This would have made it easier to ship gasoline between markets when neededto balance supply. On June 16, the House passed the United States Refinery Revitalization Act( H.R. 4517 ) by a vote of 239-192. This bill would provide incentives to increaserefinery capacity, focusing on areas with closed refineries or those experiencing layoffs or highunemployment. It would also charge the Department of Energy (DOE) with centralizing the processof obtaining environmental permits for new refinery projects, including additions and upgrades. Gasoline demand in the United States continues to grow. Although gasoline comprises about45% of total U.S. petroleum consumption, its incremental growth during the recent past accountsfor virtually all of the increase in total oil demand. Figure 1 shows the trend in U.S. gasoline consumption during the past decade, during whichdemand rose 20%. Growth has persisted in more recent years, although 2004 may see some late-yearslowdown because of higher prices. Between 1999 and 2003, petroleum consumption increased byhalf a million barrels per day (mbd), rising from 19.5 mbd in 1999 to 20.0 mbd in 2003. During thesame time span, gasoline consumption rose by the same amount as demand grew from 8.4 mbd to8.9 mbd. Figure 1. U.S. Gasoline Demand: 1993 - 2003 Source: Energy Information Administration, Monthly Energy Review, June 2004, Table 3.4. Gasoline use has continued to grow during the first half of 2004, as almost 9.0 mbd ofgasoline was supplied to consumers, an increase of about 1.9% over the previous year's first half.While there is some preliminary evidence that high pump prices may have begun to retard growthin gasoline demand, it is still too soon to evaluate whether this trend has shifted, and how overallpetroleum demand might track for all of 2004. Gasoline is manufactured in U.S. refineries and imported from foreign refiners as well. Figure 2 shows data for total U.S. demand and domestic production. (1) The gap between the two setsof figures is filled by imported product made by foreign refiners. Imported supply consists offinished gasoline -- which meets U.S. specifications and is market-ready -- as well as blendingcomponents. The latter have become an increasingly important part of gasoline supply, since an increasingamount of ethanol-blended gasoline is being consumed in this country. The trend toward ethanolblends may continue because it is the oxygenate used to replace the additive methyl tertiary butylether (MTBE), which has been banned in New York, California, and Connecticut, and is beingphased out in other places. Figure 2. U.S. Gasoline Production & Demand: Jan. 2003 - July 2004 Source: EIA, Weekly Petroleum Status Report, June 30, 2004, Table 10. In one form or another, the nation imports slightly more than 10% of the gasoline itconsumes, the unavoidable outcome of growing motor fuel demand and refining capacity which hasnot kept pace. This supply is necessary to fill the gap between gasoline production and demandshown in Figure 2. Figure 3 shows the imports of gasoline in detail, the total of which is rising in the time-framein this figure. Total imports peaked this summer at about 1.1 mbd; for the first seven months of2004, they averaged 900,000 barrels per day. Imports fit into three general categories: Conventional gasoline, which comprises about half of the gasoline sold in thenation and conforms to the least stringent environmental standards currently in effect. The U.S.environmental standards for this fuel include a prohibition on the use of lead, limits on summertimevolatility, and limits on manganese and sulfur content. Reformulated Gasoline (RFG) is used in major metropolitan areas in 17 statesand the District of Columbia which have significant ozone problems. In April 2004, EPA designatedareas in a total of 32 states and the District as nonattainment areas for a new ozone standard to bephased-in between 2007 and 2021 (2) . RFG has several requirements, including the mandate that itcontain sufficient oxygenates to meet a minimum oxygen requirement of 2% by weight. Theoxygenate often added is either the chemical MTBE (now banned in several states) or ethanol. RFG's peak usage is during summer months, when it comprises about 29% of nationaldemand. Gasoline components are imported with increasing frequency, amounting to50% of imports during 2004. Gasoline is a "cocktail" of hydrocarbons blended at refineries and fuelterminals. Increasingly, cocktail ingredients are available from foreign refiners, and they are beingimported to expand U.S. refinery output. Since finished gasoline is a blended product, refiners cansupplement short capacity by buying foreign components and blending them here in such a way thatU.S. specifications are met. As a result of the Clean Air Act requirements and state mandates, many different types ofgasoline are sold in the United States. In addition to conventional and RFG, there is oxygenated fuel(higher oxygen content than RFG), low volatility conventional gasoline, and a variety of state andlocal blends. These "boutique fuels" include ethanol blends, California Cleaner-Burning Gasoline(also used in Nevada and Arizona) and a number of other local formulations. As noted above, the trend toward ethanol blends may continue because it is the oxygenateused to replace the additive MTBE. Ethanol blends cannot be stored or transported by pipeline,because ethanol and gasoline do not mix well and can separate. The blend must be mixed near thepoint of final consumption. Imported components of the gasoline "cocktail" fit into the increasingly common practiceof local blending for local markets, in that "cocktail" components often come from multiple sourcesand are assembled at terminals and other gasoline distribution points. For refiners, blending gasolinefrom component parts represents a small incremental supply bonus, since they can purchaseopportunistically those components that might be available on world markets, and manufacture theremainder in their own facilities. In total, U.S. refiners do not have the capacity to make all thegasoline sold in this country, but they often do have substantial flexibility -- within overall capacityconstraints -- to make hard-to-import components tailored to U.S. specifications which foreignrefiners cannot easily provide. The trend shown in Figure 2 suggests that U.S. refiners are able to produce during an averagemonth a bit more than 8.0 mbd, while demand is trending just under 9.0 mbd this year. The actualnumbers fluctuate from month to month. Figure 3 shows total gasoline imports averaging about900,000 barrels per day. (3) Imports of finished gasoline and components -- which have averaged, respectively, about 500,000barrels per day and 400,000 barrels per day during the past 12 months -- bridge the gap betweenU.S. refinery production and demand. Without this supplement, there would be a supply shortfall. Figure 3. Make-up of U.S. Gasoline Imports: Jan. 2002 - July 2004 Source: EIA, Weekly Petroleum Status Report, August 2, 2004, Table 9. The increasing use of blending components in building up the gasoline pool is seen in the riseof components as a proportion of nationwide gasoline inventories. Figure 4 shows that total gasolinestocks started 2003 at essentially the same level (212 million barrels) that they were at the end ofAugust 2004 (206 million barrels). But blending components held in inventory rose from 54 millionbarrels, or 26% of inventory, to 72 million barrels, or 35% of total inventory. This is a substantialincrease, and shows refiners' demand for stocks of components to meet the need for locally-mixedethanol blends as well as diverse boutique fuels. Fifteen states have chosen to address clean air issues by calling for localized gasolineformulations for all or part of their states (4) . Many of these requirements are in effect during summer monthswhen concerns about ozone are greatest. The diversity of fuel formulations has raised concerns among stakeholders regarding refiners'ability to provide the diversity of products required in sufficient quantities as well as the producttransport sector's ability to distribute the diverse product slate. In its Staff White Paper on BoutiqueFuels, (5) the EnvironmentalProtection Agency (EPA) contends that the refining and distribution system works well under normaloperating conditions. But the agency notes that when the entire fuel market is stressed, the placeswhere supply shortfalls and volatile prices tend to show up first and be most acute involvegeographically isolated fuel programs. Many state boutique programs are of this nature, and have fewer suppliers and fewertransport options. In situations where there is a transportation failure, a supply shortfall of gasolinecomponents, or some combination of these and possibly other factors, prices can become veryvolatile as small supply glitches impact an isolated local market disproportionately. There appear tohave been few such instances, but some have taken place. The experience in the Chicago metro area during the spring of 2000 is one example of howa confluence of circumstances can play out. As the Chicago metropolitan area transitioned toethanol-blended gasoline in the late spring of 2000, a key pipeline supplying gasoline from the GulfCoast refining area failed. The supply shortfall from traditional refiners -- coupled with the initialdifficulty in making reformulated gasoline blendstock for oxygenate blending in local refineries --combined to create a tight regional supply situation, which saw pump prices nearly double in Mayand June. (6) But by July,supply from other sources and restoration of pipeline flow began to return prices to accustomedlevels. The price spike, while only a few months in duration, was substantial, and is often pointedto as a "worst case" situation of how a convergence of mishaps can lead to a substantial disruptionin a market delineated by boutique fuel requirements. EPA notes that problems of this type to date have been limited in terms of geographical scopeand duration. It appears that the fuel supply system can support the current structure of fuelstandards, absent some set of untoward circumstances. Most stakeholders, EPA contends, (7) are instead concerned with theproliferation of boutique fuels into the future and would like to see limits on new boutique fuelrequirements. Figure 4. U.S. Gasoline Inventory: Jan. 2002 - Aug. 2004 Source: EIA, Weekly Petroleum Status Report, August 25, 2004, Table 3. Currently, one-third of gasoline imports comes from Canada and the U.S. Virgin Islands. Another third comes from Argentina, the Netherlands, Russia, the United Kingdom, and Venezuela;the remainder is imported in smaller quantities from a diversity of nations. Figure 5 illustrates trends in overall gasoline imports, as well as various suppliers' sharesof the imported gasoline market. It also shows how the amounts supplied by each important suppliercan vary from month to month, as well as changes in the overall supply of imports. Canada -- source of much of the nation's hydrocarbon imports -- is the single leading supplierof gasoline on a regular basis. Canada's exports have increased steadily during recent years. And theU.S. Virgin Islands -- location of the very large Hovenessa refinery, jointly owned by Amerada Hessand the Venezuelan national oil company Petroleos de Venezuela (PDVSA) -- is also a consistentsource of supply. But imports from the other major suppliers fluctuate monthly. Even Venezuela hasexperienced difficulties in meeting its historic refinery output levels since an oil workers strike inlate 2002. Venezuelan gasoline exports to the United States have dropped to about 40% of levelsseen prior to 2002's political disruption. Recent efforts to regain U.S. market position by PDVSA(discussed below) could produce a supply benefit, although refinery operations are still recoveringfrom the strike. Figure 5. Average Daily Gasoline Imports by Country of Origin Jan. 2000 - Apr. 2004 Source: EIA, June 2004. In addition to Canada and the Virgin Islands, increased gasoline imports now come from theUnited Kingdom and the Netherlands, where refinery utilization is much lower than in the UnitedStates; many other nations with spare refinery capacity are suppliers as well. A recent enhancement to the supply of imported gasoline has been made by PDVSA, whichhas started shipping the complete cocktail for ethanol blended gasoline (without the ethanol, whichis blended near the point of sale). PDVSA has planned to export 1 million barrels per month of thishigh-priced component, called RBOB, (8) starting with test cargoes in June. Platts Oilgram Price Report (9) noted that 720,000barrelswere exported in July, and the extra barrels in the U.S. market have provided extra competition forcomparable cargoes from Europe, where distances and shipping costs are greater. This illustrates thesignificance of the supply of foreign gasoline components, and how they can impact U.S. gasolineprices. It is likely that high U.S. prices for gasoline and its significant components will continue toattract foreign refiners' attention, perhaps leading them to seek permanent market share. PDVSA-- which also owns U.S. refiner CITGO, affording direct retail market access -- announced that forSeptember it planned to export 12 RBOB cargoes to the United States, including four or five for theNew York-Connecticut ethanol-only blended markets. (10) Another example of what may be taking place in off-shore refined product supply is therevitalization of a large refinery in Aruba that was recently acquired by Valero Energy, anindependent refining company with most of its facilities in the United States. While geographically well-positioned to serve U.S. markets, this facility had an unsuccessfuloperating history. Valero began improving operations quickly and is adding upgrading units so thatgasoline components can be made in increasing quantities from low-quality crudes. The capacity ofthis refinery is 275,000 barrels per day, a figure which suggests that it could -- when it reachescapacity -- contribute significantly to Gulf and East Coast gasoline supplies. Imports from Aruba areso recent that they are not reflected in DOE data (which lag by a few months) on product imports bycountry. Dependence on imports to meet over 10% of national gasoline needs has begun to causeconcern that these imports might contribute to 2004's high prices. While supplies from Canada mayhave similar physical characteristics and prices to the output from U.S. refiners -- and offer speedydelivery -- products from refineries farther afield may not. Factors such as the cost and timelinessof incremental supply, physical reliability, and meeting U.S. product specifications can affect priceand supply at the gas pump. Shipping cost may be an additional issue. Gasoline and many other refined products needto be protected from contamination from other oils. As a result, they must be shipped in cleanvessels. These product carriers are usually much smaller than crude carriers, and -- not benefittingfrom economies of large scale -- have higher unit costs. In addition, the clean tanker market isinfluenced by spot charter rates for vessels, making product shipping costs often higher and morevolatile than crude oil. It is cheaper to ship crude to a local refinery than to transport products anequivalent distance. (11) Imported products cost more than those refined domestically simply by virtue of transportcosts. The higher import costs impact the last units of gasoline supply, providing a price umbrellafor domestic refiners, whose pricing -- like all industrial pricing -- is linked to the cost of the lastincrements of the good involved. As long as gasoline is imported to meet a sizeable imbalancebetween domestic supply and demand, this situation offers a likelihood of prices which are abovethe cost of domestic manufacture. This assumes that new domestic refining capacity to replaceimports could produce U.S.-spec gasoline at costs below those of foreign refiners plus producttransport tariffs to the United States. In addition to price-related considerations, the speed of supply response to price signals fromU.S. gasoline markets seems less than it might be from a refiner located here. It may well be thatdistance mutes price signals related to an increase in demand, for example, and refiners abroad maybe slow to receive the message that U.S. consumers desire more gasoline and are currently payingprices which would justify a foreign refiner's manufacturing of U.S. specification fuel. Even if theforeign refiners' response to U.S. prices were instantaneous, it could take as long as a month -- insome cases more -- for the physical supply to arrive here. Manufacturing fuel for the U.S. market may be another source of delayed response to U.S.market signals. Some of the substances called for in satisfying U.S. fuel needs may not be producedin the ordinary course of refinery runs abroad. And some -- like RBOB -- are difficult for manyrefiners to make, calling for a longer set-up time. Lags in getting foreign supply may have contributed to 2004's price increases. Figure 3 shows low imports during late 2003 and early 2004, which corresponded to a decline in gasolineinventories and consistent price increases seen throughout the first half of 2004. Is dependence on gasoline imports for more than 10% of the nation's gasoline supplyundesirable? In theory, importing gasoline may have few drawbacks. It might make little differenceif this fuel were to be supplied from across the border in Canada. The products supplied might beU.S.-specification conventional gasoline or RFG. What about imports from a refinery operated bya major international oil company in Europe or nearby in the Caribbean? At what point does foreignrefined product dependence become a policy concern? There is no clear answer, but majorconsiderations in evaluating this question include: Availability of supplies meeting U.S. specifications, so that demand can be metwithout the need for waivers that could compromise environmentalprotections. The speed with which incremental supply might be available, givenjust-in-time gasoline inventories, in order to avoid excessive price volatility. The delivered price of foreign supplies, and whether they are above theincremental price of domestic output, such that they ultimately contribute to higherprices. The nation has no apparent defined policy on refined oil product imports, nor is there a policyregarding gasoline prices. There is a general perception among policymakers that price volatility isundesirable, but there is no consensus on what the price level ought to be. Nor is there consensusabout how the government might deal with market volatility. Similarly, there appears to be generalagreement that spot shortages -- run-outs and lines at gas stations -- are to be avoided. But there areno guides for policy actions to remedy such situations should they take place, and it could be thatletting market forces make corrections without government involvement would be the better courseof action. Some policy initiatives in the 108th Congress are embodied in two House bills focusing onthe proliferation of regional gasoline blends and expanding refinery capacity. H.R. 4545 , the Gasoline Price Reduction Act, centered on the proliferation of special, local boutiquegasoline blends. The bill failed to get the required two-thirds House vote for passage undersuspension of the rules. It would have authorized EPA during significant supply disruptions to issuewaivers of state provisions requiring boutique fuels. The boutique fuel requirement is seen aspotentially limiting supply by impeding the movement of fuel between areas; a shortage in one spotmight not be met with extra fuel from a nearby area because of differing requirements. The bill alsoproposed capping the number of boutique fuels at the current level. H.R. 4545 proposed dealing with supply fungibility; but it did not offer remediesthat could have increased the supply of domestically produced gasoline. H.R. 4517 , theRefinery Revitalization Act -- which passed the House, but has not seen Senate action -- is aimedat facilitating increases in capacity by fast-tracking the environmental review and permitting offacilities in a designated Refinery Revitalization Zone. The Secretary of Energy would designate thezones, coordinate environmental reviews, and make final decisions on federal authorizations for newrefineries within the zones. To the extent that those wishing to construct a new refinery -- or expandan existing facility -- have been hindered by environmental regulation, this measure is intended tooffer some assistance. These bills articulate at least some components of a gasoline supply policy, dealing withdomestic supply and indirectly with imports, and with fuel specifications that impact the distributionof supply. Both measures have drawn substantial criticism, however, particularly on environmentalgrounds. For example, with regard to the refining bill, opponents express concern that such ameasure would override state clean air programs. Among its cons, H.R. 4545 raisesconcerns about the overall cost of gasoline, given that many state programs which avoid full-fledgedRFG have been implemented to keep down gasoline costs. The refining proposals attempt to address the 1 mbd gasoline production shortfall, which ismade up by imports in one form or another. Encouraging growth in domestic refinery capacityimplies a judgment that it is advantageous to have that capacity in the United States, in contrast tooffshore, even if offshore is relatively nearby. As noted above, domestic production could reducetransportation costs and provide quicker supply response to unanticipated changes in demand. Thiscould shorten the duration of a potentially disruptive price spike resulting from a gasoline supplyshortfall. Refinery proposals under current debate do not address other issues impacting refineryprojects, such as an historic lack of profitability in this industry segment (12) . It may well be that thecurrent refining situation -- with imports holding a "price umbrella" over domestic gasolineproduction -- may be a profitable situation for many refiners, many of whom are realizing recordearnings in the first and second quarters of 2004. While this year's earnings may be high, one year'sexperience does not outweigh years of low profits. While a basic change in refiner profitability mightbe suggested, it is too soon for many firms to consider making significant investments in long-livedcapital equipment, whose cost is recouped over many years. Were the prospects for long-term profitability in the refining industry to improve by virtueof a sustainable recovery in refining margins, it is likely that additional investment in added capacitywould be seen. But it might take several years of high margins before firm managers and theirbankers would become confident enough to make substantial capital commitments. | Gasoline demand in the United States has grown consistently during the past decade,increasing by a total of 20%. Between 1999 and 2003, gasoline consumption grew by 500,000barrels per day, accounting for all of the increase in petroleum consumption during that period. While 2004 may see growth slow down because of high prices, during the first seven months of theyear gasoline demand was up by another 1.9%. The fact that gasoline supply has not kept up with demand has been reflected in pump pricesthat have risen from $1.50 at the start of 2004 to as high as $2.06 per gallon in late May. Whensupply and demand become out of sync with their previous relationship, prices change to establisha new balance. The outcome has been a period of volatile gasoline prices, which have set recordhighs that have become a focal point for consumers and policy makers, and raised concerns abouttheir impact on the economy. Gasoline is supplied both by U.S. and foreign refiners. Domestic producers' capacity islimited. As a result, nearly 1 million barrels per day of gasoline and its components are imported.Imported blending components -- especially those used in ethanol-blended fuel -- are increasinglyimportant to total U.S. supply. Without this supplemental supply, gasoline would be less availableand prices likely higher. Imports most recently have come from Canada and the U.S. Virgin Islands, which supplyone-third of the off-shore supply. Argentina, the Netherlands, Russia, the United Kingdom, andVenezuela provide another third. Imports peaked in March 2004, took a dip, and reached new highsin July. Increased imports may have contributed to pump prices backing off their May highs in latesummer. New gasoline blending components from Venezuela and the rehabilitation of a refinery inAruba may also contribute to enhanced gasoline component supply later this year. Gasolinecomponent availability -- which has increased during 2004 -- gives domestic refiners an addedmeasure of flexibility in using their capacity, and contributes to enhanced supplies of fuels neededto meet demand for ethanol-based gasoline and other specialized regional blends. Potential policy concerns raised by growing reliance on gasoline imports include theavailability of foreign supplies that meet U.S. specifications, whether incremental foreign suppliescan be provided quickly enough to meet shifting demand, and the delivered price of importedgasoline. Two legislative efforts were debated in the House regarding gasoline supply issues during2004. One, H.R. 4517 , has passed the House but not been taken up in the Senate. Itwould provide for easier permitting for refinery capacity expansion. And H.R. 4545 ,which did not pass the House, would have limited the growth of special regional fuel blends, oftencalled "boutique fuels." This report will be updated as events warrant. |
Most spending on surface transportation infrastructure is done on a pay-as-you-go funding basis, meaning today's expenditures are derived from today's revenue sources such as taxes, tolls, and fares. Only a relatively small proportion is financed through public or private borrowing or private (equity) investment. Because government budgets at all levels are strained, however, there is great interest in financing highway and public transportation capital improvements. This is particularly true for very large and costly "mega-projects," such as major interstate highway bridges, which are difficult to construct on a pay-as-you-go basis. New York's $5 billion Tappan Zee Bridge replacement, for example, dwarfs the state's federal highway funding of about $1.7 billion a year, and approaches the state's typical annual highway capital spending of about $6.0 billion. The toll bridge will be largely financed using municipal bonds and a federal loan. The federal government supports surface transportation infrastructure financing mainly by providing a tax preference for bonds issued by state and local governments. Other mechanisms include federal loan programs, such as the Transportation Infrastructure Finance and Innovation Act (TIFIA) program, which can help leverage private investment via public-private partnerships (P3s), and federally authorized state infrastructure banks (SIBs). All have costs for the federal government, but, as this report explains, some have greater costs than others. Nevertheless, none are as costly as federal grant funding. This is because project financing relies more heavily on revenue streams created at the state or local level in order to repay loans or provide a return to private investors. In many cases, revenue to finance a project has been provided by a highway or bridge toll, but it could be, among other possibilities, a pledge of future sales tax or real estate tax revenues. This report outlines current federal programs that support the financing of surface transportation infrastructure investment and the relative impact these have on the federal budget. It goes on to discuss legislative options for modifying the federal role, including provisions related to tax credit bonds, dedicated federal funding for SIBs, and the creation of a national infrastructure bank. Surface transportation infrastructure, the focus of this report, includes the 4-million-mile highway system, as well as more than 80 rail transit systems and 1,200 public bus systems. Public-sector spending on this infrastructure totaled about $256 billion in 2014, the latest year for which data are available ( Table 1 ), in addition to an unknown amount of private investment. About 75% of the $256 billion was spent on highways and 25% on public transportation. The public-sector spending was almost evenly divided between capital investment and operations and maintenance (O&M). Capital investment involves activities such as land acquisition, construction, resurfacing of highways, and purchase of transit vehicles. O&M includes such items as highway maintenance and law enforcement, transit vehicle operation, and administration. Capital costs were more than half of total highway expenditures and about one-third of public transportation expenditures. About half of all receipts for highway and street expenditures are generated by state governments, about $121 billion in 2014, with local governments generating 30%. The remainder comes from federal aid. Most highway spending is done on a pay-as-you-go basis, with a large majority of the revenue coming either from user fees, such as fuel taxes and tolls, or from general funds ( Table 2 ). Bond issuance, excluding short-term notes and refundings, raised only about 12% of the total revenue collected for highway purposes in 2014. These bonds were issued mainly by state agencies, with local governments accounting for 24% of issuance. Like spending on highways, spending on public transportation is mostly done on a pay-as-you-go basis. The major sources of funds are passenger fares, dedicated taxes (particularly sales and fuel taxes), and general funds. Although there is little information on bond issuance or private investment in public transportation, data published by the U.S. Department of Transportation (DOT) indicate that bond issuance for public transportation amounted to about $4 billion in 2010, about 7% of funds generated in that year. Local government provided the most support, followed by passenger fares and other operating income, state government, and the federal government ( Table 3 ). Although less than one-fifth of surface transportation infrastructure expenditures are financed rather than being paid from current revenues, financing mechanisms are extremely important for large projects and, in some cases, are routinely part of state and local transportation budgets. Financing is normally not arranged at the federal level, as the federal government builds few transportation projects directly. Most state and local government budget rules require that debt financing only be for capital investment, not O&M. These general principles, however, have numerous exceptions not only across states but also across all government entities tasked with providing infrastructure. "Municipal bonds" is a broad reference to a class of debt instruments that receive preferential income tax treatment. Generally, the interest on municipal bonds is excluded from federal income taxes, both individual and corporate. This tax preference for public-purpose bonds is estimated to reduce federal revenues by $187.7 billion over the FY2015-FY2019 window, including a $36.8 billion reduction in FY2017. Federal law allows for several variants of municipal bonds, not all of which can be used for surface transportation purposes. Municipal bonds issued for transportation represent a significant share of total issuance. In calendar year 2015, $39.1 billion of municipal bonds were issued for transportation projects, or 11% of total issuance. Most of this financing was traditional governmental bonds backed by either a specific revenue stream or the general obligation of the issuing entity. Municipal bonds issued for transportation and secured by revenue generated by the project financed with the bonds, such as a toll or user fee, would be considered private activity bonds in most cases. Congress has approved limited use of tax-exempt private activity bonds (PABs) for selected transportation projects as outlined in Section 142 of the Internal Revenue Code. These include airports, docks and wharves, mass commuting facilities, high-speed intercity rail facilities, and qualified highway or surface freight transfer facilities. The Secretary of Transportation must approve the use of PABs for qualified highway or surface freight transfer facilities and the aggregate amount allocated must not exceed $15 billion. As of July 7, 2016, $11.2 billion of the $15 billion had been allocated ( Table 4 ). Because qualified private activity bonds are dependent on the success of the project for bond repayment, they have a greater level of default risk than general obligation bonds. Bonds that carry more risk compensate the investor for that risk through higher interest rates. Thus, the interest rates issuers must pay on qualified private activity bonds are generally higher than those on general obligation bonds. In many cases, users of the project will pay for the additional cost. Municipal bonds cause a loss in general economic welfare, because the amount of the reduction in federal revenue exceeds the benefit conferred on the issuer. The holder of a tax-exempt bond receives a benefit equal to the amount of the interest payment multiplied by the holder's marginal tax rate. For example, an individual in the top bracket of 39.6% receives a tax benefit of $39.60 for every $100 in interest received. The issuer benefit is the difference between the taxable interest rate and the tax-exempt interest rate. For example, consider the case in which the yield on a 10-year, A-rated tax-exempt bond is 3.00%, while the yield on a 10-year, A-rated corporate bond is 3.50%. An issuer of $1 million in tax-exempt bonds would face an annual interest payment of $30,000, versus $35,000 if the bonds were taxable. The issuer is receiving an annual saving of $5,000, whereas a top-bracket investor in the bonds benefits from a much greater $13,860 annual reduction in tax liability ($35,000 x 39.6%). In addition to traditional municipal bonds, state and local governments may issue tax-favored "tax credit bonds" (TCBs). TCBs take one of two forms: (1) investor credit or (2) issuer credit (direct payment). TCBs were first issued in the form of Qualified Zone Academy Bonds (QZABs), which were created by the Taxpayer Relief Act of 1997 (TRA 1997; P.L. 105-34 ) for school districts to use for school renovation (not including new construction), equipment, teacher training, and course materials. The school district is required to partner with a private entity that contributes 10% of bond proceeds for the project. Build America Bonds (BABs) were created in the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ) and could be used for any type of capital investment. Of total BAB issuance of $181 billion, approximately $40 billion, or 22%, was used for transportation projects before the legal authorization to issue such bonds expired on December 31, 2010. QZABs featured an investor credit only. The credit was intended to be set equal to 100% of the interest received. In contrast, BABs featured the direct pay option in addition to the investor credit option and the credit rate was set at 35%. For QZABs with a 100% credit for investors, the method for determining the tax credit rate is the responsibility of the Secretary of the Treasury. The credit rate for investor credit TCBs is set higher than the municipal bond rate to compensate for the credit's taxability. Generally, to attract investors, the credit rate should yield a return greater than the prevailing municipal bond rate and at least equal to the after-tax rate for corporate bonds of similar maturity and risk. Importantly, however, the investor must evaluate the potential that in any given year, it may not have tax liability that it can offset with the credit. This additional risk reduces the value of the credit. Entities without U.S. income tax liability, such as U.S. pension funds and certain international investors, would find the investor tax credit of little value. For issuers of investor tax credit bonds, the interest cost should be less than, or at least equal to, the next best financing alternative. In almost all cases, tax-exempt bonds would be the next best alternative for governmental issuers. For 100% tax credit bonds like QZABs, where the federal government is effectively paying all of the interest for the issuer, there is no question that the tax credit bond has a lower interest cost for issuers than do tax-exempt bonds. As the credit rate drops the issuer incurs a greater share of the interest cost. The direct-pay tax credit bond model was first made available with BABs. In contrast to the earlier versions of tax credit bonds with only the investor credit option, BABs offered issuers the option of receiving the tax credit directly from Treasury rather than allowing investors to claim it. BAB issuers all chose the direct payment over the investor credit. When presented with the option of issuing an investor credit TCB or issuer direct payment TCB, municipal issuers are likely to choose the option with lowest net interest costs. For example, if the negotiated taxable interest rate on an issuer direct payment TCB is 8% on $100,000 of bond principal, then a bond with 35% credit amount would produce a credit worth $2,800 (8% times $100,000 times 35%). The interest cost to the issuer choosing the direct payment is $8,000 less the $2,800, or $5,200. If the tax-exempt rate of the bond is greater than 5.20% (requiring a payment of greater than $5,200), then the direct payment is a better option for the issuer. A U.S. Treasury report estimated that through March of 2010, the bonds had saved municipal issuers roughly $12 billion in interest costs. However, more recent developments, including the increase of marginal personal income tax rates with enactment of the American Taxpayer Relief Act of 2012 ( P.L. 112-240 ) and an Office of Management and Budget ruling that payments to issuers are subject to sequestration under the Budget Control Act of 2011 ( P.L. 112-25 ), have reduced the attractiveness of BABs relative to traditional tax-exempt bonds. Grant anticipation bonds are tax-exempt securities issued by state and local agencies and backed by federal grants expected to be received in the future. The best-known variant is the Grant Anticipation Revenue Vehicle (GARVEE) bond, backed by a pledge of future federal highway apportionments. Similar bonds, known as Grant Anticipation Notes (GANs), may be backed by a pledge of future federal public transportation apportionments or by anticipated discretionary funding such as that from the Capital Investment Grant (New Starts) Program to build rail transit lines and bus rapid transit. In 2015, $1.2 billion of GARVEE bonds were issued by the states. Private investment in surface transportation projects can be obtained by involving a private entity that borrows money from banks, issues bonds, and/or provides equity investment. Because of the costs of putting together such deals, private financing tends to be more suitable for large and costly projects rather than smaller, more routine ones. The public sector often retains a significant role in projects involving private finance, including a public funding or financing component. Private investments, therefore, are usually made in the context of a contractual arrangement with the public sector known as a public-private partnership, or "P3." In general, P3s involve greater private-sector responsibility for project tasks than the traditional model of project delivery, in which private companies bid for separate planning, design, or construction contracts offered by the public sector. Most P3s in surface transportation have been of the design-build variety in which project design and construction are combined into a single contract. Some involve more complicated design-build-finance-operate-maintain contracts, in which the private entity receives a concession to operate the project and collects fees from users for a specified period following the completion of construction. Only a few P3s in the United States have involved long-term private financing. According to one study, from 1989 through early 2011 there were 96 transportation P3s worth a total of $54.3 billion. Of these, 11 projects, built at a total cost of $12.4 billion, included a long-term private financing component. However, a number of P3 deals with private financing have been created more recently. The Federal Highway Administration (FHWA) lists a total of 21 such projects from the late 1980s through June 2015 worth a total of $24.6 billion. P3s and private investment in surface transportation are relatively larger in many other countries, including Portugal, Spain, and Australia. To be viable, P3s involving private financing typically require an anticipated project-related revenue stream from a source such as vehicle tolls, container fees, or, in the case of transit station development, building rents. In some cases, private-sector financing is backed by "availability payments," regular payments made by government to the private entity based on negotiated quality and performance standards. Private-sector resources may come from an initial payment to lease an existing asset in exchange for future revenue, as with the Indiana Toll Road and Chicago Skyway, or they may arise from a newly developed asset that creates a new revenue stream. Either way, a facility user fee is often the key to unlocking private-sector resources. As noted above, P3s delivering new assets have typically been large-scale projects of regional or national scope that rely on public funding and financing in addition to private financing. One example is the $2 billion I-495 High-Occupancy Toll Lanes project that opened for traffic on the Washington beltway in November 2012. Delivered by a P3 between Capital Beltway Express, LLC (a joint venture of Fluor and Transurban) and the Virginia Department of Transportation, the project included about $380 million in private equity and $589 million in private activity bonds, but also a $589 million federal TIFIA loan and almost $500 million in state funding ( Table 5 ). The "public" in public-private partnerships typically refers to a state government, local government, or transit agency. The federal government, nevertheless, exerts influence over the prevalence and structure of P3s through its transportation programs, funding, and regulatory oversight. Probably the main way in which the federal government has encouraged P3s and private financing in transportation is through the TIFIA program that provides long-term, low-interest loans and other types of credit to project sponsors. DOT has also been mandated to support P3s in other ways. The department was authorized in the Moving Ahead for Progress in the 21 st Century Act (MAP-21; P.L. 112-141 ) to compile and make available best practices in the use of P3s, develop standard P3 model contracts, and provide technical assistance on P3 agreements. The Fixing America's Surface Transportation (FAST) Act ( P.L. 114-94 ) authorized the creation of a new bureau within DOT to consolidate federal transportation financing programs and support for P3s. To fulfill this mandate, DOT established the Build America Bureau in July 2016. The Build America Bureau is responsible for administering TIFIA and the Railroad Rehabilitation and Improvement Financing (RRIF) program, the state infrastructure bank program, the allocation of private activity bonds, and the Nationally Significant Freight and Highway Projects Program (23 U.S.C. §117). It is also responsible for providing help to project sponsors with other DOT grant programs; establishing and disseminating best practices and providing technical assistance with innovative financing and public-private partnerships (P3s); ensuring transparency with P3s; developing procurement benchmarks; and working with project sponsors to navigate environmental reviews and permitting to reduce uncertainty and delays. The FAST Act also allows formula highway funding for "the creation and operation by a State of an office to assist in the design, implementation, and oversight of public-private partnerships" (23 U.S.C. 133(b)(14)). In addition, The FAST Act (§1441) authorized a new Regional Infrastructure Accelerator Demonstration Program that will make grants "to assist entities in developing improved infrastructure priorities and financing strategies for the accelerated development of a project that is eligible for funding under the TIFIA program." These projects typically involve other types of innovative financing and P3s. The FAST Act authorized $12 million in FY2016 from the general fund for the program, but these funds were not appropriated. One of the purported advantages of P3s is risk transfer from the public agency to the private partner. The many different types of risks in the development and operation of infrastructure include the risk that construction and maintenance will cost more than planned and, with toll facilities, the risk that there will be less demand, and thus revenue, than estimated. Transferring these and other risks to the private sector is not necessarily a money saver, as the private partner will require compensation for assuming them, but it provides greater certainty for the public sector. However, not all the risks can or should be shifted to the private sector. As the Government Accountability Office points out, a major risk associated with transportation infrastructure projects that the private sector is unlikely to be able to accept is the delay and uncertainty associated with the environmental review process. At least in some cases, the transfer of risk in a P3 may prove illusory, as major miscalculations may force the public sector to renegotiate the P3 contract or to assume project ownership. Difficulties with the 40-mile extension of SH-130 near Austin, TX, opened in October 2012 and financed and built by a P3 between the Texas Department of Transportation (TxDOT) and a private partner, illustrate the point. The toll road has had much lower traffic volumes than forecast and, therefore, is generating much less revenue than the concessionaire needs in order to repay its loans. In March 2013, in an effort to get more trucks to use the toll road, the state decided to subsidize the toll for trucks for one year. TxDOT paid the concessionaire $6 million as compensation for lost revenue. In March 2016, the concessionaire declared bankruptcy. TxDOT and the concessionaire have stated that this will not imperil the agreement or burden Texas taxpayers. However, the bankruptcy may affect the $430 million federal TIFIA loan to the project, the repayment of which was scheduled to begin in June 2017. Critics of P3s argue that the amount of private money involved in P3 deals is often a small share of the total, or subsidized by the public sector, or both; that risk transfer from the public to the private sector is often illusory; and that P3 contracts can limit the proper use of and government decisions about the transportation system. The Build America Bureau will also be responsible for ensuring greater transparency of P3s and the completion by the project sponsor of an analysis of the benefits and costs of procuring a project using a P3 versus other types of arrangements. This was one of the recommendations of a special panel set up by the House Transportation and Infrastructure Committee. Opponents of greater oversight worry about the effects of new requirements on the development of P3 agreements because of the extra time, expense, and uncertainties that they may cause. There are several federal loan programs for surface transportation infrastructure. This section discusses the TIFIA and RRIF programs. Another source is Section 129 loans, which allow states to lend apportioned federal highway funding to support a project with a dedicated revenue stream (23 U.S.C. §129(a)(8)). According to FHWA, Section 129 loans have been used to finance two projects. One reason for this limited use may be that TIFIA provides a separate funding source for loans to similar types of projects. TIFIA, enacted in 1998 as part of the Transportation Equity Act for the 21 st Century (TEA-21), provides federal credit assistance in the form of secured loans, loan guarantees, and lines of credit for construction of surface transportation projects. Loans and loan guarantees can be provided up to a maximum of 49% of project costs; lines of credit can be for an amount up to a maximum of 33% of project costs. Projects eligible for TIFIA assistance include highways and bridges, public transportation, intercity passenger bus and rail, intermodal connectors, and intermodal freight facilities. As of July 2016, according to DOT, TIFIA had provided assistance of $24.5 billion to 60 projects. The overall cost of the projects supported is estimated to be $88 billion. Several features of TIFIA financing make it attractive to project sponsors, including private-sector partners. Federal credit assistance provides funds at a low fixed rate (the Treasury rate for a similar maturity). Loans are available for up to 35 years from the date of substantial completion, repayments can be deferred for up to five years after substantial completion, and amortization can be flexible. TIFIA financing is also available with a senior or subordinate lien, but is typically used as subordinate debt, meaning it is in line to be repaid after the project's operational expenses and senior debt obligations. However, the TIFIA statute includes a provision which requires that in the event of a project bankruptcy, the federal government will be made equal with senior debt holders. This is referred to as the "springing lien" and has led some to ask whether TIFIA financing is truly subordinate. The springing lien issue notwithstanding, TIFIA financing is generally thought to reduce project risk, thereby helping to secure private financing at rates lower than would otherwise be possible. There are a number of eligibility criteria for TIFIA assistance. One of the key eligibility criteria is creditworthiness. To be eligible, a project's senior debt obligations and the borrower's ability to repay the federal credit instrument must receive investment-grade ratings from at least one nationally recognized credit rating agency. The TIFIA assistance must also be determined to have several beneficial effects: fostering a public-private partnership, if appropriate; enabling the project to proceed more quickly; and reducing the contribution of federal grant funding. Other eligibility criteria include satisfying planning and environmental review requirements and being ready to contract out construction within 90 days after the obligation of assistance. Generally, a project must cost $50 million or more to be eligible for assistance, but the threshold is $15 million for intelligent transportation system projects and $10 million for transit oriented development projects, rural projects, and local projects. One further eligibility requirement is that loans must be repaid with a dedicated revenue stream, typically a project-related user fee but sometimes dedicated tax revenue. Table 6 provides examples of projects that have received a TIFIA loan and the primary means by which the loan is to be repaid. Limiting the federal share of project costs, encouraging private finance, and insisting on creditworthiness standards are ways in which the program attempts to rely on market discipline to limit the federal government's exposure to losses. Another advantage from the federal point of view is that a relatively small amount of budget authority can be leveraged into a large amount of loan capacity. Because the government expects its loans to be repaid, an appropriation need only cover administrative costs and the subsidy cost of credit assistance. According to the Federal Credit Reform Act of 1990 (2 U.S.C. §661(a)) the subsidy cost is "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." A typical rule of thumb is that the average subsidy cost of a TIFIA loan is 10%, meaning that $1 million of budget authority can provide $10 million of loan capacity. The FAST Act reduced the direct authorization of funding for TIFIA, a few years after it had been greatly increased in MAP-21 ( Figure 1 ). Seen in isolation, this reduces DOT's capacity to issue loans by approximately $7.25 billion in FY2016, assuming a 10% subsidy cost and excluding administrative costs. However, the FAST Act also allows states to use funds from two other highway programs, the discretionary Nationally Significant Freight and Highway Projects Program (FAST Act; §1105) and the formula National Highway Performance Program (NHPP) (FAST Act; §1106), to pay for the subsidy and administrative costs of credit assistance. This has the potential to increase TIFIA financing much above the $275 million direct authorization, but at the discretion of state departments of transportation. Under RRIF (45 U.S.C. §821 et seq.), the Federal Railroad Administration (FRA) is authorized to provide loans and loan guarantees up to a total of $35 billion of unpaid principal, with $7 billion reserved for freight projects benefitting railroads other than the large Class I railroads. Direct loans generally can be up to 100% of a project's cost and for a maximum term of 35 years from the completion of the project. Interest is charged at the U.S. Treasury rate of a similar maturity. Eligible borrowers are state and local governments, government-sponsored authorities and corporations, railroads, joint ventures that include at least one of these other entities, freight rail shippers served by one railroad and wanting to connect a facility to a second railroad, and interstate compacts. Eligible projects include buying or improving rail facilities and equipment, refinancing debt for such purposes, developing new rail or intermodal facilities, and commercial and residential development around a station. Operating expenses are not an eligible purpose. The RRIF does not receive an appropriation from Congress, but allows project sponsors to pay the subsidy cost (termed the credit risk premium). FRA evaluates applications for RRIF assistance by eligibility and the ability to repay a loan in terms of the applicant's creditworthiness and the value of collateral offered to secure the loan (45 U.S.C. §822(f)). These and other factors determine the credit risk premium that must be paid. Through 2015 there have been 34 RRIF loan agreements totaling $2.7 billion. Loans have ranged in size from $967 million, made to the New York City Metropolitan Transportation Administration (MTA) in 2015, to $56,000, made in 2011 to C&J Railroad. Most loans have been made to Class II and Class III freight operators that are unable to get loans with comparable interest rates in the private market. Loans are typically at the lower end of the range. Some of the largest loans have been to passenger train operators. FRA announced in 2016 that the RRIF program will lend $2.45 billion to Amtrak, mainly for new trains on the Northeast Corridor. In the last few years there has been greater interest in the RRIF program from less traditional borrowers, namely sponsors of proposed privately owned and operated high-speed passenger rail projects. Federal financing of these sorts of projects may be more risky than usual because the applicants are seeking much larger amounts of money, the projects involve developing new markets for passenger rail travel, and, in some cases, the applicants may have no collateral or collateral of little value if the project does not succeed. One example is the proposal for a new, privately owned and operated high-speed intercity passenger rail service between the outskirts of Los Angeles (Victorville) and Las Vegas, a distance of about 185 miles. The private sponsors of this project, known as XpressWest, estimate its cost at $6.9 billion and have applied to borrow the majority of the funds from the RRIF program, with an additional $1.4 billion coming from private investors. In June 2013, according to a letter from the Secretary of Transportation to XpressWest, FRA suspended its review of the application, primarily it appears because XpressWest could not satisfy Buy America provisions that require iron, steel, and manufactured goods for a project financed with a RRIF loan be produced in the United States. In June 2016, XpressWest terminated its relationship with China Railway International U.S.A. Co. Ltd., which was to supply the trains, and said it intended "to renew our request for support from the Federal Railroad Administration." Another source of financing for surface transportation projects is state infrastructure banks (SIBs). Most of these were created in response to a program originally established by Congress in 1995 ( P.L. 104-59 ). According to a 2012 survey, 32 states had established a federally authorized SIB. Several states, among them California, Florida, Georgia, Kansas, Ohio, and Virginia, have SIBs that are unconnected to the federal program. Local governments have also begun to embrace the idea. For example, the City of Chicago has established a nonprofit organization, the Chicago Infrastructure Trust, as a way to attract private investment for public works projects, and Dauphin County, PA, has established an infrastructure bank to loan funds to the 40 municipalities within its borders and to private project sponsors. Funds for the loans are derived from a state tax on liquid fuels. As part of the federal transportation program, a state can use some of its share of federal surface transportation funds to capitalize an SIB. This authority lapsed at the end of FY2009, but was restored in the FAST Act though FY2020. The FAST Act also provides authority for a TIFIA loan to a state infrastructure bank (SIB) to capitalize a "rural project fund" within the bank. There are some requirements in federal law for SIBs connected with the federal program (23 U.S.C. §610), but for the most part their structure and administration are determined at the state level. Most SIBs are housed within a state department of transportation, but at least one (Missouri) was set up as a nonprofit corporation and another (South Carolina) is a separate state entity. Most SIBs function as revolving loan funds, in which money is directly loaned to project sponsors and its repayment with interest provides funds to make more loans. Some SIBs, such as those in Florida and South Carolina, have the authority to use their initial capital as security for issuing bonds to raise further money as a source of loans, with loan repayments then used to service the bonds. SIBs also typically offer project sponsors other types of credit assistance, such as letters of credit, lines of credit, and loan guarantees. In general, state infrastructure banks have not been significant participants in financing surface transportation projects. According to one survey, between 1995 and 2012 federal and nonfederal SIBs entered into about 1,100 agreements worth a total of $9 billion, an average of about $8 million per agreement. However, SIB activity has varied widely from state to state. Eight states—Pennsylvania, Ohio, California, Texas, Florida, Kansas, Missouri, and Arizona—account for three-quarters of SIB loans, and five states—South Carolina, Florida, Arizona, Texas, and California—account for three-quarters of the agreement value. The same survey found that 71% of the projects helped by SIBs were highway projects, which accounted for 88% of the value of all projects supported by SIBs. Aviation, water, transit, rail, and other types of projects accounted for the remaining activity. Several factors may explain the generally low level of activity of state infrastructure banks. It has been suggested that the capitalization of the banks has lagged because the federal funds that could be used have already been committed to traditional projects. Another suggestion is that there are relatively few small, local projects which have the ability to generate sufficient revenue to repay a loan. Tolling, for example, is often infeasible (due to low traffic volumes) or unpopular. Because projects funded by a federally authorized SIB must comply with federal regulations on matters such as environmental review and prevailing wages, project sponsors may decide it is cheaper and quicker to use funding from another source. Other concerns include how an SIB may affect a state's debt limit and credit rating, and also issues with creating an independent entity that can engage in off-budget financing. In some places, state law may inhibit the creation of an SIB. The budget impact of federal assistance for debt finance depends on several factors specific to the type of bond. In addition, the perspective of evaluation is important. For the federal government, if the intent of assistance is to encourage more investment in the selected activity, then the assistance must reduce the cost to the issuer (i.e., the borrower, typically a state or local government) below the next best alternative. Federal assistance for debt finance is typically of two varieties, a tax preference or credit assistance. A federal tax preference for debt finance is generally limited to the following tactics: (1) excluding interest paid from investor income and (2) providing a tax credit to investors or issuers. Federal credit assistance may consist of (1) federal guarantee of debt instrument and (2) direct loans from the federal government. The budget impact of these four mechanisms can be viewed in general terms along a continuum. Direct loans could confer a fairly significant incentive for borrowers, though the potential budget impact would depend on the level of risk of the selected projects. Loan guarantees would offer similar benefits to issuers, though the structure of the guarantee could limit the risk exposure of the federal government. For example, the federal guarantee could be limited to a portion of the principal borrowed, thereby reducing the federal financial responsibility in the event of default. The nature of credit assistance for capital projects, however, would be most attractive for projects that face the highest alternative financing costs. Generally, this means the riskiest projects would be the most likely applicants for federal credit assistance, in which case, a credit assistance program could be relatively expensive from a budget perspective. Use of tax preferences reduces federal government risk relative to credit assistance, but there can still be a significant revenue impact. Tax credit bonds, particularly those with a high credit rate and a long term to maturity, offer the largest subsidy for the issuer. Accordingly, these bonds would generate potentially the largest revenue loss. Tax-exempt bonds offer a significantly smaller subsidy to issuers, but unlike tax credit bonds, they also provide a tax preference for investors. When both the issuer and investor subsidies are taken together, the revenue loss from tax-exempt bonds can exceed the revenue loss associated with a tax credit bond with a low rate and limited term. The impact on the budget of the four debt finance alternatives presented here depends critically on the details of the specific proposal. Generally speaking, for a given amount of potential new capital investment, the largest potential impact would accompany direct loans. With direct loans, the federal government could potentially lose all proceeds loaned to the project. The potential budget impact of a tax-exempt bond subsidy, in contrast, is limited to the taxes that would have been collected on the interest payments on the debt. Tax credit bonds and tax-exempt bonds have often been used to encourage additional investment in selected sectors. As described earlier, public-sector debt finance is afforded unlimited access to tax-exempt bond financing for infrastructure projects under current law where generally applicable taxes (e.g., income taxes, sales taxes, and property taxes) are used to repay the debt. These are often called "revenue bonds." Governments have also acted as conduits for private-sector investment for a variety of projects delineated in the Internal Revenue Code. Nongovernmental issuers, such as nonprofit hospitals and other nonhospital, nonprofit entities, can also issue tax-exempt bonds. The Obama Administration's FY2017 budget includes a number of proposals offering preferential tax treatment for bond-financed infrastructure projects. The proposed America Fast Forward (AFF) Bond would be similar to the now expired BAB, but would offer a 28% direct payment to issuers, significantly less than the BAB program. In contrast to BABs, AFFs would also allow issuance by Section 501(c)(3) nonprofit entities and for all private activities subject to the state-by-state volume cap. The reduced credit amount of 28% might limit interest in the bonds by issuers, particularly in light of possible budget sequester in future fiscal years. BAB payments, as well as all other direct payments for tax credit bonds, were reduced by 6.8% in FY2016. The introduction of AFF bonds is estimated to reduce budget deficits by $3 million over the 2017-2026 budget window. The Administration's FY2017 budget proposal includes two provisions that would allow for an increase in the issuance of tax-exempt, qualified private activity bonds for transportation projects. Under current law, the use of tax-exempt, qualified private activity bonds for transportation projects is limited to a fixed $15 billion for the life of the program. The $15 billion is allocated to specific projects by the Secretary of Transportation. The Administration's FY2017 budget proposal includes a provision to increase this amount to $19 billion. Under current law, these bonds can be issued for "(1) any surface transportation project, (2) any project for an international bridge or tunnel for which an international entity authorized under Federal or State law is responsible, or (3) any facility for the transfer of freight from truck to rail or rail to truck." The Administration's FY2017 budget includes several other provisions that would likely expand the issuance of private activity bonds. Among them was a proposal to create a new category of private activity bonds referred to as qualified public infrastructure bonds (QPIBs). The proposed bonds could be used for certain privately owned infrastructure, including airports, docks and wharves, and mass commuting facilities. These provisions are projected to generate a revenue loss of $4.54 billion over the 2017 to 2026 budget window. Another option for Congress is to increase direct funding for or otherwise adjust the TIFIA and RRIF programs. The FAST Act cut direct funding to the TIFIA program, while allowing states to trade formula grant funding for a larger loan. At the moment states do not have to make that trade because the TIFIA program is not in danger of running out of budget authority. If the TIFIA program does exhaust its direct funding in the future, an unanswered question is whether states will voluntarily choose to use grant funding to pay the subsidy and administrative costs of a loan. The FAST Act made several changes to the TIFIA program to broaden the types of projects eligible for support. This included allowing support for transit oriented development (TOD) projects, and lowering the cost threshold for rural and local projects. To encourage smaller projects, the FAST Act also provided funding to pay the application fees of projects costing $75 million or less. Whether or not these changes will lead to more loans, an overall increase in credit assistance, and thus greater infrastructure investment, is a question that might determine the call for more changes in the future. The RRIF program has been little used over the years, most likely because borrowers have to pay the subsidy cost of credit assistance. This has changed recently due to major borrowing for publicly funded projects by MTA and Amtrak. Another project involving Amtrak, the Hudson River tunnels, has been mentioned as a possible recipient of a large loan. However, private freight railroads, the original focus of the RRIF program, have not borrowed to any great extent. Possibly the most effective way of increasing the use of the RRIF program by private as well as public borrowers would be to provide an appropriation to cover the subsidy cost. Another suggestion is to simplify the application process, particularly for smaller loans. TIFIA and PABs remain important supports for P3s in surface transportation. While the TIFIA program appears to have enough budget authority to make loans for the foreseeable future, there is concern that the $15 billion PAB cap might be reached in the near future, inhibiting P3s. Monitoring, and increasing if necessary, the availability of assistance from these programs is probably the most important task for supporters of P3s at the federal level. Congress also may want to monitor whether language in MAP-21 and the FAST Act to support P3s is achieving its goal of increasing private investment in infrastructure. P3 skeptics might seek to limit the use of federal financing to encourage the development of P3s or seek to build on the transparency requirements contained in the FAST Act. An idea suggested in the past is for an Office of Public Benefit in FHWA to "provide for the protection of the public interest in relation to highway toll projects and public-private partnership agreements on Federal-aid highways." Many different formulations of a national infrastructure bank have been proposed in Congress over the past few years. Proponents typically see such a bank as a way to provide low-cost, long-term loans, loan guarantees, and lines of credit on flexible terms to support infrastructure projects. Policy choices include the following: Infrastructure type . Some proposals focus on one type, such as transportation or energy, but most would support a wider spectrum of sectors. Institutional form and governance . Most current proposals would create a wholly owned government corporation governed by political appointees. But other models exist, including placing the bank inside an existing government department and creating a government-sponsored enterprise with an independent board. Funding source . Under the Federal Credit Reform Act of 1990, credit assistance by the bank would be supported by an appropriation that pays the subsidy and administrative costs. Assuming a 10% subsidy cost, every $1 appropriated beyond the amount of administrative costs would enable the bank to lend $10 to projects. Alternatively, a bank could operate as a revolving fund, such that credit assistance and administrative costs are limited to the size of the appropriation, but funds from repaid loans could be used to make new loans. In some formulations an infrastructure bank would raise its own capital through bond issuance. Most proposals would allow the bank to offset some of its costs by charging fees. Five infrastructure bank proposals have been introduced in the 114 th Congress. Each proposes a national infrastructure bank created as a wholly government-owned corporation, but with somewhat different governance, eligibility rules, and funding mechanisms ( Table 7 ). The Green Bank Act is not discussed here, as it limits support to energy projects. The Partnership to Build America Act of 2015 ( H.R. 413 ) would create the American Infrastructure Fund (AIF) with $50 billion of repatriated foreign earnings. The companies repatriating the earnings would receive tax benefits in return for investing a certain share of the earnings in 50-year bonds paying 1% interest. Infrastructure sectors eligible for loans and loan guarantees from the AIF would include transportation, energy, water, communications, and education. In addition, H.R. 413 would permit the AIF to make equity investments (i.e., an ownership stake) up to a maximum of 20% of project costs. The National Infrastructure Development Bank Act ( H.R. 3337 ) proposes to create the National Infrastructure Development Bank (NIDB) as a wholly owned government corporation. The NIDB would be authorized to aid transportation, energy, environmental, and telecommunications infrastructure projects. In addition to providing loans and loan guarantees, the NIDB would be permitted to subsidize the interest on a new type of taxable bond called an American Infrastructure Bond (AIB). AIBs could be issued by eligible infrastructure project sponsors. An amount equivalent to the federal taxes paid by AIB holders would be credited to the NDIB for assistance to other eligible infrastructure projects. The NIDB also would be capitalized with $25 billion from the general fund. The Building and Renewing Infrastructure for Development and Growth in Employment (BRIDGE) Act ( S. 1589 ) proposes to create the Infrastructure Financing Authority (IFA) as a wholly owned government corporation. The IFA would be authorized to provide loans and loan guarantees to sponsors of projects in transportation, energy, and water. Modifications to the list of eligible project types would be possible by a vote of five or more of the seven-member board of directors. The act authorizes an appropriation of $10 billion to capitalize the authority. The act also authorizes the collection of fees from applicants and for recipients of assistance to pay all or part of the federal government's subsidy cost. The act would create an Office of Technical and Rural Assistance within the IFA to identify and develop projects for financing in cooperation with project sponsors. At least 5% of the budget authority made available by the BRIDGE Act would have to be used to assist rural projects. The Build USA Act ( S. 1296 ) would establish the American Infrastructure Bank as a wholly owned government corporation. The bank would be authorized to make loans and loan guarantees to state and local governments for highway projects. The bank would be capitalized with taxes on repatriated foreign earnings, the issuance of its own bonds, and 10% of federal highway formula funds remitted voluntarily by states. The bank would be authorized to return the other 90% of the funds remitted by a state with different and possibly more flexible federal requirements than came with the original formula funds. Potential advantages of an infrastructure bank include the leveraging of state, local, and private-sector investment and data-driven project selection. Another potential advantage might be its ability to develop a staff specialized in infrastructure finance, although this might be possible in more traditional settings, as the Build America Bureau illustrates. Potential drawbacks of a national infrastructure bank include the limited number of suitable projects for support, politically driven project selection, and the duplication of existing programs, such as the TIFIA program. A bank may also not be the lowest-cost means of increasing infrastructure spending. The Congressional B udget Office notes that a special entity issuing its own debt would not be able to offer the low interest and issuance costs of the U.S. Treasury. One alternative to creating a national infrastructure bank could be enhancing the state infrastructure banks that already exist in many states. One of the biggest stumbling blocks to federally authorized SIBs has been capitalization. This is because federal grant funds that could be used to capitalize a SIB have typically been committed elsewhere. It is too soon to know if a FAST Act provision that provides authority for a TIFIA loan to a SIB will help in this regard. Other ideas that have been proposed but not enacted include dedicating federal funds to SIBs ( H.R. 7 , 112 th Congress) and authorizing SIBs to issue a type of tax credit bond ( S. 1250 , 113 th Congress). | Investment in surface transportation infrastructure is funded mainly with current receipts from taxes, tolls, and fares, but it is financed by public-sector borrowing and, in some cases, private borrowing and private equity investment. Financing is normally not arranged at the federal level, as the federal government builds few transportation projects directly. This report discusses current federal programs that support the use of debt finance and private investment to build and rebuild highways and public transportation. It also considers legislative options intended to encourage greater infrastructure financing in the future. The federal government's largest source of support for surface transportation infrastructure is the Highway Trust Fund (HTF), which is funded principally by taxes on gasoline and diesel fuel. Funds from the HTF are distributed to state governments and local transit agencies for projects meeting federal standards. State governments, local governments, and transit agencies must also contribute their own resources because grants from the HTF do not meet states' entire surface transportation capital needs. The federal government supports additional infrastructure spending by providing a tax exclusion for owners of municipal bonds, or "munis," issued by state and local governments. The federal government also supports project finance through loan programs, such as the Transportation Infrastructure Finance and Innovation Act (TIFIA) program and the Railroad Rehabilitation and Improvement Financing (RRIF) program, which can help leverage private investment via public-private partnerships (P3s), and through federally authorized state infrastructure banks (SIBs). All of these financing mechanisms impact the federal budget, although none are as costly as federal grant funding. With less federal support, financing places a greater burden on state and local governments to identify revenue sources to repay loans or to provide a return to private investors. In many cases, nonfederal revenue to finance a project is provided by a highway or bridge toll, but it could be a pledge of future sales tax or real estate tax revenue. There are many legislative options that Congress might consider in modifying the federal role in surface transportation financing. This report considers five: 1. Creation of a new type of bond offering federal tax credits to investors in infrastructure. 2. Changes to the TIFIA and RRIF programs. 3. Greater encouragement for P3s. 4. Creation of a national infrastructure bank to provide low-cost, long-term loans for infrastructure on flexible terms. 5. Enhancement of SIBs that already exist in many states, possibly with dedicated federal funding. |
Local and regional procurement (LRP) of food aid refers to the purchase of commodities for emergency food aid by donors in countries with food needs or in another country within the region. LRP is used extensively by the United Nations World Food Program (WFP) and has been proposed as a cost-effective, time-saving tool that the United States could use to meet emergency food needs. Food aid budget submissions in FY2006 through FY2009 included a proposal with suggested legislative language to authorize the Administrator of the U.S. Agency for International Development (USAID) to allocate up to 25% of the funds available for U.S. food aid (Title II of P.L. 480, or the Food for Peace Act) to local or regional purchase. The budget justification for this authority was that it would increase the timeliness and effectiveness of the U.S. response to overseas food aid needs by eliminating the need to transport the commodities by ocean carriers. Further, savings achieved in transportation and distribution costs could be made available for additional commodity purchases, thereby increasing the overall level of the U.S. response. House and Senate agriculture appropriators did not include this proposal in the annual funding bills. Congressional and other critics of the local purchase proposal maintain that allowing non-U.S. commodities to be purchased would result in undermining the coalition of commodity producers, agribusinesses, private voluntary organizations (PVOs), and shippers that participate in the food aid program and in reducing U.S. food aid. The previous Administration's 2008 farm bill proposal for food aid also called for authorizing the use of P.L. 480 Title II funds for LRP. This proposal also was not adopted. Instead, the 2008 farm bill ( P.L. 110-246 ) included a pilot project for LRP (discussed below). The fiscal 2010 budget proposal for P.L. 480 Title II does not mention using Title II funding for LRP. However, the President's FY2010 foreign affairs budget proposed, among other food-security-related items, that $300 million of International Disaster Assistance (IDA) funds be used for LRP, cash transfers, and cash vouchers to meet emergency food needs. Some of the issues that have been raised about LRP include the following: Could the United States respond to emergency food needs at lower cost and in a more timely manner if commodities were purchased in locations closer to where they were needed? Are there risks that could be associated with LRP that would make it a less-effective response to emergency food needs than provision of U.S. commodities? Could LRP contribute to agricultural development (increased production, productivity, development of markets) of low-income farmers in developing countries? Could LRP adversely affect agricultural development and make poor consumers more food insecure? Almost all U.S. food aid is provided in the form of U.S. commodity donations. P.L. 480, most recently amended by the 2008 farm bill and renamed the Food for Peace Act, authorizes the President, in Title II, to use U.S. agricultural commodities to meet emergency food needs and to provide nonemergency assistance. This statutory authority precludes the use of Title II funds for local and regional purchase in developing countries. In FY2008, the United States provided approximately $2.9 billion of U.S.-produced food aid to the WFP and to PVOs for emergency and non-emergency programs. Most recent analyses of U.S. commodity food aid acknowledge that U.S. commodities purchased and shipped from the United States as food aid have "assisted millions of hungry people over the past fifty years." At the same time critics of U.S. food aid policy argue that food aid could be provided more cost-effectively and in a more timely manner with LRP. The United States has used LRP to a limited extent. Section 491 of the Foreign Assistance Act authorizes the provision of international disaster assistance (IDA). Most IDA funds have been used to supply non-food emergency assistance (tents, blankets, latrines, medicines, and the like), but some have been used for LRP of food. This statutory authority has been used by the U.S. Agency for International Development (USAID) to provide funds to WFP and to PVOs for the local and regional purchase of emergency food aid. The Government Accountability Office (GAO) reports that, since 2000, IDA funds were tapped for about $200 million worth of locally or regionally procured emergency food aid. USAID's Office of Disaster Assistance (OFDA) and the State Department's Bureau for Population, Refugees and Migration use IDA funding to provide emergency food aid. The President's Emergency Plan for AIDS Relief (PEPFAR) also has legislative authority to provide locally or regionally purchased foods to people living with HIV/AIDS. While the United States is the world's largest food aid provider, other food aid donors, including the European Union (EU) and EU member countries, Canada, and Australia, among others, also provide food aid. The United States has continued to provide its food aid in the form of commodities, while other donors have moved to cash-based systems of providing food aid. The EU, the world's second-largest supplier of food aid, supplies almost all of its food aid in the form of cash. Most EU cash for food aid is allocated to the WFP. Individual EU member countries retain relatively small percentages of domestically procured food aid, but most of them also provide most of their food aid to the WFP (also some to PVOs) in the form of cash grants. In contrast to the United States, which has provided about a third of its commodity food aid for nonemergency or development projects, the EU has ceased to provide commodities to support development projects. Instead, the EU provides food security aid in the form of cash financing of food security projects. Canada, which is an important bilateral donor of food aid, provides all of its aid on a cash basis. Most of its cash contributions go to the WFP, but Canadian PVOs get some as well. The WFP and PVOs have been using donor funding to procure commodities in developing countries for more than 30 years. The WFP has had extensive experience with LRP. WFP's procurement policy is "to procure food in a manner that is cost-effective, timely and appropriate to beneficiary needs, encouraging procurement from developing countries to the extent possible." In 2008, WFP purchased more than $1 billion worth of commodities (2.1 million metric tons) worldwide, more than half of which were purchased in developing countries. WFP also depends heavily on U.S. commodity donations. In 2008, the United States donated $2.1 billion in U.S. commodities to the emergency operations of WFP. While WFP's procurements are generally large scale, the PVO's LRP activities are smaller in scale. One PVO, Catholic Relief Services (CRS), has provided some information about its LRP activities. CRS carried out LRP purchases during 2000-2008 in 20 developing countries. CRS purchased over $9.8 million worth of commodities (22,400 metric tons) in over 114 transactions. Purchases by CRS were financed with funds from private donations, the President's Emergency Fund for Aids Relief (PEPFAR), the Office of Foreign Disaster Assistance (OFDA), the McGovern-Dole International Food for Education and Child Nutrition Program, the Millennium Challenge Corporation, the Governments of Ireland and Germany, the World Bank, the Church of Jesus Christ of Latter Day Saints, and other PVOs, such as Caritas and Concern Universal. Evaluations of LRP have focused on the cost-effectiveness of LRP versus U.S. commodity donations and the timeliness of delivery of LRP versus overseas donations. The impact of LRP on development has been much less researched. Three recent reports—by the Government Accountability Office (GAO), Michigan State University (MSU), and the Organization for Economic Cooperation and Development (OECD)—examine issues with respect to LRP. The GAO report found that, for the most part, LRP was more cost-effective and arrived more quickly than U.S. in-kind donations. According to GAO, about 95% of WFP's local procurement in Sub-Saharan Africa cost about 34% less than the cost of similar food aid that USAID purchased and shipped from the United States to the same countries between 2001 and 2008. For Latin America, however, GAO found that the cost of LRP was comparable to the cost of U.S. in-kind food aid. GAO also found that delivery of WFP locally procured commodities was more timely than for U.S. in-kind donations. For example, in the case of Sub-Saharan Africa, delivery time for U.S. food aid was 147 days compared to 35 and 41 days, respectively, for locally and regionally procured food. Prepositioning of U.S. in-kind food aid in overseas locations, which the United States does to a limited extent, can also reduce delivery time. The MSU report found that there were cost savings when LRP was used instead of in-kind food aid. Using LRP rather than in-kind donations of maize (corn) in three Sub-Saharan African countries (Kenya, Uganda, and Zambia) over a five-year period saved nearly $68 million and allowed 75% more food aid to be provided to beneficiaries, according to the MSU report. The OECD study found that the cost savings of LRP relative to in-kind food aid are greatest for the two main commodities shipped to Sub-Saharan Africa (maize and corn/soy blend). The cost of locally procured maize and corn/soy blend (CSB) was 61% and 52%, respectively, that of in-kind food aid. Overall, the OECD study determined that the cost of in-kind food aid averaged 50% more than local food procurement and 33% more than regional food aid procurement. GAO identified factors that limit the efficiency of LRP. These include a lack of reliable suppliers, poor infrastructure and logistical capacity, weak legal systems, timing and restrictions on donor funding, and quality considerations. According to GAO, WFP has encountered problems in identifying reliable suppliers of food aid commodities; limited infrastructure (ports and transport) can delay delivery; weak legal systems could limit buyers' ability to enforce contracts and impose penalties; and late or inadequate donor funding can limit the ability of WFP to purchase food when and where needed. Some of these factors would apply as well to in-kind food aid donations. GAO also notes that food quality could be a problem and provided some examples. According to GAO, however, WFP has not analyzed whether quality issues are more severe for food procured locally or regionally versus food procured internationally. GAO also notes that LRP has potential for adversely affecting markets. This would be the case when LRP increases demand for food and drives up prices for consumers. Examples from 2003 are price hikes that occurred in Ethiopia and Uganda when WFP purchased local commodities for food aid. The antidote to adverse market impacts, GAO says, is improved intelligence on market prices, production levels and trade patterns. The MSU report also notes that any food aid operation entails risks. Risks associated with in-kind food aid are that it may reduce production and trade incentives and create dependency in receiving countries. For LRP, the MSU report distinguishes between first-order risks, which can be defined with precision and are relevant to managers of food aid transactions, and second-order risks, which are less precisely defined, are not specific to a particular transaction, and have consequences that are likely to be less serious or less easily established than those of first-order risks. The MSU report lists first-order risks as (1) LRP will push local prices above import parity or historical levels, (2) traders will default on tenders, and (3) locally or regionally procured food will fail to meet minimum safety standards. According to MSU, its analysis of WFP's LRP activities in Africa suggests that WFP has effectively managed default and food safety risks though pre-qualification of traders and by using contract conditions that penalize traders for default. In its study, published in 2006, unlike the 2009 GAO report, MSU found no instances of food safety breaches in WFP's procured food. MSU reports some evidence that LRP may have contributed to price surges in Uganda in 2003 and in Niger and Ethiopia in 2005/2006. This kind of market risk, MSU says, deserves more analysis. For second-order risks, MSU notes that these relate to medium- to long-term developmental effects of LRP, such as creating price instability or an unsustainable market, or artificially strengthening some traders at the expense of others. MSU's conclusion is that second-order risks can be effectively managed through careful selection of traders, competitive tenders, and proper contract specification. However, second-order risks will increase with the share of LRP in the market. With larger market shares for LRP, tendering and contracting procedures must be especially well designed and executed, according to the MSU report. The OECD study deals only with the cost-effectiveness of LRP. It does not address risks identified and discussed in the GAO and MSU reports. However, the OECD study points out that, based on its food aid study, "in most circumstances, financial aid rather than food aid in-kind is the preferable option.... (but) In many food deficit situations, local procurement is not always a feasible option.... [c]ontext-specific rationale is always required for relying on food aid in kind in preference to financial aid." GAO identifies U.S. cargo preference requirements as a possible constraint to U.S. implementation of LRP activities. Cargo preference legislation requires that up to 75% of the gross tonnage of agricultural foreign assistance cargo be transported on U.S. flag vessels. Cargo preference is strongly supported by the U.S. maritime industry and the Maritime Administration as needed to maintain and encourage a privately owned and operated U.S.-flag merchant marine that provides a ship base needed in wartime or other national emergencies and a cadre of skilled seafarers available in time of national emergencies. Various GAO reports have found that cargo preference can add to the cost of shipping U.S. food aid and that it may not be effective in meeting its aims with respect to the U.S. merchant marine. According to GAO's LRP study, there are differences of opinion about the extent of applicability of cargo preference requirements to LRP activities that might be funded by the U.S. government. According to GAO, cargo preference requirements could adversely affect potential cost savings and timeliness of food aid deliveries of LRP if locally or regionally procured commodities had to be shipped on U.S. flag vessels. GAO recommends that the agencies involved in implementing cargo preference—the Department of Transportation, USDA, and USAID—address the cargo preference issue through a renegotiation of the 1985 memorandum of understanding that delineates agency responsibility for implementing cargo preference requirements. The potential to involve smallholders and low-income producers in developing countries in LRP has not been extensively explored in the reports examined in this report (GAO, MSU, OECD). Those reports focused primarily on issues relating to the cost-effectiveness of LRP and the timeliness of deliveries. However, USAID LRP initiatives and the WFP's Purchase for Progress program have begun explorations of how low-income farmers in developing countries could participate in LRP efforts carried out by WFP or USAID. (USAID and P4P programs are discussed in the next section.) The 2008 farm bill ( P.L. 110-246 ) authorized the Secretary of Agriculture to implement a five-year local and regional food aid procurement pilot project in developing countries from FY2009 through FY2012 (Section 3206 of P.L. 110-246 , 7 U.S.C. 1726c). Funding of $60 million from the Commodity Credit Corporation (CCC) is being made available to carry out the program during FY2009-FY2012. The main objective of the USDA pilot program is to use LRP to quickly help meet food needs due to food crises and disasters. The first phase of the pilot was completed with a study of prior local and regional procurement. Subsequent phases of the project are to develop guidelines (FY2009), implement field-based projects (FY2009-FY2011), and conduct an independent evaluation (FY2011). All of the pilot program projects are to be completed by the end of FY2011, at which point USDA will contract for an independent evaluation. USDA published Interim Guidelines for the Local and Regional Food Aid Procurement Pilot Project in September 2009. The public comment period for the preliminary guidelines ended October 19, 2009. Information sessions for interested participants in the field-based pilot programs were held in October. The next step in implementing the LRP pilot program will be to publish a final version of guidelines and announce requests for proposals for field-based LRP projects. Separate from USDA's pilot LRP program, the FY2008 Supplemental Appropriations Act ( P.L. 110-252 ) provided USAID with $125 million—$75 million of international disaster assistance (IDA) and $50 million of development assistance (DA)—to implement LRP in developing countries. The funds will be available until expended. Disaster assistance funds are being devoted to meeting emergency food needs, while DA funds are being devoted to meeting urgent food security needs and strengthening staple food markets to support local and regional procurement. Disaster assistance-funded LRP will be evaluated in terms of general procurement information, timelines, impact on procurement market, and beneficiaries. DA-funded LRP will be evaluated as to how farmer organizations are enabled to participate in LRP; whether costs of moving goods from farm to market are reduced; how financial markets serve staple food value-chains; how commodity exchanges are strengthened; and how warehousing, communications, and finance systems are improved. The FY2010 Foreign Operations appropriations measure ( P.L. 111-117 ) calls for USAID to report on its implementation of LRP by September 2010. In 2008, WFP established its Purchase for Progress program (P4P). The P4P program aims to build on WFP's extensive experience with worldwide local and regional procurement to enable smallholders and low-income farmers in developing countries to supply food to WFP's global operations. While WFP's global LRP procurement activities stress cost saving and timeliness of delivery, the P4P program explicitly aims at enabling small farmers to be competitive players in the agricultural marketplace. P4P links farmers to WFP procurement operations and at the same time helps farmers to connect to other local and regional markets. The main approach is to purchase food aid commodities directly from farmers' associations using forward contracting and ensuring farmers get a fair payment for their produce. According to WFP, P4P will create incentives for farmers to develop their crop management skills; create an incentive for farmers to produce quality foods; create a market for the surplus crops of smallholders and low-income farmers; promote local processing of foods; and realign the way WFP buys food to better address the root causes of hunger. P4P is a five-year program with pilot projects in 21 countries. In the first year of activity (2008), P4P bought 40,000 metric tons of food. Over the five years of the program, 350,000 farmers are expected to benefit. The funding total is $76 million. Major funding sources are the Bill and Melinda Gates Foundation and the Howard Buffett Foundation. The United States has contributed $20 million to WFP for the P4P program. The P4P Technical Review Panel met at WFP headquarters in Rome in December 2009 to discuss challenges and implementation mechanisms from work done in 21 P4P countries during the first year. Among implementation challenges identified were defining commodity prices paid to smallholders in cases of forward contracting (where WFP commits to procure a certain amount of commodities at planting time). The challenge of forward contracting is to ensure a fair price without distorting or disrupting markets. Other implementation challenges discussed were risk mitigation mechanisms to prevent contract defaults and ensure that quality standards are met and ways to ensure that female farmers also benefit from the P4P project. Further work of the Technical Review Panel will be on measuring impacts of P4P on smallholder farmers, involvement of traders in P4P, and the replication of successful P4P experiences in ongoing local and regional procurement efforts undertaken by WFP. In the 111 th Congress, LRP was dealt with in appropriations bills and in proposed authorizing legislation in both the House and Senate. Bills under consideration would give the U.S. government the flexibility to use LRP in response to food emergencies without reducing the funds available for P.L. 480 Title II commodity donations. The President's FY2010 foreign affairs budget called for $300 million to be allocated to USAID's International Disaster Assistance (IDA) program to be used for LRP and the financing of cash transfers and cash vouchers to meet food security objectives. The House-passed Foreign Operations appropriations bill ( H.R. 3081 ) provided $200 million of IDA funding for these purposes. The Senate committee-reported bill ( S. 1434 ) directed that $1.5 billion of USAID development assistance be allocated to agricultural development and food security efforts, "including for local and regional purchase and distribution of food." The final Foreign Operations appropriations bill, folded into a consolidated measure ( H.R. 3288 , P.L. 111-117 ) discussed local and regional purchase of food aid commodities under the heading of International Disaster Assistance. The conference report ( H.Rept. 111-366 ) stipulates that "a significant portion of the funds available under this heading ($845 million) will support food assistance in fiscal 2010 and will be in addition to the $1.169 billion designated in this Act for food security and agricultural development." In separate House and Senate-passed agriculture appropriations bills ( H.R. 2997 ), funds for P.L. 480 Title II commodity donations increase from $1.2 billion in FY2009 to $1.7 billion in FY2010. S. 384 , the Global Food Security Act of 2009 (Lugar), was introduced in the Senate on February 5, 2009, and reported by the Senate Foreign Relations Committee on May 13, 2009 ( S.Rept. 111-19 ). H.R. 3077 (McCollum), the House companion bill to S. 384 , was introduced on June 26, 2009. Among other provisions, S. 384 and H.R. 3077 would authorize the President to provide assistance for unexpected urgent food needs and establish a Rapid Response to Food Crises Fund to carry out such a program. The proposed Food Crisis Fund is in addition, and complementary, to food aid provided under 2008 farm bill legislative authorities. The Rapid Response Fund would allow USAID to quickly engage at the onset of a crisis with the objective of preempting its escalation. The fund can be used for food and non-food assistance of an emergency nature; it is not for long-term support or development. Funds may be used for the local and regional purchase and distribution of food. Other food-security-related assistance, in the form of vouchers, cash transfers, safety net programs, or other appropriate assistance of an emergency nature, may also be provided. S. 384 and H.R. 3077 would authorize $500 million for the Emergency Rapid Response to Food Crises Fund that would remain available until expended. Disbursements from the account must be reported to the appropriate congressional committees not later than five days prior to providing the assistance. H.R. 2817 , introduced on June 11, 2009, includes an endorsement of a coordinated approach to addressing food security concerns—the Roadmap to End Global Hunger—that was developed by a group of 42 U.S. PVOs. The Roadmap proposal calls for allocating more than $50 billion to global food security initiatives over a five-year period. Included in the Roadmap proposals is an allocation of $7.4 billion for local and regional purchase of food aid commodities and other food security-related activities. In addition, the Roadmap proposal calls for $9.8 billion in food commodity donations over five years through P.L. 480 Title II. | Using federally appropriated funds to procure commodities for international food aid in countries with emergency needs or in nearby countries is a controversial issue. In budget submissions for FY2006-FY2009, the Bush Administration proposed allocating up to 25% of the funds available for U.S. food aid (Title II of P.L. 480, or the Food for Peace Act) to local or regional procurement (LRP) of food aid commodities. Each time Congress rejected the proposal. The Administration argued that LRP would increase the timeliness and effectiveness of the U.S. response to overseas food emergencies by eliminating the need to transport commodities by ocean carriers. Congressional and other critics of the local procurement proposal maintain that allowing non-U.S. commodities to be purchased would undermine the coalition of commodity groups, agribusinesses, private voluntary organizations, and shippers that participate in and support the U.S. food aid program and would reduce the volume of U.S. commodities provided as aid. The United States is alone in providing practically all of its international food aid in the form of its own commodities. U.S. food aid legislation precludes the provision of any but U.S. commodities to meet international food aid needs. The Foreign Assistance Act (P.L. 87-195), however, permits the use of some U.S. funds for LRP as part of the U.S. response to international disasters. The European Union provides almost all of its food aid via the United Nations World Food Program (WFP) in the form of cash; Canada's food aid also is cash-based. The WFP has been using donor funding to procure commodities locally or regionally in developing countries for more than 30 years. Several recent studies have evaluated the timeliness and cost-effectiveness of LRP versus commodity donations and conclude that LRP in Sub-Saharan Africa (SSA) costs substantially less than shipping food aid from the United States to Africa and that food aid delivery times are substantially shorter. The studies point to risks associated with LRP, including lack of reliable suppliers, poor infrastructure, weak legal systems, donor funding delays, and quality (i.e., food safety or nutrition) considerations, that could impede the efficiency of LRP. On the other hand, the studies suggest that risks associated with LRP are no greater than risks associated with in-kind donations and that they could likely be countered with better market intelligence and effective management of LRP activities. One study suggests that in many food deficit situations, LRP may not be a feasible option. Inadequate local supplies or adverse market effects on producers or consumers in a country or region could rule out using LRP. The U.S. Department of Agriculture has begun implementation of the pilot LRP program established in the 2008 farm bill (P.L. 110-246). Separately, the U.S. Agency for International Development is implementing LRP activities with funds appropriated in an FY2008 supplemental appropriations act (P.L. 110-252). In addition, the WFP has initiated a Purchase for Progress (P4P) program that will evaluate how small farmers in developing countries can participate in WFP procurement. The FY2010 Foreign Operations appropriation (P.L. 111-117) includes funds in international disaster assistance appropriations that could be used to fund LRP and food-security-related activities such as cash vouchers or cash transfers for purchasing food. In addition, P.L. 111-117 directs that $1.17 billion of development assistance be allocated to agricultural development and food security efforts. Proposed legislation, S. 384 and H.R. 3077, would authorize a $500 million appropriation, separate from P.L. 480 food aid, for responding rapidly to emergency food needs, including with LRP. The FY2010 Agriculture appropriations bill (P.L. 111-80) provides $1.7 billion to finance provision of U.S. commodities under P.L. 480. |
As required by the Social Security Act, a Medicare Board of Trustees oversees the financial operations of the two Medicare trust funds: the Hospital Insurance (HI) Trust Fund and the Supplementary Medical Insurance (SMI) Trust Fund. The HI Trust Fund covers Medicare Part A services, including hospital, home health, skilled nursing facility, and hospice care; the SMI Trust Fund covers Medicare Parts B and D, including physician and outpatient hospital services and outpatient prescription drugs. The two trust funds are statutorily separate, with all HI and SMI benefit expenditures paid out of their respective trust funds. The Medicare trustees are required to report annually to Congress on the financial and actuarial status of the funds. The primary source of financing for the HI Trust Fund is the payroll tax on covered earnings of current workers. Employers and employees each pay 1.45% of wages, and unlike the Social Security tax, there is no annual maximum limit on taxable earnings. Workers with annual wages over $200,000 for single tax filers or $250,000 for joint filers pay an additional 0.9%. Other sources of revenue for the HI Trust Fund include interest paid on the U.S. Treasury securities held in the HI Trust Fund, a portion of the federal income taxes that individuals pay on their Social Security benefits, and premiums paid by individuals who would otherwise not qualify for Medicare Part A. The SMI Trust Fund has different revenue sources. There are no payroll taxes collected for this fund, and enrollment in Medicare Parts B and D is voluntary. Individuals enrolled in Parts B and D must pay premiums, which cover about 25% of program costs. The other 75% of revenues for the SMI Trust Fund primarily comes from general revenue transfers. Other sources of revenue include interest paid on the U.S. Treasury securities held in the fund and Part D state transfers for Medicare beneficiaries who are also eligible for Medicaid (dual-eligibles). The 2018 report of the Medicare Board of Trustees estimates that by 2026, HI revenues and assets will no longer be sufficient to fully cover Part A costs and the fund will become insolvent. Because of the way it is financed, the SMI fund cannot face insolvency; however, the Medicare trustees project that SMI expenditures will continue to grow rapidly and thus place increasing strains on the federal budget. Because of concerns over the potential for growth in general revenue spending for Medicare over time, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA; P.L. 108-173 ) created a Medicare trigger that requires certain actions to be taken should general revenue funding be expected to exceed a certain proportion of total Medicare outlays within a certain number of years. Specifically, Section 801 of the MMA requires the Medicare trustees, beginning with their 2005 report, to examine and make a determination each year of whether general revenue funding is expected to exceed 45% of Medicare outlays for the current fiscal year or any of the following six fiscal years. An affirmative determination in two consecutive annual reports is considered to be a Medicare funding warning in the year in which the second report is made. If such a warning is issued, the MMA (Sections 802-804) specifies certain requirements and procedures for the President and Congress to follow related to the introduction and consideration of legislation designed to respond to the warning. There is, however, no requirement that legislation must be enacted and no automatic mechanism in place to sequester money. It is also important to note that either chamber may alter these procedures should a numerical majority choose to do so. Section 801 of the MMA defines the key measures and terms used in determining a Medicare funding warning. Excess general revenue Medicare funding occurs when general revenue Medicare funding divided by total Medicare outlays exceeds 45%. General revenue Medicare funding is defined as total Medicare outlays minus dedicated financing sources . Total Medicare outlays include total outlays from the HI and SMI Trust Funds. The law specifies that payments made to plans under Part C (Medicare Advantage, MA) for rebates, and administrative expenditures for carrying out Medicare, are to be included in the total. Fraud and abuse collections that are applied or deposited into a Medicare trust fund are to be deducted from the total. Dedicated revenue sources include the following: (1) HI payroll taxes; (2) amounts transferred to the Medicare trust funds from the Railroad Retirement pension fund; (3) income from taxation of certain Social Security benefits which is credited to the HI Trust Fund; (4) state transfers for the state share of amounts paid to the federal government for dual-eligible beneficiaries enrolled in Part D; (5) Medicare premiums paid under Parts A (HI), B (SMI) and D (SMI) of Medicare—including any amounts paid as a result of late enrollment penalties (without taking into account reductions in premiums as a result of rebates received by beneficiaries enrolled in MA plans); and (6) any gifts received by the trust funds. Interest earned on the trust fund is excluded from dedicated sources. A Medicare funding warning is triggered when two consecutive Medicare trustees' reports contain projections that general revenue Medicare funding will exceed 45% of total Medicare outlays at some point during the next seven years (this includes the current and six subsequent fiscal years). The Medicare trustees first made a determination of excess general revenue Medicare funding in their 2006 report and did so in each report through 2013. As two consecutive such determinations trigger a funding warning, funding warnings were issued each year from 2007 through 2013. The 2013 report was the eighth consecutive time that the threshold was estimated to be exceeded within the first seven years of the projection, and it was the seventh time that a Medicare funding warning was triggered. However, the Medicare Trustees Reports issued in 2014, 2015, and 2016, projected that Medicare general revenue funding would not exceed 45% of total Medicare outlays within the next seven years. Therefore, the Medicare trustees did not issue determinations of excess general revenues and funding warnings were not triggered in those years. No response was required of the President or Congress in 2015, 2016, 2017, or 2018. Specifically, in their 2014 and 2015 reports, the Medicare trustees projected that the expected higher tax income and lower outlays due to provisions in the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 ) and other legislation would result in general revenue funding remaining below the 45% threshold over the next seven years. For similar reasons, as well as a recent slowing in Medicare spending, the Medicare trustees estimated in their 2016 report that general revenue funding would remain below the 45% threshold through FY2022. In their 2017 report, however, the Medicare trustees projected that general revenues would exceed the 45% threshold in FY2023, within the seven-year projection window. Therefore, the trustees issued a determination of excess general revenue Medicare funding. Similarly, in their 2018 report, the trustees estimated that general revenues would exceed the 45% threshold in FY2022 (at the end of CY2021), also within the seven-year projection window, and thus issued a determination of excess general revenue Medicare funding (see Figure 1 ). Because such a determination was made in two consecutive years, a funding warning has been triggered and a legislative response by the President will be required subsequent to the release of his FY2020 budget (in 2019). The Medicare trustees project that by the end of CY2021, the ratio of dedicated funding to outlays will exceed 45%, grow to almost 54% by 2042, and decline to about 51% by the end of the 75-year projection period, in 2092. In years in which the Medicare trustees issue a Medicare funding warning, the President is required to submit to Congress proposed legislation that "respond[s] to such warning." Although the precise contents of the proposal remain within the President's discretion, Section 802 of the MMA requires that the proposal be submitted within 15 days of submitting a budget for the succeeding year. The requirement that the President submit proposed legislation in response to a funding warning does not apply, however, if, "during the year in which the warning is made," Congress enacts legislation to eliminate excess general revenue Medicare funding for the seven-fiscal year reporting period, as certified by the Medicare trustees within 30 days of the legislation's enactment. The executive branch has generally taken the position that, under the Constitution's Recommendation Clause, Congress cannot compel the President, or executive branch officials, to submit legislative proposals directly to Congress. These objections have been registered in numerous presidential signing statements and Department of Justice, Office of Legal Counsel opinions, and have repeatedly been asserted in litigation. For example, upon signing the MMA on December 8, 2003, President George W. Bush issued a signing statement registering his constitutional objections to Section 802's requirement that the President submit proposed legislation to Congress in response to a Medicare funding warning. Specifically, President Bush noted that his Administration would construe Section 802 "in a manner consistent with the President's constitutional authority to supervise the unitary executive branch and to recommend for the consideration of the Congress such measures as the President judges necessary and expedient." Similarly, the Obama Administration considered "the requirement to submit legislation in response to the Medicare funding warning to be advisory and not binding, in accordance with the Recommendations Clause of the Constitution." Notwithstanding his objections to Section 802, President Bush submitted legislation in 2008 responding to the Medicare trustees' 2007 funding warning. No action was taken on the President's proposal. Although the Medicare trustees issued warnings each year from 2007 through 2013, no additional legislative proposals have been submitted to Congress pursuant to Section 802. Since the Medicare trustees did not issue funding warnings in their 2014, 2015, 2016, or 2017 reports, the President was not required to submit related legislation subsequent to the submission of his FY2015 through FY2019 budgets. However, as the Medicare trustees issued a funding warning in their 2018 report, the MMA provides that the President will be required to submit a responsive legislative proposal after the release of his FY2020 budget. The Recommendation Clause provides that the President "shall from time to time give to the Congress Information of the state of the Union, and recommend to their Consideration such Measures as he shall judge necessary and expedient." Courts have rarely been presented with the opportunity to interpret the scope of this clause. However, the text of the clause, read in conjunction with analogous case law, does not appear to support an interpretation that would prevent Congress from directing the President to submit legislative recommendations. The clause is perhaps most accurately characterized as establishing a right as opposed to a substantive source of authority —ensuring that the President may submit directly to Congress legislative proposals that he views as "necessary and expedient." Thus, this right would appear only to be infringed where Congress prevents the President from submitting his own legislative proposal or attempts to dictate the contents of a required legislative proposal. Under this reading, it is unlikely that Congress imposes an excessive burden on the President where it merely directs the President to submit a proposal, the contents of which remain within the President's discretion, in response to a specific trigger. Whereas the Department of Justice may assert that "any bill purporting to require the submission of recommendations is unconstitutional," no judicial decision has accepted such a broad proposition. In any year in which the MMA requires the President to submit draft Medicare funding legislation, the act directs that in each chamber, within three days of session after the proposal is received, the two floor leaders (or their designees) introduce a bill reflecting it, with the title "A bill to respond to a Medicare funding warning." This measure, or, under certain circumstances, an alternative Medicare funding measure, is potentially subject to consideration under fast track rules established by the statute, rather than under the regular rules and procedures that govern consideration of legislation in the two chambers. These expedited procedures place limits on committee consideration, as well as potentially on Members' ability to debate and amend legislation on the floor and to offer certain motions that would otherwise be in order. These procedures are designed to guarantee that each house will have an opportunity to consider legislation to respond to the funding warning. They do not guarantee, however, that (1) the President's specific proposal will be the one considered or (2) Congress will pass legislation to lower general revenue spending below the trigger amount. As noted above, either chamber may alter these procedures should a numerical majority choose to do so. The following description of the procedures and activities for the House thus serves as reference of how the procedures would otherwise work in the House. In response to President Bush's legislative proposal submitted on February 14, 2008, the House and the Senate both introduced a bill ( H.R. 5480 and S. 2662 respectively) on February 25, 2008. On July 24, 2008, the House of Representatives adopted H.Res. 1368 , a resolution providing that the expedited parliamentary procedures contained in Section 803 of the MMA would not apply in the House during the remainder of the 110 th Congress. Similar action was taken by the House on January 6, 2009, when it approved a rules package ( H.Res. 5 ) that nullified the trigger provision for the 111 th Congress. No action to waive these rules has been taken in subsequent Congresses. In any year in which the MMA requires the President to submit draft Medicare funding legislation, the committee(s) of referral must report Medicare funding legislation by June 30. For this purpose, any other bill with the same title as required for the President's proposal also qualifies as Medicare funding legislation, and the requirement to report legislation to address the Medicare funding warning applies whether or not the President has submitted a proposal. As a result, the committee may choose to report some other Medicare funding measure rather than that of the President. The chairman of the House Committee on the Budget is responsible for certifying whether or not any Medicare funding legislation (or any subsequent amendments to it) would eliminate the excess general revenue Medicare funding. Whether or not the reported measure is affirmatively certified as responding to the funding warning, the House may consider that measure under its regular procedures. However, if the House has not voted on final passage of an affirmatively certified measure by July 30, then after 30 more calendar days, including 5 days of session, any Member may offer a highly privileged motion to discharge a committee from further consideration of any Medicare funding legislation of which he or she is in favor, but only if it has been in committee for 30 days, and is affirmatively certified. The MMA describes these procedures as a fallback , in that they apply only if the House has not already voted on legislation affirmatively certified to respond to the funding warning (regardless of whether that legislation passed or not). In addition, once the House agrees to one such motion to discharge, the motion is no longer in order during that session of Congress. A motion to discharge made under this "fallback" provision must be made by a supporter, seconded by one-fifth of the House's membership (a quorum being present), and is debatable for one hour. If the House adopts the motion to discharge, the Speaker must, within three days of session thereafter, resolve the House into Committee of the Whole for consideration of the legislation. Debate on the measure is not to exceed 5 hours, and only amendments that have the affirmative certification of the Committee on the Budget are admitted. Debate on any amendment is not to exceed 1 hour, and the total time for consideration of all amendments is capped at 10 hours. At the conclusion of consideration, the committee rises and reports the legislation back to the House for a final dispositive vote. A motion to recommit the measure with or without instructions is not precluded. The statutory procedures provided in the Senate for Medicare funding legislation apply to a bill reflecting a presidential proposal pursuant to the MMA or to any other bill with the same title that either (1) was passed by the House or (2) contains matter within the jurisdiction of the Senate Committee on Finance (Finance Committee). A measure reflecting the President's proposal is to be referred to the Finance Committee. In a year in which the MMA requires the President to submit Medicare funding legislation, and whether or not he does so, if the Finance Committee has not reported the bill reflecting the President's proposal or some other Medicare funding legislation by June 30, then any Senator may move to discharge that committee from any single Medicare funding measure. Only one such motion to discharge is in order during a session of Congress. Debate on the motion to discharge is limited to two hours, a restriction which ensures that a vote on the motion cannot be prevented by a filibuster. In combination, these provisions afford the Senate only one assured opportunity to consider Medicare funding legislation, which will be either the measure the Finance Committee reports or the one specified in the discharge motion. In either case, the legislation the Senate will have the opportunity to consider may or may not be the one that embodies the President's proposal. After the date on which the Finance Committee has reported or been discharged from further consideration of Medicare funding legislation, it is in order for any Senator to move to proceed to consideration of the bill. The MMA does not explicitly make this motion non-debatable, although Senate precedent exists for treating as non-debatable a motion to proceed to consider a measure under procedures specified by statute. In the absence of such a limitation, it might be possible for opponents to use a filibuster to prevent this motion from coming to a vote. In any case, because the MMA establishes no further requirements regarding consideration, if the motion to proceed is agreed to, the Senate would consider the measure under its general rules. The statute, then, does not preclude a filibuster of the measure. Nor, if the House and Senate both pass a bill, does the act make any provision to expedite the resolution by conference committee or otherwise of differences between the two versions of Medicare funding legislation. As noted earlier, the Medicare HI and SMI Trust Funds are statutorily independent; this means that any funds raised for one fund cannot be used to pay expenses out of the other. However, the formula used to determine excess general revenue Medicare funding combines revenue streams from both the HI and SMI Trust Funds. Because of the way that the trigger formula is structured, the various methods that could be used to reduce the general revenue Medicare funding percentage would not necessarily reduce federal general revenue outlays (used to finance Parts B and D) or reduce the percentage in direct proportion to reductions in total spending. Specifically, to reduce the percentage, one could increase dedicated financing (e.g., payroll taxes or premiums) or reduce outlays (HI and/or SMI spending), or some combination of the two. In the example presented in Table 1 below, applying FY2012 CBO estimates to the equation shown in the " The Medicare Trigger " section of this report, the total expected outlays of $585.0 billion and $289.3 billion in dedicated revenues results in a level of general revenue funding of about 50.5%. Given this scenario, one option to reduce the general revenue percentage to 45% would be to increase payroll taxes by an amount sufficient to raise an additional $32.5 billion in dedicated revenues. Another option would be to decrease total outlays by reducing Part A (HI Trust Fund) spending. However, because the total Medicare outlays measure is included in both the top and bottom parts of the mathematical formula (i.e., the denominator as well as the numerator is reduced), a reduction in outlays would have less of an effect than an increase in dedicated revenues on the percentage of general revenue funding. Therefore a reduction of $59.0 billion in Part A funding would be needed to reduce general revenue funding to 45% (in contrast to the $32.5 billion increase in taxes). While the above options of increasing the payroll tax or lowering Part A spending would eliminate excess general revenue Medicare funding as defined under the Medicare trigger, these options would have no impact on actual federal general revenue spending (used to finance Parts B and D outlays) because Part A is primarily funded through payroll taxes. Similarly, continuing with the examples in Table 1 , one could reach the 45% general revenue spending level by increasing beneficiaries' Part B premiums by a percentage that would increase dedicated revenues by $32.5 billion. Although total Medicare outlays would remain the same, the general revenue percentage as defined by the trigger calculation and the level of Medicare spending financed through federal general revenues would both decline under this scenario. Alternatively, Part B outlays could be reduced. However, because approximately 25% of SMI spending is financed by premiums, income from premiums (which are calculated based on expected outlays) would also be reduced under this option (i.e., a reduction in Part B outlays would be partially offset by a reduction in dedicated revenues). Therefore, greater spending reductions would be needed under Part B than under Part A to achieve the same amount of reduction in the general revenue funding percentage. In this example, a reduction in Part B outlays of $108.2 billion would be needed to bring down the level of general revenue funding to 45%. Excess general revenue Medicare funding is one measure that can be used to depict the financial status of the Medicare program. Other measures, discussed in CRS Report R43122, Medicare Financial Status: In Brief include the date of HI insolvency, HI income and costs relative to payroll taxes, long-term unfunded obligations, and Medicare costs as a percentage of GDP. Proponents of the 45% threshold measurement believe that it can serve as an effective early warning system of the impact of Medicare spending on the federal budget, and that it forces fiscal responsibility. Opponents of the measure suggest that it does not adequately recognize a shift toward the provision of more services on an outpatient basis (thus shifting spending from Medicare Part A to Part B) or the impact of the Part D program on general revenue increases, and that other measures such as Medicare spending as a portion of total federal spending, are better ways to determine the health of the Medicare program. | The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA; P.L. 108-173) requires the Medicare Board of Trustees to provide in its annual reports an expanded analysis of Medicare expenditures and revenues (Section 801 of the MMA). If the Medicare trustees determine that general revenue funding for Medicare is expected to exceed 45% of Medicare outlays for the current fiscal year or any of the next six fiscal years, a determination of excess general revenue Medicare funding is made. If the determination is issued for two consecutive years, a funding warning is issued which triggers certain presidential and congressional actions (Sections 802-804 of the MMA). Specifically, in the event of a funding warning, the President would be required to submit to Congress proposed legislation to respond to the funding warning within 15 days of submitting a budget for the succeeding year, and Congress would then be required to consider that legislation on an expedited basis. Because a determination of excess general revenue Medicare funding was issued in both the 2006 and the 2007 Medicare trustees' reports, the President was required to submit a legislative proposal to Congress within 15 days of submitting his FY2009 budget (in 2008) that would lower the ratio to the 45% level. Similarly, each of the subsequent annual reports of the Boards of Trustees through 2013 included an estimate that general revenue funding would exceed 45% at some point during the current or six subsequent fiscal years, thus triggering a response from the President and Congress. President George W. Bush submitted such a proposal in 2008, but no related legislation has been enacted. In each of their 2014 through 2016 reports, the Medicare trustees projected that general revenue Medicare funding would not exceed 45% of total Medicare outlays within seven fiscal years. Therefore, the Medicare trustees did not issue funding warnings in those years, and the President was not required to submit related legislative proposals subsequent to the release of the FY2015 through FY2019 budgets. However, in both their 2017 and 2018 reports, the Medicare trustees issued a determination of projected excess general revenue Medicare funding. Because such a determination was made in two consecutive years, a funding warning has been triggered and the MMA provides that the President will be required to submit a responsive legislative proposal after the release of his FY2020 budget (in 2019). The Medicare funding warning focuses attention on the impact of program spending on the federal budget, and it provides one measure of the financial health of the program. However, some options for reducing general revenue spending below the 45% level would have a greater impact than others. Proponents of the trigger maintain that it forces fiscal responsibility, whereas critics of the trigger suggest that other measures of Medicare spending, such as total Medicare spending as a portion of federal spending, would be more useful indicators. |
Federal programs intended to help poor and low-income people are of ongoing interest to Congress. The federal government spends billions of dollars annually on a wide range of low-income benefits and services and lawmakers routinely conduct oversight and consider legislation related to these programs. Deliberations typically focus on individual programs or their overarching authorizing laws. However, Members and staff also look at low-income policy broadly and have questions about low-income programs and spending in the aggregate . For example, how much does the federal government spend altogether each year on programs specifically intended for low-income people? How has this spending changed over time? How is spending allocated among various categories of low-income benefits and services? These questions may appear straightforward but their answers are complex. This is the third in a series of CRS reports that address these questions. The first task—seemingly simple but in fact highly challenging—was to identify which federal activities can be characterized as "low-income" programs; that is, programs that are not intended to be universal but that specifically target benefits or services toward low-income people or communities. A second task was to identify a consistent and reliable source of spending data, so that dollar amounts for individual programs could be meaningfully combined and compared. Finally, programs were grouped into categories (e.g., health care, cash aid, food assistance, etc.), a relatively straightforward process for most programs but more complicated for those with multiple purposes. Appendix A explains how CRS addressed these challenges. This report focuses primarily on spending trends, both overall and by category. The report includes some limited programmatic details; however, previous versions provide more extensive information on the specifics of each program included in the spending totals. The report begins with a discussion of aggregate trends in low-income spending from FY2008 through FY2015. It then looks at trends by category and in the 10 largest low-income programs (which now comprise more than 80% of total low-income spending). Medicaid is the single largest program discussed in the report, and health care is the largest category (due to the size of Medicaid). The report briefly discusses the dominance of health care and explains the decision not to include spending for premium credits and cost-sharing subsidies under the ACA. The report continues with a description of trends in spending for non-health low-income programs, both overall and by category. A series of appendices explains the methodology used for the report ( Appendix A ), provides spending and limited information for each of the programs included ( Appendix B ), and identifies additional reports that might be of interest ( Appendix C ). Key findings appear in the Summary, immediately before the table of contents. To draw accurate conclusions from the information in this report, readers should know the following: Programs included here are not social insurance . That term refers to programs intended to insure Americans against the loss of wages and work-related benefits due to retirement, disability, or temporary unemployment (e.g., Social Security, Medicare, Unemployment Insurance). Social insurance benefits are generally entitlements earned through work, financed largely through contributions from employers and employees. Social insurance plays a key antipoverty role but its benefits are meant to be universal and not restricted to those with low incomes. Programs in this report cannot be collectively characterized as welfare . Welfare is typically thought of as government assistance to help poor people pay for necessities such as food, shelter, and medical care. As defined in this report, low-income programs are much broader, including in-kind benefits and such activities as education, social services, and community development, among others. While most of the largest programs in this report are open-ended entitlements , which entitle all eligible people to be served, the overwhelming majority are discretionary and serve only a portion of the potentially eligible population, subject to the availability of appropriations. Key target populations for low-income programs, including most of the largest, are the elderly , disabled , and families with children . A separate CRS analysis found that two groups—families with children and families with a disabled member—accounted for 78% of the dollars received in FY2012 from nine large low-income programs. Other target populations for programs included here are veterans, students, homeless people, refugees, and Indians. Low-income does not necessarily mean poor , as the federal government officially defines that term. Programs in this report use a variety of criteria to determine eligibility, including multiples of the official federal poverty guidelines and other measures altogether. Some programs target assistance toward low-income communities, with no income eligibility test for participating individuals. However, again looking at nine large programs in FY2012, CRS found that both the likelihood of benefit receipt and the amount of benefits received were highest among households with the lowest incomes. While this report discusses trends in federal spending, a significant amount of non-federal spending (primarily state and local) is also associated with some of the programs included here. Thus, amounts discussed do not reflect all public spending for low-income programs. Unless noted otherwise, all spending amounts cited in this report are nominal dollars and not adjusted for inflation. The following sections discuss trends in federal low-income spending overall, by category, and for the 10 largest programs. As noted above, "low-income" spending is defined here to include spending only for programs that are explicitly targeted on people or communities with low incomes. In general, spending refers to obligations (as explained in Appendix A ). The eight-year period under review—FY2008 through FY2015—starts just before the "Great Recession" of 2007-2009. The national unemployment rate stood at 4.7% in the first month of this period and more than doubled two years later, reaching a peak of 10% in October 2009. The rate then gradually declined and by the last month of the period under review, September 2015, unemployment was down to 5.1%. The poverty rate also increased from 2008 (13.2%) and peaked in 2010 (15.1%). However, unlike the unemployment rate, poverty declined only slightly from its peak and remained at 14.8% in 2014 (most recent year for which data are available). Federal spending for low-income programs totaled $561 billion in FY2008 and spiked to $707 billion the following year, as the recession took hold. The American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ) responded to the economic downturn with an infusion of cash and contributed nearly 60% of the increased spending on low-income programs between FY2008 and FY2009 (see Figure 1 ). Low-income program caseloads also grew during that period as unemployment rose and incomes declined, making more people eligible for low-income benefits. Federal low-income spending continued to grow and eventually peaked at $764 billion in FY2011. It fell to $724 billion in FY2012 but never returned to pre-recession levels, and it ticked up again in FY2013 ($744 billion). Spending rose sharply in both FY2014 ($794 billion) and FY2015 ($848 billion), largely due to the Medicaid expansion included in the Patient Protection and Affordable Care Act (ACA, P.L. 111-148 , as amended), which took effect in FY2014. Overall, spending on low-income programs in nominal dollars was 51% higher in FY2015 than in FY2008. FY2015 spending was 11% higher than the initial post-recession peak in FY2011, and it was almost 14% higher than in FY2013 just before the ACA Medicaid expansion took effect (see Table 1 ). Health care dominates federal spending for low-income programs, accounting for nearly half of such spending each year from FY2008 through FY2014 and more than half (52%) in FY2015 (see Table 2 ). Given its size, health care spending largely drives the pattern for low-income spending overall; however, the pattern is not necessarily the same in all eight years for all other categories of benefits and services (see Figure 2 ). As shown in Table 1 , spending for low-income health programs totaled $259 billion in FY2008 and jumped to $319 billion the following year. Health care spending initially peaked in FY2011 at $352 billion and dropped to $328 billion in FY2012. However, spending in this category resumed its upward climb the next year and eventually reached $444 billion in FY2015. Cash aid trails far behind health care but has consistently been the second largest category of spending during the years covered in this report, rising steadily (except for a one-year drop in FY2012) from $116 billion in FY2008 to $155 billion in FY2015. However, the share of low-income spending devoted to cash aid in FY2015 (18%) was down slightly from most previous years, when it hovered at or near 20%. The third largest category—food assistance—totaled $103 billion in FY2015, just below its FY2013 peak of $107 billion but significantly higher than its pre-recession level of $59 billion in FY2008. As a share of all low-income spending, food assistance accounted for 12% in FY2015, up from 10.5% in FY2008 but below its peak share of 14.5% in FY2012. Both in dollar size and as a percentage of all low-income spending, the five remaining categories are dwarfed by the three largest (see Figure 3 ). While obligations for each of these categories were higher in FY2015 than in FY2008, they all saw even higher spending levels in some of the intervening years, primarily as a result of ARRA. Moreover, each of the bottom five categories consumed a smaller share of total low-income spending in FY2015 than in FY2008. It is noteworthy that total federal obligations for low-income programs ticked upward in FY2013, which was the first year affected by sequestration under the Budget Control Act of 2011 (BCA, P.L. 112-25 ). Many of the large mandatory low-income programs are exempt from sequestration and tend to be in the top three categories (health care, cash aid, and food assistance), which all saw increased spending between FY2012 and FY2013. However, the bottom five categories largely include programs that are discretionary and more likely to be reduced by sequestration. In fact, these categories all saw somewhat lower spending in FY2013. (See " The Dominance of Health Care " for additional discussion of health care spending and " Trends in Non-health Care Low-Income Spending, FY2008-FY2015 " for discussion of the other categories.) This report covers a large number of programs within the categories shown above. It is important to note that only a few programs account for the vast majority of federal low-income spending (see Figure 4 ) and the dominance of these programs is growing. In FY2015, the four largest programs accounted for 68% of all low-income obligations, up from 61% in FY2008; the top 10 programs comprised nearly 83% in FY2015, compared to more than 78% in FY2008. The single largest program—Medicaid—alone accounted for almost 45% of all low-income spending in FY2015, an increase from 38% in FY2008 (see Table 3 ). Medicaid spending spiked between FY2008 and FY2009, growing by almost 24% that year alone. More people had become eligible for Medicaid as a result of the economic downturn, and the economic stimulus law (ARRA) temporarily increased the federal share of state Medicaid expenditures. Medicaid spending continued to climb in both FY2010 and FY2011 but dropped in FY2012 as the enhanced federal matching rate under ARRA was phased out. Most recently, the ACA gave states the option of expanding Medicaid to a broader population with a higher federal matching rate, and spending subsequently rose sharply in both FY2014 and FY2015. Federal Medicaid obligations in FY2015 totaled $379 billion, a 77% increase from FY2008 ($214 billion). The Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) is the second largest program discussed in this report and saw the largest growth rate of any of the top 10 programs; SNAP nearly doubled in size from FY2008 ($38 billion) to FY2015 ($74 billion). The recession of 2007-2009 brought new applicants to the program, and ARRA temporarily expanded SNAP benefits. SNAP spending peaked in FY2013 at almost $80 billion. Supplemental Security Income (SSI) is the third largest program included here. SSI grew by almost 27% during the period under review, with spending of $62 billion in FY2015 compared to $49 billion in FY2008. However, among the four largest low-income programs SSI saw the slowest rate of growth over the FY2008-FY2015 period. Rounding out the top four programs is the Earned Income Tax Credit (EITC), which grew by almost 48% between FY2008 ($41 billion) and FY2015 ($60 billion). ARRA included two temporary expansions of the EITC (i.e., a larger credit for families with three or more children, and an increase in the income level at which benefits phase out for married couples with children). These expansions were extended several times after ARRA and made permanent in December 2015 ( P.L. 114-113 ). The next four programs in the top 10 begin with Pell Grants, which grew by 56% between FY2008 ($18 billion) and FY2015 ($28 billion). However, obligations for Pell Grants actually peaked in FY2011 at $42 billion and subsequently declined to the FY2015 level. ARRA provided short-term supplemental funding for Pell Grants in FY2009 and FY2010, and significant programmatic changes were enacted over the years that affected the size of the program. The next programs, in descending size based on FY2015 obligations, are the Medicare Part D low-income drug subsidy, which rose steadily over the period and was 43% larger in FY2015 ($26 billion) than in FY2008 ($17 billion); the Additional Child Tax Credit (ACTC), which saw spending grow by 23% over the period, from $17 billion in FY2008 to $21 billion in FY2015 (although ACTC spending actually peaked in FY2009 at $24 billion); and Section 8 Housing Choice Vouchers, which grew by 24% (from $16 billion in FY2008 to $19 billion in FY2015). The final two programs in the top 10 are Temporary Assistance for Needy Families (TANF) and Education for the Disadvantaged Grants to Local Educational Agencies (Title I-A of the Elementary and Secondary Education Act). TANF is the only one of the top 10 programs for which spending declined by the end of the FY2008-FY2015 period; in nominal dollars, TANF obligations declined from $17.5 billion to $17.4 billion. TANF spending was highest in FY2009 and FY2010 ($19 billion and $22 billion, respectively) as a result of additional funds provided through ARRA for basic assistance, emergency aid, and employment-related activities under TANF. Title I-A education grants grew from $13 billion in FY2008 to $14 billion in FY2015. This program also saw a short-term spike in funding as a result of ARRA, and totaled $21.5 billion in FY2009. Among the 10 largest programs, seven are funded by mandatory spending. Of those seven, all but one are open-ended entitlements to individuals, which means their spending levels are determined by how many people are eligible and apply for the program, regardless of the number, rather than a fixed amount that is specified for the program and then apportioned among participants. One mandatory program—TANF—is a capped entitlement to states (rather than to individuals), which means that states are entitled to receive a fixed amount each year that is established in the authorizing law. The remaining three programs are discretionary, with funding determined annually by Congress through the appropriations process. Table 4 provides an overview of key features of each of the 10 largest programs. Health care dominates federal low-income spending, as shown. This category consumed about 45%-46% of all low-income spending from FY2008 through FY2013, and its share jumped to 49% in FY2014 and 52% in FY2015. Almost two-thirds (65%) of all new low-income spending between FY2008 and FY2015 was for health care. However, one single program—Medicaid—explains the dominance of the health care category; Medicaid comprised almost 83% of low-income health spending in FY2008 and 85% in FY2015. In addition to Medicaid, only one other health care program is included among the 10 largest examined in this report. That program is the Medicare Part D low-income drug subsidy, which is the 6 th largest program but a fraction (about 7%) of the size of Medicaid. Spending for this program was higher in nominal dollars in FY2015 than in FY2008, but its share of health spending had declined slightly, from nearly 7% in FY2008 to less than 6% in FY2015. In fact, as Medicaid consumed a greater share of low-income health spending over the period, most programs in the category saw their share decline, even as nominal spending amounts increased. Exceptions were Consolidated Health Centers and the State Children's Health Insurance Program (CHIP), both of which increased slightly as a share of low-income health spending. Two programs saw slight decreases in obligations: both Family Planning and the Maternal and Child Health Block Grant had lower spending in FY2015 than they had in FY2008. Remaining programs in the health care category include Medical Care for Veterans without Service-Connected Disabilities, the Indian Health Service, the Ryan White HIV/AIDS program, and several smaller programs. A primary goal of the ACA was to increase access to health care. Among other things, the law requires individuals to maintain health insurance coverage or pay a fine for noncompliance (a provision known as the individual mandate). To help make the purchase of insurance affordable, the law provides subsidies to eligible individuals. Depending on their income and other factors, individuals without access to subsidized health insurance may be eligible for premium tax credits and cost-sharing subsidies. Both the individual mandate and the subsidies took effect in 2014. The ACA premium tax credit is refundable, which means up to the full amount can be claimed by an eligible individual who owes little or no federal income tax. It may be applied only toward the cost of purchasing a private health plan through a health insurance exchange. In addition, cost-sharing subsidies may reduce cost-sharing limits (i.e., the cap on annual out-of-pocket expenses) and cost-sharing requirements (e.g., annual deductibles) under private insurance plans purchased through an exchange. As discussed in the methodology appendix to this report ( Appendix A ), there is no universal definition of "low-income" and programs characterized as serving low-income people rely on widely differing income eligibility levels. To be eligible for ACA premium credits, individuals must meet certain insurance-related requirements and have incomes no lower than 100% of the federal poverty guidelines and as high as 400% of poverty. Individuals eligible for the premium tax credit who meet certain insurance-related criteria are also eligible for cost-sharing subsidies if their incomes are no higher than 250% of the federal poverty guidelines. FY2014 was the first fiscal year in which federal spending occurred under the ACA premium credit and cost-sharing subsidies. Obligations in that year totaled $13 billion and rose to $30 billion in FY2015; they are projected to reach $58 billion in FY2017. If these obligations were included in the spending amounts in this report, the health category would total $474 billion, rather than $444 billion, and would comprise 54%, rather than 52%, of all low-income spending in FY2015. The ACA provisions are distinct from other programs included in this report because there is a lower bound on income eligibility; in other words, those with income below the poverty level are generally not eligible for these provisions, largely because they are assumed to have Medicaid or other subsidized coverage. Future editions of this report might include all or a portion of spending under these provisions. However, as of mid-2016 insufficient information is available to determine the extent to which these provisions are benefitting those at the lower end of the income eligibility spectrum, rather than those with incomes as high as 400% of poverty in the case of premium credits or 250% for cost-sharing subsidies. Thus, these ACA benefits are not included in the spending totals presented in this version of the report. As the health care category has grown as a share of all low-income spending, a declining share has gone to the remaining categories of benefits and services: cash aid, food assistance, education, housing and development, social services, employment and training, and energy assistance. Because health care dominates low-income spending and masks trends in the other categories, the following sections discuss spending solely for non-health programs, overall and by category. Federal obligations for non-health low-income programs totaled $302 billion in FY2008 and rose by 33% to $404 billion in FY2015 (see Table 1 ); this compares with a 71% increase in low-income health obligations over the same period. Most of the growth in non-health spending occurred in the first year of the period. Specifically, non-health low-income spending grew by 28% between FY2008 and FY2009 and then rose slowly until its peak in FY2011. Spending declined by 4% in FY2012 and remained relatively flat in the subsequent years. Non-health low-income spending in FY2015 was almost 2% lower than the FY2011 peak (see Figure 5 ). Despite an increase in nominal spending for most non-health categories over the eight-year period, food assistance is the only category for which obligations grew as a share of non-health spending from FY2008 to FY2015. As food assistance has consumed a greater share, the remaining categories have each comprised a smaller share of all non-health low-income spending (see Table 5 ). Specifically, food assistance represented less than 20% of non-health low-income spending in FY2008 but consumed almost 26% in FY2015. Spending in nominal dollars for this category grew by more than 75% during the period, from $59 billion in FY2008 to $103 billion in FY2015 (with peak spending of $107 billion in FY2013). The food assistance category includes SNAP, the second largest program included in this report, which saw a near-doubling of spending over the period. (See discussion of SNAP in " The 10 Largest Programs " section.) SNAP accounted for more than 70% of all food assistance obligations in FY2015. Cash assistance is the largest of the non-health categories of low-income benefits and services; it represented 38% of all non-health spending in both FY2008 and FY2015, although it consumed a slightly smaller share in some of the intervening years. Five programs are included in this category and four of them are among the 10 largest programs included in the report (as discussed in " The 10 Largest Programs " section). Spending for cash assistance under TANF was largely unchanged in nominal dollars over the period, but the remaining programs in this category all saw some spending growth. Nonetheless, as a share of non-health low-income spending cash assistance was the same in both FY2008 and FY2015. The bottom five categories of benefits and services collectively and individually accounted for a smaller share of non-health low-income spending in FY2015 than in FY2008. Together, these categories—education, housing and development, social services, employment and training, and energy assistance—represented almost 42% of non-health obligations in FY2008. By FY2015, this share had declined to 36%. Each of the categories saw ARRA-related spending increases in FY2009, but this additional spending subsequently tapered off. Four of the five categories (employment and training being the exception) had higher spending in nominal dollars in FY2015 than in FY2008. However, when adjusted for inflation social services and employment and training had declined by almost 3% and almost 7%, respectively. In nominal dollars, federal spending for low-income programs rose by half (51%) over the eight-year period from FY2008 through FY2015. This growth was fueled initially by responses to the recession, as ARRA pumped additional money into the economy and high unemployment and declining incomes qualified more people for benefits. The economy slowly improved and stimulus spending subsided; however, overall spending levels did not return to pre-recession levels. Congress enacted the ACA in 2010, which authorized an expansion of Medicaid and further drove up low-income spending in FY2014 and FY2015. Health care is the largest category of low-income benefits; it now accounts for more than half of such spending due to the disproportionate size of Medicaid. In its rate of growth, health care is second only to food assistance, which grew slightly faster than health care over the eight-year period. Spending for the other non-health categories also rose over the period but at a slower rate. Further, most of the increased spending in non-health categories occurred in the early years of the period in direct response to the recession. Food assistance is the only non-health category to have increased its share of low-income spending from FY2008 to FY2015. Other categories either remained flat or declined as a share of spending. These spending patterns do not reflect congressional decisions about the amount or composition of low-income spending that should occur in the aggregate in any given year. Programs included in these spending totals were created independently of one another, at different times and in response to different perceived policy problems. Their size is a function of their design and budgetary classification (mandatory, including whether open-ended or capped, versus discretionary); congressional budget and appropriations processes; external influences affecting the cost of goods and services; and numerous other economic, demographic, social, and political factors. Important distinctions among low-income programs are masked when looking at total spending. For example, most low-income health spending occurs under Medicaid, but the category also includes programs targeted on the specific needs of certain elderly individuals, veterans, women and children, Indians, refugees, individuals living with HIV or AIDS, people living in medically underserved areas, and others. Moreover, Medicaid itself is a multitude of programs, with each state operating its own program within federal parameters and providing both primary and acute health care, in addition to long-term services and supports, to a diverse population including children, pregnant women, adults, individuals with disabilities, and the elderly. Cash aid is the category that most resembles traditional perceptions of "welfare." This category includes cash assistance under TANF, which was the successor to the New Deal-era program of Aid to Families with Dependent Children (AFDC). However, cash assistance under TANF is a relatively small program within this category ($6.4 billion in FY2015), which also includes the much larger EITC and ACTC ($81 billion combined in FY2015). These two refundable tax credits are available only to people who are working and primarily benefit working families with children. The cash aid category also includes SSI ($62 billion in FY2015), which is exclusively for low-income elderly and disabled individuals, and pensions for needy veterans. While food assistance does not directly provide cash, SNAP subsidizes the purchase of food and arguably frees up income that would otherwise be needed for this basic necessity. SNAP, like Medicaid, is an open-ended entitlement to individuals, so that anyone eligible is served if they apply. On the other hand, housing assistance—which also frees up income otherwise required for a necessity—is made up primarily of discretionary programs, such as Section 8 and Public Housing, and serves a relatively small fraction of eligible households. Collectively, the programs in this report provide income support through cash or near-cash benefits, but also provide services (e.g., education, community development, social services, employment and training) intended to improve the well-being and self-sufficiency of low-income people and communities. Some benefits are provided directly to individuals but many are delivered through state and local governments and private nonprofit organizations. In addition to income eligibility criteria, some programs impose other requirements on beneficiaries, including rules regarding work or participation in training. In summary, programs included in this report are extremely diverse in their purpose, design, and target population. The report tells a story—that low-income spending has grown sharply in recent years and is dominated by spending for health care—but given the diversity among programs that serve low-income people, further generalizations require additional information and should be made with care. Appendix A. Methodology Selection of Low-Income Programs Programs were selected for inclusion in this report series if they (1) have provisions that base an individual's eligibility or priority for service on a measure (or proxy) of low income; (2) target resources in some way (e.g., through allocation formulas, variable matching rates) using a measure (or proxy) of low income; or (3) prioritize services to low-income segments of a larger target population. No universal definition or specific dollar amount was used to define low income for purposes of this report. However, most programs use a multiple of the federal poverty guidelines or other measures to target resources toward people and communities at the low end of the income distribution. A few programs without an explicit low-income provision were included because either their target population is disproportionately poor or their purpose clearly indicates a presumption that participants will be low-income. Such programs that disproportionately serve low-income people include the Indian Health Service, Homeless Assistance Grants, Indian Education programs, Title I Migrant Education, and Indian Human Services. Programs with purposes that presume a low-income target population include Adult Basic Education and the Social Services Block Grant. Federal student loan programs were initially considered for inclusion because they determine benefit levels through the same need-analysis system used for Pell Grants and several smaller postsecondary education programs. However, this system results in students from relatively well-off families receiving assistance, as there is no absolute income ceiling on eligibility. Pell Grants are structured in such a way that the majority of recipients are low-income and the lowest-income students receive the largest benefits. Student loan programs are not as specifically targeted and therefore are not included in the report. Deliberations about whether to include the Additional Child Tax Credit (ACTC) reached a different conclusion. The regular Child Tax Credit (CTC) is a nonrefundable credit and phases out at relatively high income levels. The ACTC is a refundable credit that allows families with no or insufficient tax liability to get all or part of the benefit they would otherwise receive from the CTC. Because of the refundable nature and other design features of the ACTC, it serves predominantly lower-income families . For example, for tax year 2013, 89% of returns that claimed the ACTC were filed by families with adjusted gross income (AGI) below $40,000 and 88% of the credit went to such families. Thus, the ACTC is included in the report. As explained earlier in " Are ACA Premium Credits and Subsidies "Low-Income" Benefits? ", premium credits and cost-sharing subsidies provided under the ACA are not included in this report. FY2014 is the first year in which spending occurred under these provisions and data are not yet available on the incomes of those who received the benefits. Individuals with incomes below 100% of the federal poverty guidelines are generally precluded from benefiting, and eligibility goes as high as 400% of poverty for the premium credits and 250% for cost-sharing subsidies. As income data become available, the question of whether to include these obligations in future versions of the report will be revisited. Because the report includes only mandatory and discretionary spending programs, it does not include tax provisions except mandatory spending for the refundable portion of the Earned Income Tax Credit (EITC) and the refundable ACTC. Two programs have been added since the previous report in this series was published in 2015. Guardianship Assistance under Title IV-E of the Social Security Act had seen spending since FY2010; however, obligations for that program did not reach that report's $100 million threshold for inclusion until FY2015. Preschool Development Grants had been inadvertently overlooked in previous reports in the series, although spending under that program (and its predecessor) had exceeded the $100 million threshold since the program began in FY2011. Preschool Development Grants have now been added to the spending totals in all relevant years. Categorization of Programs Most programs are easily assigned to broad categories, such as health care, cash aid, food assistance, or education. A few, however, have multiple purposes or allowable activities. For some of these programs, spending can be disaggregated into the relevant categories. For example, using state reporting of actual expenditures, it is possible to estimate the amount of TANF obligations attributable to cash aid, social services, and employment and training. Other programs cannot be disaggregated and must be assigned to a single category. For example, Transitional Cash and Medical Services for Refugees was categorized as health care, and Indian Human Services was categorized as social services although it also provides cash and housing assistance. The social services category, in general, is not well-defined and some analysts might assign some programs—and therefore dollars—differently. Head Start, for example, could be considered an education program because its purpose is to promote school readiness; however, it supports a very broad range of activities (including activities for children ages 0-3 in its Early Head Start component) that can best be characterized collectively as social services. Foster Care and Adoption Assistance both give cash to families or other care providers, but income support is not these programs' purpose or sole use of funding. Foster Care subsidizes maintenance payments and administrative activities (including case planning) on behalf of children who cannot remain safely at home, and Adoption Assistance helps facilitate the adoption of children who would otherwise lack permanent homes. Thus, these programs, as well as Guardianship Assistance, were categorized as social services and not cash aid. Likewise, Maternal, Infant, and Early Childhood Home Visiting was included in social services, rather than health care, because of the broad range of its intended purposes. Selection of Spending Measure New obligations incurred in the indicated fiscal year were chosen as the measure of spending for this report, although for many programs readers may be more accustomed to seeing budget authority (primarily appropriations) or outlays. These spending concepts are related. Congress and the President enact budget authority through appropriations measures or authorizing laws. Budget authority in turn allows federal agencies to incur obligations , through actions such as entering into contracts, employing personnel, and submitting purchase orders. Outlays represent the actual payment of these obligations, usually in the form of electronic transfers or checks issued by the Treasury Department. Obligations are used in this report because they are the most consistent measure available at the necessary level of detail for the majority of programs. The source of obligations data is the U.S. Budget Appendix for the second fiscal year (e.g., FY2017 budget appendix for final FY2015 obligations, FY2016 budget appendix for final FY2014 obligations). Obligations were not available or not appropriate, for reasons explained below, for a small number of programs. Because obligations were not available at the necessary program level, appropriations were used for the following: Transitional Cash and Medical Services for Refugees, Breast/Cervical Cancer Early Detection, the Title I Migrant Education Program, Preschool Development Grants, Social Services and Targeted Assistance for Refugees, and Foster Grandparents. For veterans' medical care, the U.S. Budget Appendix shows obligations for the entire program and not solely the income-tested component. For the 2011 and 2015 reports in this series, CRS calculated estimated obligations for Priority Group 5 veterans (needy veterans without service-connected disabilities), using data from the Department of Veterans Affairs (VA) on obligations for Priority Groups 1-6 and 7-8 and the number of patients receiving care by individual priority group. For this report, however, CRS obtained data directly from the VA on expenditures specifically for Priority Group 5 veterans. The U.S. Budget Appendix also does not show obligations solely for the low-income subsidy portion of the Medicare Part D prescription drug program. Therefore, this report uses aggregate reimbursements for the low-income subsidy for the calendar year (instead of fiscal year), available from the annual report of the Medicare trustees. As noted above, TANF obligations provided in the U.S. Budget Appendix were disaggregated into the categories of cash aid, social services, and employment and training based on states' reporting to the Department of Health and Human Services of their actual expenditures. The U.S. Budget Appendix includes obligations for the Section 502 single-family rural housing loan program in combination with other programs in an aggregate amount for the Rural Housing Insurance Fund Account. Thus, loan subsidy budget authority (also found in the U.S. Budget Appendix) was used for the Section 502 program in the 2015 report and this report. In the 2011 report, loan subsidy outlays were used, adjusted for re-estimates provided in the Federal Credit Supplement to the U.S. Budget for the relevant years; however, budget authority has since been chosen as a simpler and more consistent measure. Finally, this report uses obligations from the U.S. Budget Appendix for the ACTC in FY2009 to FY2015. However, for FY2008 ACTC obligations shown in the U.S. Budget Appendix also include an unspecified amount for a one-time $300 per child tax rebate, authorized by the Economic Stimulus Act of 2008 ( P.L. 110-185 ), that was not targeted on low-income families. That figure, which overstates the amount spent for the ACTC alone, was used in the 2011 report with appropriate caveats. For the 2015 report and this report, however, data from the Internal Revenue Service Statistics of Income for tax year 2007 are used to provide a more accurate picture of the ACTC in FY2008. Spending Threshold Programs are included in this report if they had obligations in any year from FY2008 through FY2015 of at least $100 million. To simplify the analysis without significantly changing the overall picture, smaller programs were excluded, even if they met the low-income criteria. A few programs had spending above the threshold in some years but not in others. Spending totals cited throughout this report include these programs only for the years in which their obligations equaled or exceeded $100 million. In other words, each year's spending total is a snapshot of spending in that year for low-income programs that had obligations totaling at least $100 million in that year . (See Appendix Table B-2 for all spending amounts for all programs in each year.) Comparison with Predecessor CRS Report Series From 1979 to 2006, CRS issued a series of reports, typically every other year, called Cash and Noncash Benefits for Persons with Limited Income . That series was conceived and produced (except for the last edition in 2006) by [author name scrubbed], Specialist in Social Policy, who retired from CRS in 2004. In 2011, CRS began a new series of reports intended to replace the Cash and Noncash series. This report is the third in that series. The new report series uses different methodologies to select and categorize programs and measure spending; therefore, it cannot be considered an update of Cash and Noncash for various reasons. For example, the older series did not include certain programs that are now included, such as the low-income subsidy under Medicare Part D, Title I-A of the Elementary and Secondary Education Act, and Community Development Block Grants. The older series also had no minimum spending threshold, so it included smaller programs that are not included here. In addition, the older series included student loans, which are no longer included for reasons explained above. Several programs were also categorized differently in the previous series (e.g., Head Start was categorized as education, Foster Care and Adoption Assistance as cash aid, and Homeless Assistance Grants as social services). The older series used different measures of spending for different programs, while the new series uses obligations wherever possible. The older series also provided estimates of state-local spending, which are not included here because a consistent and reliable source is not available. Finally, the older series traced spending back to 1968, which is beyond the scope of the current series. Changes in programs and appropriations accounts over time make it virtually impossible to trace obligations backward with precision. Appendix B. Detailed Program Tables The following tables provide specific information about programs included in this report. Programs are organized by category and listed within categories according to their Catalog of Federal Domestic Assistance (CFDA) number. Table B-1 lists all programs included in the report and indicates the federal administering agency and CFDA number for each program. The table also identifies a more detailed CRS report for each program, where available. Table B-2 shows obligations (or another measure of spending, as noted) for each program from FY2008 through FY2015. The table also indicates each program's budgetary classification (mandatory or discretionary). Table B-3 identifies, for each program, the general target population and the concept(s) used to determine individual income eligibility and (if relevant) the concept used to target federal resources broadly based on need. The table indicates the general concept used but not the specific application. For example, the table might indicate that federal poverty guidelines (FPG) are used as a concept in determining income eligibility for a particular program but it does not indicate the specific percentage of FPG that is used. Likewise, the table might show that a program uses formula allocation factors to direct federal resources toward areas with the greatest need but it does not identify the specific factors or their weighting. Readers are referred to the CRS reports listed in Table B-1 or agency websites for these details. Table B-4 shows the type of federal assistance provided (typically formula grants, competitive or discretionary grants, or direct benefits) and the immediate recipients of this assistance. As noted in the table, immediate recipient refers to the level of government or the organization that directly receives the federal grant or award. Many programs require that funds be further distributed (by formula or other criteria) to other units of government or organizations. For example, federal grants may be awarded by formula to states, but states are then required to subaward these funds to local governments or other entities. Those subawards are not shown in the table. The table also indicates whether a program has provisions for participation by U.S. territories or residents or organizations located within the territories. The specific details of these provisions are not provided in the table; readers are referred to statutory language or federal agency websites for this information. Both Table B-3 and Table B-4 were originally prepared for inclusion in the first of the current report series, which included more detailed discussions of the concepts presented. See CRS Report R41625, Federal Benefits and Services for People with Low Income: Programs, Policy, and Spending, FY2008-FY2009 . Appendix C. Related Reading The following reports provide cross-cutting information on federal low-income policy and programs. See Table B-1 for links to CRS reports on individual programs. CRS Report R41625, Federal Benefits and Services for People with Low Income: Programs, Policy, and Spending, FY2008-FY2009 , by [author name scrubbed]. First in the current report series. In addition to discussion of spending trends and fact sheets on each program, it includes a brief history of federal low-income policy, discussion of concepts used to define individual eligibility for benefits and services (e.g., federal poverty guidelines and others), discussion of mechanisms used to target resources on the basis of need (e.g., formula allocation factors and cost-sharing rules), discussion of the types of federal grants (formula, competitive, direct benefits to individuals) used to provide assistance, and related policies such as matching requirements. CRS Report R43863, Federal Benefits and Services for People with Low Income: Programs and Spending, FY2008-FY2013 , by [author name scrubbed] and [author name scrubbed]. Second in the current report series. In addition to discussion of spending trends and fact sheets on each program, it includes a brief discussion of the budgetary classification of low-income programs (discretionary versus mandatory), and analysis of spending under the 10 largest programs by population group (aged, disabled, families with children with and without adult workers, and childless adult couples with and without workers). CRS Report R44327, Need-Tested Benefits: Estimated Eligibility and Benefit Receipt by Families and Individuals , by [author name scrubbed] et al. Examines nine major programs in FY2012 and estimates the number of people who are eligible and who actually receive benefits, the types of families that are more likely to receive benefits, the amounts that families typically receive, whether families typically receive benefits under one or multiple programs, and the types of families that are likely to receive larger benefits. CRS Report R44211, Poverty in the United States in 2014: In Brief , by [author name scrubbed]. Presents detailed statistics on the incidence of poverty among various demographic groups and by geography, and compares measures of poverty under the official federal poverty guidelines and the "research supplemental poverty measure." CRS Report R43731, Poverty: Major Themes in Past Debates and Current Proposals , by [author name scrubbed] and [author name scrubbed]. Provides a short history of key federal policies enacted over the past century to address poverty, presents several overarching themes that have recurred in antipoverty policy debates over time, and highlights selected current proposals in the context of these themes. Government Accountability Office, Federal Low-Income Programs: Multiple Programs Target Diverse Populations and Needs , GAO-15-516, July 30, 2015. Describes federal programs (including tax expenditures) targeted to people with low incomes; identifies the number and selected household characteristics of people in poverty; identifies the number, poverty status, and household characteristics of selected programs' recipients; and examines research on how selected programs may affect incentives to work. | The Congressional Research Service (CRS) regularly receives requests about the number, size, and programmatic details of federal benefits and services targeted toward low-income populations. This report is the most recent in a series that attempts to identify and discuss such programs, focusing on aggregate spending trends. The report looks at federal low-income spending from FY2008 (at the onset of the 2007-2009 recession) through FY2015 (after implementation of the Patient Protection and Affordable Care Act, or ACA). Programs discussed here provide health care, cash aid, food assistance, education, housing and development, social services, employment and training, and energy assistance to low-income people and communities. Despite the common feature of an explicit low-income focus, these programs are extremely diverse in their purpose, design, and target population. They do not include social insurance (e.g., Social Security, Medicare, Unemployment Compensation), which is meant to be universal, or tax provisions, with the exception of two targeted tax credits. Key findings include the following: In nominal dollars (not adjusted for inflation), federal spending for low-income assistance programs grew from $561 billion in FY2008 to $848 billion in FY2015, a 51% increase over the eight-year period. This increased spending occurred in two distinct episodes. First, after a sharp spike in FY2009 affecting all categories of benefits and services, low-income spending peaked at $763 billion in FY2011, largely in response to the recession. The second episode was driven almost entirely by health care. Spending growth from FY2013 ($744 billion) to FY2015 ($848 billion) was primarily due to the ACA Medicaid expansion. Most low-income spending is for noncash benefits and services; health care is the largest category and Medicaid the largest individual program. In FY2015, noncash benefits and services accounted for 82% of all low-income assistance and cash aid comprised 18%. Health care dominates federal spending for low-income programs, accounting for more than half (52%) of such spending in FY2015. Medicaid alone comprised 45% of all low-income spending that year. This report identifies a large number of programs intended to assist low-income people, but spending is concentrated among a few. The four largest programs—Medicaid, the Supplemental Nutrition Assistance Program, Supplemental Security Income, and the Earned Income Tax Credit—together accounted for 68% of all low-income spending in FY2015, and the top 10 programs comprised 83%. After the top four, these programs include (in descending size) Federal Pell Grants, the Medicare Part D Low-Income Drug Subsidy, the Additional Child Tax Credit, Section 8 Housing Choice Vouchers, Temporary Assistance for Needy Families, and Title I-A Education for the Disadvantaged grants. Spending patterns described here do not reflect congressional decisions about the aggregate size of low-income spending that should occur each year. The size of each program is a function of its design and budgetary classification (mandatory versus discretionary), congressional budget and appropriations processes, external influences affecting the cost of goods and services, and other factors. This report tells a story—that low-income spending has grown sharply in recent years and is dominated by health care—but given the diversity among programs that serve low-income people, further generalizations should be made with care. |
There is no universally agreed-upon definition of "Internet governance." A more limited definition would encompass the management and coordination of the technical underpinnings of the Internet—such as domain names, addresses, standards, and protocols that enable the Internet to function. A broader definition would include the many factors that shape a variety of Internet policy-related issues, such as such as intellectual property, privacy, Internet freedom, e-commerce, and cybersecurity. One working definition was developed at the World Summit on the Information Society (WSIS) in 2005: Internet governance is the development and application by governments, the private sector and civil society, in their respective roles, of shared principles, norms, rules, decision-making procedures, and programmes that shape the evolution and use of the Internet. Another definition developed by the Internet Governance Project (IGP) delineates three aspects of the Internet that may require some level of governing: technical standardization , which involves arriving at and agreeing upon technical standards and protocols; resource allocation and assignment , which includes domain names and Internet Protocol (IP) addresses; and human conduct on the Internet , encompassing the regulations, rules, and policies affecting areas such as spam, cybercrime, copyright and trademark disputes, consumer protection issues, and public and private security. With these three categories in mind, the IGP definition is: Internet governance is collective decisionmaking by owners, operators, developers, and users of the networks connected by Internet protocols to establish policies, rules, and dispute resolution procedures about technical standards, resource allocations, and/or the conduct of people engaged in global internetworking activities. The nature of the Internet, with its decentralized architecture and structure, makes the practice of governing a complex proposition. First, the Internet is inherently international and cannot in its totality be governed by national governments whose authority ends at national borders. Second, the Internet's successful functioning depends on the willing cooperation and participation by mostly private sector stakeholders around the world. These stakeholders include owners and operators of servers and networks around the world, domain name registrars and registries, regional IP address allocation organizations, standards organizations, Internet service providers, and Internet users. Given the multiplicity and diversity of Internet stakeholders, a number of organizations and entities play varying roles. It is important to note that all of the Internet stakeholders cited above participate in various ways within the various fora, organizations, and frameworks addressing Internet governance and policy. Key organizations in the private sector include the following: Internet Corporation for As signed Names and Numbers (ICANN )— ICANN was created in 1998 through a Memorandum of Understanding with the Department of Commerce (see the following section of this report, " Role of U.S. Government "). Directed by an internationally constituted Board of Directors, ICANN is a private, not-for-profit organization based in Los Angeles, CA, which manages and oversees the critical technical underpinnings of the Internet such as the domain name system (DNS) and IP addressing (see the Appendix for more background information on ICANN). ICANN implements and enforces many of its policies and rules through contracts with registries (companies and organizations who operate and administer the master database of all domain names registered in each top level domain, such as .com and .org) and accredited registrars (the hundreds of companies and organizations with which consumers register domain names). Policies are developed by Supporting Organizations and Committees in a consensus-based "bottom-up" process open to various constituencies and stakeholders of the Internet. As such, ICANN is often pointed to as emblematic of the "multistakeholder model" of Internet governance. Internet standards organizations— As the Internet has evolved, groups of engineers, researchers, users, and other interested parties have coalesced to develop technical standards and protocols necessary to enable the Internet to function smoothly. These organizations conduct standards development processes that are open to participants and volunteers from around the world. Internet standards organizations include the Internet Engineering Task Force (IETF), the Internet Architecture Board (IAB), the Internet Society (ISOC), and the World Wide Web Consortium (W3C). Governmental entities involved in Internet governance include the following: Governmental Advisory Committee (GAC) —As part of ICANN's multistakeholder process, the GAC provides advice to the ICANN Board on matters of public policy, especially in cases where ICANN activities and policies may interact with national laws or international agreements related to issues such as intellectual property, law enforcement, and privacy. GAC advice is developed through consensus among member nations. Although the ICANN Board is required to consider GAC advice and recommendations, it is not obligated to follow those recommendations. Membership in the GAC is open to all national governments who wish to participate. Currently, there are 171 members and 35 observers. The GAC Chair is currently held by Switzerland, with Vice Chairs held by Egypt, Peru, France, the United Kingdom, and China. Internet Governance Forum (IGF)— The IGF was established in 2006 by the United Nations' World Summit on the Information Society (WSIS). The purpose of the IGF is to provide a multistakeholder forum which provides an open discussion (in yearly meetings) on public policies related to the Internet. Open to all stakeholders and interested parties (governments, industry, academia, civil society), the IGF serves as an open discussion forum and does not have negotiated outcomes, nor does it make formal recommendations to the U.N. In December 2010, the U.N. General Assembly renewed the IGF through 2015 and tasked the U.N.'s Commission on Science and Technology for Development (CSTD) to develop a report and recommendations on how the IGF might be improved. A Working Group on Improvements to the Internet Governance Forum was formed by the U.N., which includes 22 governments (including the United States) and the participation of Internet stakeholder groups. In December 2015, the General Assembly renewed the IGF through 2025. Other International Organizations —Other existing international organizations address Internet policy issues in various ways. The International Telecommunications Union (ITU) is the United Nations' specialized agency for communications and information technology. The World Intellectual Property Organization (WIPO) is another specialized agency of the U.N., which addresses a wide range of intellectual property issues, including those related to Internet policy. The Organisation for Economic Co-operation and Development (OECD) provides a forum for governments to work together to address economic issues, including the recent development of Internet policymaking principles. While none of these organizations have direct control or authority over the Internet, their activities can have influence over future directions of global Internet policy. National governments —National governments have acted to address various Internet policy issues within their own borders. Many of the national laws and regulations pertain to user behavior on the Internet. For example, in the United States, laws have been passed addressing such issues as cybersecurity and cybercrime, Internet gambling, Internet privacy, and protection of intellectual property on the Internet. Governments have also established internal Internet policy coordinating bodies (e.g., the National Telecommunications and Information Administration's Internet Policy Task Force and the European Commission's Information Society). The U.S. government has no statutory authority over ICANN or the domain name system. However, because the Internet evolved from a network infrastructure created by the Department of Defense, the U.S. government originally funded and operated (primarily through private contractors) many of the key components of network architecture that enabled the domain name system to function. In the early 1990s, the National Science Foundation (NSF) was given a lead role in overseeing domain names used in the civilian portion of the Internet (which at that time was largely comprised of research universities). By the late 1990s, ICANN was created, the Internet had expanded into the commercial world, and the National Telecommunications and Information Administration (NTIA) of the Department of Commerce (DOC) assumed the lead role. A 1998 Memorandum of Understanding between ICANN and the DOC initiated a process intended to transition technical DNS coordination and management functions to a private-sector not-for-profit entity. While the DOC played no role in the internal governance or day-to-day operations of ICANN, the U.S. government, through the DOC/NTIA, most recently retained a role with respect to the DNS via three separate contractual agreements: a 2009 Affirmation of Commitments (AoC) between DOC and ICANN; a contract (referred to as the "IANA contract") between ICANN and DOC to perform various technical functions such as allocating IP address blocks, editing the root zone file, and coordinating the assignment of unique protocol numbers; and a cooperative agreement between DOC and VeriSign to manage and maintain the official DNS root zone file. By virtue of those three contractual agreements, the U.S. government—through DOC/NTIA—exerted a legacy authority and stewardship over ICANN, and arguably had more influence over ICANN and the DNS than other national governments. While NTIA has been the lead agency overseeing domain name issues, other federal agencies have maintained a specific interest in the DNS that may affect their particular missions. For example, the Federal Trade Commission (FTC) seeks to protect consumer privacy on the Internet, the Department of Justice (DOJ) addresses Internet crime and intellectual property issues, and the Department of Defense and Department of Homeland Security address cybersecurity issues. However, none of these agencies has legal authority over ICANN or the running of the DNS. The IANA functions contract with ICANN and the cooperative agreement with Verisign gave NTIA the authority to maintain a stewardship and oversight role with respect to ICANN and the domain name system. On March 14, 2014, NTIA announced its intention to transition its stewardship role and procedural authority over key domain name functions to the global Internet multistakeholder community. NTIA stated that it would let its IANA functions contract with ICANN expire if a satisfactory transition could be achieved. NTIA asked ICANN to convene interested global Internet stakeholders (both from the private sector and governments) to develop a proposal to achieve the transition; NTIA stated that it will not accept any transition proposal that would replace the NTIA role with a government-led or an intergovernmental organization solution and that the transition proposal must have broad community support and address the following four principles: support and enhance the multistakeholder model; maintain the security, stability, and resilience of the Internet DNS; meet the needs and expectation of the global customers and partners of the IANA services; and maintain the openness of the Internet. ICANN convened a process through which the multistakeholder community came to consensus on a transition proposal. The process was divided into two separate but related parallel tracks: (1) IANA Stewardship Transition and (2) Enhancing ICANN Accountability. On March 10, 2016, the ICANN Board formally accepted the IANA Stewardship Transition proposal and the Enhancing ICANN Accountability report. The Board formally transmitted the transition and accountability plans to NTIA for approval. Under the proposal, a new, separate legal entity, called Post-Transition IANA (PTI), is created as an affiliate (subsidiary) of ICANN that becomes the IANA functions operator in contract with ICANN. ICANN assumes the role previously fulfilled by NTIA (overseeing the IANA function), while PTI assumes the role previously played by ICANN (the IANA functions operator). Regarding accountability, the proposal seeks to enhance ICANN's accountability by specifying powers for the ICANN community that can be enforced when consensus cannot be reached. Specifically, the proposal called for the creation of a new entity, referred to as the "Empowered Community," that will act at the direction of the multistakeholder community as constituted by ICANN's Supporting Organizations and Advisory Committees. Under California law, the new entity would take the form of a California unincorporated association and be given the role of Sole Designator of ICANN Board Directors. Triggered by a petitioning, consultation, and escalation process, the Empowered Community would have the power to, among other things, reject ICANN budgets, approve changes to ICANN bylaws, and remove ICANN Board members. On June 9, 2016, NTIA issued its IANA Stewardship Transition Proposal Assessment Report . The report announced NTIA's formal determination that the transition proposal met the criteria set forth when NTIA announced its intention to transition U.S. government stewardship over IANA. ICANN took a number of steps to implement the transition, including the adoption of revised bylaws. Finally, on September 30, 2016, NTIA let its contract with ICANN expire, and the transition was complete. NTIA modified its cooperative agreement with Verisign to remove NTIA's role in authorizing changes to the authoritative root zone file. Additionally, aspects of the Affirmation of Commitments—including mandated periodic community reviews —were incorporated into the new ICANN bylaws. With the IANA contract expired and the transition of ICANN away from NTIA authority, the U.S. government—like any other nation—can provide input into the ICANN policymaking process through its participation in the Governmental Advisory Committee (GAC). GAC formal advice to the ICANN Board must be reached by full consensus, at which point the Board and GAC will try to find a mutually acceptable solution. If a mutual agreement cannot be reached, the Board can choose not to follow that advice by a vote of at least 60% of Board members. Additionally, the GAC will participate in the Empowered Community, except in matters where the Empowered Community is deciding whether to challenge a board action based on GAC advice. Reflecting Congressional concerns over the U.S. government proposal to relinquish its contractual authority over ICANN, legislation in the 114 th Congress sought to prohibit, limit, or delay the transition. The DOTCOM Act of the 113 th Congress was reintroduced into the 114 th Congress by Representative Shimkus as H.R. 805 on February 5, 2015. As introduced, the DOTCOM Act of 2015 would have prohibited NTIA from relinquishing responsibility over the Internet domain name system until GAO submitted a report to Congress examining the implications of the proposed transfer. H.R. 805 would have directed GAO to issue the report no later than one year after NTIA received a transition proposal. On June 17, 2015, the House Committee on Energy and Commerce approved an amended DOTCOM Act. The amended version of H.R. 805 reflected a bipartisan agreement and was approved unanimously by voice vote. On June 23, 2015, H.R. 805 was passed by the House (378-25) under suspension of the rules. H.R. 805 , as passed by the House, does not permit NTIA's authority over the IANA function "to terminate, lapse, be cancelled, or otherwise cease to be in effect" until 30 legislative days after NTIA submits a report to Congress on the final IANA transition proposal. Specifically, the report must contain the final transition proposal and a certification by NTIA that the proposal supports and enhances the multistakeholder model of Internet governance; maintains the security, stability, and resiliency of the Internet domain name system; meets the needs and expectations of the global customers and partners of IANA services; maintains the openness of the Internet; and does not replace the role of NTIA with a government-led or intergovernmental organization solution. H.R. 805 also requires NTIA to certify that the required changes to ICANN's bylaws contained in the transition proposal have been adopted by ICANN. S. 1551 , the Senate companion version of the DOTCOM Act of 2015, was introduced on June 11, 2015, by Senator Thune. The language of S. 1551 is virtually identical to H.R. 805 as approved by the House Committee on Energy and Commerce. S. 1551 was referred to the Senate Committee on Commerce, Science, and Transportation. On June 3, 2015, the House passed H.R. 2578 , the FY2016 Commerce, Justice, Science (CJS) Appropriations Act, which appropriated funds for DOC and NTIA. Section 536 of H.R. 2578 stated that "[n]one of the funds made available by this Act may be used to relinquish the responsibility of the National Telecommunications and Information Administration with respect to Internet domain name system functions, including responsibility with respect to the authoritative root zone file and the Internet Assigned Numbers Authority functions." On June 16, 2015, the Senate Appropriations Committee reported its version of the FY2016 Commerce, Justice, Science, and Related Agencies Appropriations Act. In the bill report ( S.Rept. 114-66 ) the committee directed NTIA to "continue quarterly reports to the committee on all aspects of the transition process, and further directs NTIA to inform the Committee and the Senate Committee on Commerce, Science and Transportation, not less than 45 days in advance of any decision with respect to a successor contract." The committee also stated that it "continues to be concerned about this process and supports the continued stewardship role of the United States over the domain name system in order to ensure the security of the .gov and .mil domains and to protect the freedom of speech and expression internationally." The Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) prevents NTIA from relinquishing its contractual control over IANA in FY2016. Section 539 of P.L. 114-113 states the following: (a) None of the funds made available by this Act may be used to relinquish the responsibility of the National Telecommunications and Information Administration, during fiscal year 2016, with respect to Internet domain name system functions, including responsibility with respect to the authoritative root zone file and the Internet Assigned Numbers Authority functions. (b) Not withstanding any other law, subsection (a) of this section shall not apply in fiscal year 2017. On April 21, 2016, the Senate Appropriations Committee reported its version of the FY2017 Commerce, Justice, Science, and Related Agencies Appropriations Act ( S. 2837 ). The bill report ( S.Rept. 114-239 ) expressed the committee's continued concern about the proposed IANA transition and the security of the .gov and .mil domains. The committee directed NTIA to continue quarterly reports to the committee on all aspects of the transition process, and further directed NTIA to inform the committee and the Senate Committee on Commerce, Science, and Transportation not less than 45 days in advance of any decision with respect to a successor IANA contract. On May 24, 2016, the House Appropriations Committee approved the FY2017 Commerce, Justice, Science (CJS) Appropriations act ( H.R. 5393 ). The committee continued seeking to prohibit NTIA from relinquishing authority over IANA in FY2017. Section 534 stated that for FY2017, [n]one of the funds made available by this Act may be used to relinquish the responsibility of the National Telecommunications and Information Administration with respect to Internet domain name system functions, including responsibility with respect to the authoritative root zone file and the Internet Assigned Numbers Authority functions. The bill report ( H.Rept. 114-605 ) stated: The Committee remains concerned by NTIA's intent to transition certain Internet domain name functions to the global multistakeholder community. Any such transition represents a significant public policy change and should be preceded by an open and transparent process. In order for this issue to be considered more fully by the Congress, the Committee includes section 534 prohibiting funding for the transition. However, the FY2017 Continu ing Resolution, as passed by the Senate and House and signed into law on September 29, 2016 ( P.L. 114-223 ), did not include language to prevent NTIA from allowing its contract with ICANN to expire on September 30, 2016, thus enabling the transition to take place. S. 3034 , the Protecting Internet Freedom Act, was introduced by Senator Cruz on June 8, 2016. The legislation would prohibit NTIA from relinquishing its authority over the IANA function and the root zone file unless Congress enacts a federal statute which expressly grants NTIA such authority. The bill also requires that no later than 60 days after enactment, NTIA shall provide to Congress a written certification that the U.S. government has secured sole ownership of the .gov and .mil top level domains, and that NTIA has entered into a contract with ICANN ensuring that the U.S. government has exclusive control and use of the .mil and .gov domains in perpetuity. On June 7, 2016, Senator Cruz submitted language of the Protecting Internet Freedom Act as an amendment ( S.Amdt. 4486 ) to the FY2017 National Defense Authorization Act ( S. 2943 ). H.R. 5418 , the companion House version of the Protecting Internet Freedom Act, was introduced by Representative Duffy on June 9, 2016. Other introduced legislation that addresses the proposed IANA transition includes H.R. 355 (Global Internet Freedom Act of 2015, introduced by Representative Duffy on January 14, 2015), which would prohibit NTIA from relinquishing its authority over the IANA functions. H.R. 2251 (Defending Internet Freedom Act of 2015, introduced by Representative Mike Kelly on May 15, 2015), which would prohibit NTIA from relinquishing its responsibilities over domain name functions and the IANA function unless it certifies that the transition proposal meets certain specified criteria. H.R. 5329 (Securing America's Internet Domains Act of 2016, introduced by Representative Kelly of Pennsylvania on May 25, 2016), which would require NTIA to extend the IANA functions contract unless it certifies that the United States government has secured sole ownership of the .gov and .mil top-level domains and that it has entered into a contract with ICANN that provides the United States with exclusive control and use of those domains in perpetuity. S.Res. 71 —designating the week of February 8 through February 14, 2015, as "Internet Governance Awareness Week"—was introduced by Senator Hatch on February 5, 2015. S.Res. 71 seeks to increase public awareness regarding NTIA's proposed transition, encourage public education about the importance of the transition process; and call the attention of the participants at the ICANN meeting in Singapore to the importance of designing accountability and governance reforms to best prepare ICANN for executing the responsibilities that it may receive under any transition of the stewardship of the IANA functions. S.Res. 71 was passed by the Senate on February 5, 2015. As part of its continuing oversight over NTIA and the domain name system, a series of hearings were held in the 114 th Congress on the proposed IANA transition and on ICANN's management of the domain name system: On February 25, 2015, the Senate Committee on Commerce, Science, and Transportation held a hearing entitled, "Preserving the Multistakeholder Model of Internet Governance." On May 13, 2015, the House Committee on Energy and Commerce, Subcommittee on Communications and Technology, held a hearing entitled, "Stakeholder Perspectives on the IANA Transition." On May 13, 2015, the House Committee on the Judiciary, Subcommittee on Courts, Intellectual Property and the Internet, held a hearing entitled, "Stakeholder Perspectives on ICANN: the .Sucks Domain and Essential Steps to Guarantee Trust and Accountability in the Internet's Operation." On July 8, 2015, the House Committee on Energy and Commerce, Subcommittee on Communications and Technology, held a hearing entitled, "Internet Governance Progress After ICANN 53." On March 17, 2016, the House Committee on Energy and Commerce, Subcommittee on Communications and Technology, held a hearing entitled, "Privatizing the Internet Assigned Number Authority." On May 24, 2016, the Senate Committee on Commerce, Science, and Transportation held a hearing entitled, "Examining the Multistakeholder Plan for Transitioning the Internet Assigned Number Authority." On September 14, 2016, the Senate Committee on the Judiciary, Subcommittee on Oversight, Agency Action, Federal Rights and Federal Courts, held a hearing entitled, "Protecting Internet Freedom: Implications of Ending U.S. Oversight of the Internet." Given its complexity, diversity, and international nature, how should the Internet be governed? Some assert that a multistakeholder model of governance is appropriate, where all stakeholders (both public and private sectors) arrive at consensus through a transparent bottom-up process. Others argue that a greater role for national governments is necessary, either through increased influence through the multistakeholder model, or under the auspices of an international body exerting intergovernmental control. To date, ICANN and the governance of the domain name system has been the focal point of this debate. While ICANN's mandate is to manage portions of the technical infrastructure of the Internet (domain names and IP addresses), many of the decisions ICANN makes affect other aspects of Internet policy, including areas such as intellectual property, privacy, and cybersecurity. These are areas which many national governments have addressed for their own citizens and constituencies through domestic legislation, as well as through international treaties. As part of the debate over an appropriate model of Internet governance, criticisms of ICANN have arisen on two fronts. One criticism reflects the tension between national governments and the current performance and governance processes of ICANN, whereby governments feel they lack adequate influence over ICANN decisions that affect a range of Internet policy issues. The other criticism has been fueled by concerns of many nations that the U.S. government has held undue legacy influence and control over ICANN and the domain name system. The debate over multistakeholderism vs. intergovernmental control initially manifested itself in 2005 at the World Summit on the Information Society (WSIS), which was a conference organized by the United Nations. More recently, this debate has been rekindled in various international fora. As discussed above, ICANN is a working example of a multistakeholder model of Internet governance, whereby a bottom-up collaborative process is used to provide Internet stakeholders with access to the policymaking process. Support for the multistakeholder model of Internet governance is reflected in international organizations such as the Organisation for Economic Co-operation and Development (OECD) and the Group of Eight (G8). For example, the OECD's Communiqué on Principles for Internet Policy-Making cites multistakeholderism as a central tenet of Internet governance: In particular, continued support is needed for the multi-stakeholder environment, which has underpinned the process of Internet governance and the management of critical Internet resources (such as naming and numbering resources) and these various stakeholders should continue to fully play a role in this framework. Governments should also work in multi-stakeholder environments to achieve international public policy goals and strengthen international co-operation in Internet governance. Similarly, at the G8 Summit of Deauville on May 26-27, 2011, the G8 issued a declaration on its renewed commitment for freedom and democracy that contained a new section on the Internet. Support for a multistakeholder model for Internet governance with a significant national government role was made explicit: As we support the multi-stakeholder model of Internet governance, we call upon all stakeholders to contribute to enhanced cooperation within and between all international fora dealing with the governance of the Internet. In this regard, flexibility and transparency have to be maintained in order to adapt to the fast pace of technological and business developments and uses. Governments have a key role to play in this model. As discussed below, in 2005, the World Summit on the Information Society (WSIS) considered four models of Internet governance, of which three would have involved an intergovernmental body to oversee the Internet and the domain name system. While the WSIS ultimately decided not to pursue an intergovernmental model in 2005, some nations have again advocated an intergovernmental approach for Internet governance. For example: India, Brazil, and South Africa (referred to as IBSA) proposed that "an appropriate body is urgently required in the U.N. system to coordinate and evolve coherent and integrated global public policies pertaining to the Internet." The IBSA proposed body would "integrate and oversee the bodies responsible for technical and operational functioning of the Internet, including global standards setting." In order to implement the major aspects of the IBSA proposal, the government of India proposed (in the U.N. General Assembly) the establishment of a new institutional mechanism in the United Nations for global Internet-related policies, to be called the United Nations Committee for Internet-Related Policies (CIRP). CIRP would be comprised of 50 member states chosen on the basis of equitable geographical representation. The Internet Governance Forum (IGF) and four advisory stakeholder groups would provide input to CIRP, which would report directly to the General Assembly and present recommendations for consideration, adoption, and dissemination among all relevant intergovernmental bodies and international organizations. Another group of nations, including China and the Russian Federation, proposed a voluntary "International Code of Conduct for Information Security," for further discussion in the U.N. General Assembly. The Code includes language that promotes the establishment of a multilateral, transparent, and democratic international management system to ensure an equitable distribution of resources, facilitate access for all, and ensure a stable and secure functioning of the Internet. On January 13, 2015, the same group of nations released a revised International Code of Conduct for Information Security which states that all States must play the same role in, and carry equal responsibility for, international governance of the Internet, its security, continuity and stability of operation, and its development in a way which promotes the establishment of multilateral, transparent and democratic international Internet governance mechanisms which ensure an equitable distribution of resources, facilitate access for all and ensure the stable and secure functioning of the Internet. Thus, governments such as the United States and the European Union support ICANN's multistakeholder model, while at the same time advocating increased governmental influence within that model. By contrast, other nations support an expanded role for an intergovernmental model of Internet governance. The debate has been summarized by NTIA as follows: By engaging all interested parties, multistakeholder processes encourage broader and more creative problem solving, which is essential when markets and technology are changing as rapidly as they are. They promote speedier, more flexible decision making than is common under traditional, top-down regulatory models which can too easily fall prey to rigid procedures, bureaucracy, and stalemate. But there is a challenge emerging to this model in parts of the world.... Some nations appear to prefer an Internet managed and controlled by nation-states. In December 2012, the U.S. will participate in the ITU's World Conference on International Telecommunications (WCIT). This treaty negotiation will conduct a review of the International Telecommunication Regulations (ITRs), the general principles which relate to traditional international voice telecommunication services. We expect that some states will attempt to rewrite the regulation in a manner that would exclude the contributions of multi-stakeholder organizations and instead provide for heavy-handed governmental control of the Internet, including provisions for cybersecurity and granular operational and technical requirements for private industry. We do not support any of these elements. It is critical that we work with the private sector on outreach to countries to promote the multi-stakeholder model as a credible alternative. Following the creation of ICANN in 1998, many in the international community, including foreign governments, argued that it was inappropriate for the U.S. government to maintain its legacy authority over ICANN and the DNS. They suggested that management of the DNS should be accountable to a higher intergovernmental body. The United Nations, at the first phase of the WSIS in December 2003, debated and agreed to study the issue of how to achieve greater international involvement in the governance of the Internet, and the domain name system in particular. The study was conducted by the U.N.'s Working Group on Internet Governance (WGIG). On July 14, 2005, the WGIG released its report, stating that no single government should have a preeminent role in relation to international Internet governance. The report called for further internationalization of Internet governance, and proposed the creation of a new global forum for Internet stakeholders. Four possible models were put forth, including two involving the creation of new Internet governance bodies linked to the U.N. Under three of the four models, ICANN would either be supplanted or made accountable to a higher intergovernmental body. The report's conclusions were scheduled to be considered during the second phase of the WSIS held in Tunis in November 2005. U.S. officials stated their opposition to transferring control and administration of the domain name system from ICANN to any international body. Similarly, the 109 th Congress expressed its support for maintaining existing U.S. control over ICANN and the DNS ( H.Con.Res. 268 and S.Res. 323 ). The European Union (EU) initially supported the U.S. position. However, during the September 2005 preparatory meetings, the EU seemingly shifted its support toward an approach which favored an enhanced international role in governing the Internet. Conflict at the WSIS Tunis Summit over control of the domain name system was averted by the announcement, on November 15, 2005, of an Internet governance agreement between the United States, the EU, and over 100 other nations. Under this agreement, ICANN and the United States maintained their roles with respect to the domain name system. A new international group under the auspices of the U.N. was formed—the Internet Governance Forum (IGF)—which would provide an ongoing forum for all stakeholders (both governments and nongovernmental groups) to discuss and debate Internet policy issues. The World Conference on International Telecommunications (WCIT) was held in Dubai on December 3-14, 2012. Convened by the International Telecommunications Union (the ITU, an agency within the United Nations), the WCIT was a formal meeting of the world's national governments held in order to revise the International Telecommunications Regulations (ITRs). The ITRs, previously revised in 1988, serve as a global treaty outlining the principles which govern the way international telecommunications traffic is handled. Because the existing 24-year-old ITRs predated the Internet, one of the key policy questions in the WCIT was how and to what extent the updated ITRs should address Internet traffic and Internet governance. The Administration and Congress took the position that the new ITRs should continue to address only traditional international telecommunications traffic, that a multistakeholder model of Internet governance (such as ICANN) should continue, and that the ITU should not take any action that could extend its jurisdiction or authority over the Internet. As the WCIT approached, concerns heightened in the 112 th Congress that the WCIT might potentially provide a forum leading to an increased level of intergovernmental control over the Internet. On May 31, 2012, the House Committee on Energy and Commerce, Subcommittee on Communications and Technology, held a hearing entitled, "International Proposals to Regulate the Internet." To accompany the hearing, H.Con.Res. 127 was introduced by Representative Bono Mack expressing the sense of Congress regarding actions to preserve and advance the multistakeholder governance model. Specifically, H.Con.Res. 127 expressed the sense of Congress that the Administration "should continue working to implement the position of the United States on Internet governance that clearly articulates the consistent and unequivocal policy of the United States to promote a global Internet free from government control and preserve and advance the successful multistakeholder model that governs the Internet today." H.Con.Res. 127 was passed unanimously by the House (414-0) on August 2, 2012. A similar resolution, S.Con.Res. 50 , was introduced into the Senate by Senator Rubio on June 27, 2012, and referred to the Committee on Foreign Relations. The Senate resolution expressed the sense of Congress "that the Secretary of State, in consultation with the Secretary of Commerce, should continue working to implement the position of the United States on Internet governance that clearly articulates the consistent and unequivocal policy of the United States to promote a global Internet free from government control and preserve and advance the successful multistakeholder model that governs the Internet today." S.Con.Res. 50 was passed by the Senate by unanimous consent on September 22, 2012. On December 5, 2012—shortly after the WCIT had begun in Dubai—the House unanimously passed S.Con.Res. 50 by a vote of 397-0. During the WCIT, a revision to the ITRs was proposed and supported by Russia, China, Saudi Arabia, Algeria, and Sudan that sought to explicitly extend ITR jurisdiction over Internet traffic, infrastructure, and governance. Specifically, the proposal stated that "Member States shall have the sovereign right to establish and implement public policy, including international policy, on matters of Internet governance." The proposal also included an article establishing the right of Member States to manage Internet numbering, naming, addressing, and identification resources. The proposal was subsequently withdrawn. However, as an intended compromise, the ITU adopted a nonbinding resolution (Resolution 3, attached to the final ITR text) entitled, "To Foster an enabling environment for the greater growth of the Internet." Resolution 3 included language stating "all governments should have an equal role and responsibility for international Internet governance" and invited Member States to "elaborate on their respective positions on international Internet-related technical, development and public policy issues within the mandate of ITU at various ITU forums." Because of the inclusion of Resolution 3, along with other features of the final ITR text (such as new ITU articles related to spam and cybersecurity), the United States declined to sign the treaty. The leader of the U.S. delegation stated the following: The Internet has given the world unimaginable economic and social benefits during these past 24 years—all without UN regulation. We candidly cannot support an ITU treaty that is inconsistent with a multi-stakeholder model of Internet governance. As the ITU has stated, this conference was never meant to focus on internet issues; however, today we are in a situation where we still have text and resolutions that cover issues on spam and also provisions on internet governance. These past two weeks, we have of course made good progress and shown a willingness to negotiate on a variety of telecommunications policy issues, such as roaming and settlement rates, but the United States continues to believe that internet policy must be multi-stakeholder driven. Internet policy should not be determined by member states but by citizens, communities, and broader society, and such consultation from the private sector and civil society is paramount. This has not happened here. Of the 144 eligible members of the ITU, 89 nations signed the treaty, while 55 either chose not to sign (such as the United States) or remain undecided. While the WCIT in Dubai is concluded, the international debate over Internet governance is expected to continue in future intergovernmental telecommunications meetings and conferences. The 113 th Congress oversaw and supported the U.S. government's continuing efforts to resist international attempts to exert control over Internet governance. On February 5, 2013, the House Committee on Energy and Commerce, Subcommittee on Communications and Technology, held a hearing entitled "Fighting for Internet Freedom: Dubai and Beyond." The hearing was held jointly with the House Committee on Foreign Affairs, Subcommittee on Terrorism, Nonproliferation, and Trade and the Subcommittee on Africa, Global Health, Global Human Rights, and International Organizations. On April 16, 2013, H.R. 1580 , a bill "To Affirm the Policy of the United States Regarding Internet Governance," was introduced by Representative Walden. Using language similar to the WCIT-related congressional resolutions passed by the 112 th Congress ( S.Con.Res. 50 and H.Con.Res. 127 ), H.R. 1580 stated that "It is the policy of the United States to preserve and advance the successful multistakeholder model that governs the Internet." On May 14, 2013, H.R. 1580 was passed unanimously (413-0) by the House of Representatives. In October 2013, the President of ICANN and the leaders of other major organizations responsible for globally coordinating Internet technical infrastructure met in Montevideo, Uruguay, and released a statement calling for strengthening the current mechanisms for global multistakeholder Internet cooperation. Their recommendations included the following: They reinforced the importance of globally coherent Internet operations, and warned against Internet fragmentation at a national level. They expressed strong concern over the undermining of the trust and confidence of Internet users globally due to recent revelations of pervasive monitoring and surveillance. They identified the need for ongoing effort to address Internet Governance challenges, and agreed to catalyze community-wide efforts toward the evolution of global multistakeholder Internet cooperation. They called for accelerating the globalization of ICANN and IANA functions, toward an environment in which all stakeholders, including all governments, participate on an equal footing. The day after the Montevideo Statement was released, the President of ICANN met with the President of Brazil, who announced plans to hold an international Internet governance summit in April 2014 that would include representatives from government, industry, civil society, and academia. NETmundial, which was described as a "global multistakeholder meeting on the future of Internet governance," was held on April 23-24, 2014, in Sao Paulo, Brazil. The meeting was open to all interested stakeholders, and was intended to "focus on crafting Internet governance principles and proposing a roadmap for the further evolution of the Internet governance ecosystem." The outcome of NETmundial produced a nonbinding "NETmundial Multistakeholder Statement" that set forth general Internet governance principles and identified issues to be discussed at future meetings on the future evolution of Internet governance. According to the U.S. government delegation at NETmundial, the meeting outcome reaffirmed the multistakeholder model of Internet governance, endorsed the transition of the U.S. government's stewardship role of IANA functions to the global multistakeholder community, emphasized the importance of strengthening and expanding upon the mandate of the Internet Governance Forum, and underscored the importance of human rights in the implementation of a free and open Internet. On August 28, 2014, the creation of a NETmundial Initiative for Internet Governance Cooperation and Development was announced by the World Economic Forum in partnership with ICANN and other governmental, industry, academic, and civil society stakeholders. While having no formal relationship with the April 2014 NETmundial summit held in Brazil, the purpose of the NETmundial Initiative is "to apply the NETmundial Principles to solve issues in concrete ways to enable an effective and distributed approach to Internet cooperation and governance." The ITU's three-week Plenipotentiary Conference in Busan, Republic of Korea, concluded on November 7, 2014. The purpose of the conference, which meets every four years, is to set ITU general policies, adopt four-year strategic and financial plans, and elect ITU officials. Prior to the conference, the U.S. delegation (headed by the State Department) had concerns that some ITU members would attempt to expand ITU's role in Internet governance. In the view of the State Department, the conference concluded successfully, with "the member states decid[ing] not to expand the ITU's role in Internet governance or cybersecurity issues, accepting that many of those issues are outside of the mandate of the ITU." On December 15-16, 2015, the United Nations General Assembly held a high-level meeting in New York to review the implementation of outcomes of the World Summit on the Information Society (WSIS). The meeting was preceded by an intergovernmental process that took into account inputs from all relevant WSIS stakeholders. During this process, some nations argued for an enhanced role for national governments in Internet governance and the internationalization of ICANN and the domain name system. The WSIS+10 outcome document supported "the need to promote greater participation and engagement in Internet governance discussions that should involve governments, the private sector, civil society, international organizations, the technical and academic communities, and all other relevant stakeholders." The outcome document also supported the role of the Internet Governance Forum (IGF) and the General Assembly extended the IGF mandate for another 10 years. The U.S. government supported the WSIS+10 outcome, stating that it "establishes a strong foundation for the next ten years, based on multi-stakeholder collaboration." The United States further stated that "greater governmental control could allow repressive regimes to advance policies for censorship or content controls on the web – which is anathema to what the Internet should be about." With ongoing concern over the use of the Internet by terrorist organizations, the question has arisen whether Internet governance mechanisms could be used to combat the use of the Internet by terrorist entities. Traditionally, nation-states can govern the use and content of the Internet within their national boundaries and many have the authority, pursuant to their respective national laws, to monitor, block, and/or shut down websites within their borders. In some instances, these powers and actions have been controversial when, for example, antiterrorism concerns may be used to justify censorship or the suppression of free speech on the Internet. On an international level, governance of the Internet with respect to its content and use is problematic. As discussed earlier in this report, the Internet is decentralized and its functioning relies on the cooperation and participation by mostly private sector stakeholders around the world. As such, there is no international governance entity that currently has authority to remove global Internet content used to promote terrorism. While there have been proposals to establish some level of authority over the Internet by the United Nations, these proposals have originated, for the most part, from regimes such as China, Russia, and Iran, and have been consistently opposed by the United States and other Western nations who fear that increased United Nations authority over the Internet would ultimately support censorship and suppression of free speech. Could ICANN—a functioning model of nongovernmental multistakeholder Internet governance—be deployed to restrict or limit the use of the global Internet by terrorist groups? Currently, ICANN administers the technological infrastructure of the Internet (domain names, Internet protocol numbers and standards) and explicitly does not regulate Internet content. Any attempt to change ICANN policy toward regulating Internet content would likely be strongly opposed by most of the Internet stakeholders who administer and set policy for ICANN through a consensus process. Congress has played an important role overseeing NTIA's stewardship of ICANN and ICANN's management of the domain name system. The House Committee on Energy and Commerce and the Senate Committee on Commerce, Science, and Transportation have held numerous oversight hearings exploring ICANN's performance in general, as well as specific DNS issues that arise. Additionally, other committees, such as the House and Senate Judiciary Committees, maintain an interest in the DNS as it affects Internet policy issues such as intellectual property, privacy, and cybercrime. Since 1997, congressional committees have held over 40 hearings on the DNS and ICANN. The 114 th Congress closely examined NTIA's proposal to relinquish its authority over ICANN and the DNS, thereby transitioning ICANN to a wholly multistakeholder-driven entity. With the transition now complete, Congress may continue assessing how effectively NTIA is advancing U.S. government positions within the Governmental Advisory Committee. Of particular interest may be to what extent ongoing and future intergovernmental telecommunications conferences constitute an opportunity for some nations to increase intergovernmental control over the Internet—at the expense of the multistakeholder system of Internet governance—and how effectively NTIA and other government agencies (such as the State Department) are working to counteract that threat. Finally, the ongoing debate over Internet governance will likely have a significant impact on how other aspects of the Internet may be governed in the future, especially in such areas as intellectual property, privacy, law enforcement, Internet free speech, and cybersecurity. Looking forward, the institutional nature of Internet governance could have far-reaching implications on important policy decisions that will likely shape the future evolution of the Internet. ICANN is a not-for-profit public benefit corporation headquartered in Los Angeles, CA, and incorporated under the laws of the state of California. ICANN is organized under the California Nonprofit Public Benefit Law for charitable and public purposes, and as such, is subject to legal oversight by the California attorney general. ICANN has been granted tax-exempt status by the federal government and the state of California. ICANN's organizational structure consists of a Board of Directors (BOD) advised by a network of supporting organizations and advisory committees that represent various Internet constituencies and interests (see Figure A-1 ). Policies are developed and issues are researched by these subgroups, who in turn advise the Board of Directors, which is responsible for making all final policy and operational decisions. The Board of Directors consists of 16 international and geographically diverse members, composed of one president, eight members selected by a Nominating Committee, two selected by the Generic Names Supporting Organization, two selected by the Address Supporting Organization, two selected by the Country-Code Names Supporting Organization, and one selected by the At-Large Advisory Committee. Additionally, there are five nonvoting liaisons representing other advisory committees. The explosive growth of the Internet and domain name registration, increasing responsibilities in managing and operating the DNS, and the rollout of the new gTLD program has led to marked growth of the ICANN budget, from revenues of about $6 million and a staff of 14 in 2000, to total support and revenue of $162.9 million and a headcount of 382 budgeted for 2016. ICANN has been traditionally funded primarily through fees paid to ICANN by registrars and registry operators. Registrars are companies (e.g., GoDaddy, Google, Network Solutions) with which consumers register domain names. Registry operators are companies and organizations that operate and administer the master database of all domain names registered in each top level domain (for example VeriSign, Inc. operates .com and .net, Public Interest Registry operates .org, and Neustar, Inc. operates .biz). ICANN also collects significant revenue from new gTLD application fees (an estimated $49.5 million in 2016). | The Internet is often described as a "network of networks" because it is not a single physical entity, but hundreds of thousands of interconnected networks linking hundreds of millions of computers around the world. As such, the Internet is international, decentralized, and comprised of networks and infrastructure largely owned and operated by private sector entities. As the Internet grows and becomes more pervasive in all aspects of modern society, the question of how it should be governed becomes more pressing. Currently, an important aspect of the Internet is governed by a private sector, international organization based in California called the Internet Corporation for Assigned Names and Numbers (ICANN). ICANN manages and oversees some of the critical technical underpinnings of the Internet such as the domain name system and Internet Protocol (IP) addressing. ICANN makes its policy decisions using a multistakeholder model of governance, in which a "bottom-up" collaborative process is open to all constituencies of Internet stakeholders. National governments have recognized an increasing stake in ICANN policy decisions, especially in cases where Internet policy intersects with national laws addressing such issues as intellectual property, privacy, law enforcement, and cybersecurity. Some governments around the world are advocating increased intergovernmental influence over the way the Internet is governed. For example, specific proposals have been advanced that would create an Internet governance entity within the United Nations (U.N.). Other governments (including the United States), as well as many other Internet stakeholders, oppose these proposals and argue that ICANN's multistakeholder model is the most appropriate way to govern the Internet. Previously, the U.S. government, through the National Telecommunications and Information Administration (NTIA) at the Department of Commerce, held a "stewardship" role over the domain name system by virtue of a contractual relationship with ICANN. On March 14, 2014, NTIA announced its intention to transition its stewardship role and procedural authority over key domain name functions to the global Internet multistakeholder community. NTIA also stated that it would not accept any transition proposal that replaces the NTIA role with a government-led or an intergovernmental organization solution. For two years, Internet stakeholders were engaged in a process to develop a transition proposal that would meet NTIA's criteria. On March 10, 2016, the ICANN Board formally accepted the multistakeholder community's transition plan and transmitted that plan to NTIA for approval. On June 9, 2016, NTIA announced its determination that the transition plan met NTIA's criteria and that the plan was approved. On September 30, 2016, the contract between NTIA and ICANN expired, thus completing and implementing the transition. With the transition now complete, Congress may continue assessing how effectively NTIA is advancing U.S. government positions within the Governmental Advisory Committee. Of particular interest may be to what extent ongoing and future intergovernmental telecommunications conferences constitute an opportunity for some nations to increase intergovernmental control over the Internet—at the expense of the multistakeholder system of Internet governance—and how effectively NTIA and other government agencies (such as the State Department) are working to counteract that threat. |
Certain individuals and families without access to subsidized health insurance coverage may be eligible for premium tax credits. These premium credits, authorized under the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended), apply toward the cost of purchasing specific types of health plans offered by private health insurance companies. Individuals who receive premium credits also may be eligible for subsidies that reduce cost-sharing expenses. To be eligible for premium tax credits and cost-sharing subsidies, individuals and families must enroll in health plans offered through health insurance exchanges and meet other criteria. Exchanges operate in every state and the District of Columbia (DC). Exchanges are not insurance companies; rather, they are marketplaces that offer private health plans to qualified individuals and small businesses. The ACA specifically requires exchanges to offer insurance options to individuals and to small businesses, so exchanges are structured to assist these two different types of customers. Consequently, each state has one exchange to serve individuals and families (an individual exchange ) and another to serve small businesses (a Small Business Health Options Program , or SHOP, exchange ). Health insurance companies that participate in the individual and SHOP exchanges must comply with numerous federal and state requirements. Among such requirements are restrictions related to the determination of premiums for exchange plans ( rating restrictions ). Insurance companies are prohibited from using health factors in determining premiums. However, they are allowed to vary premiums by age (within specified limits), geography, number of individuals enrolling in a plan, and smoking status (within specified limits). The dollar amount of the premium tax credit is based on a statutory formula and varies from individual to individual. Individuals who are eligible for the premium credits generally are required to contribute some amount toward the purchase of their health insurance. The premium credit is refundable, so individuals may claim the full credit amount when filing their taxes, even if they have little or no federal income tax liability. The credit also is advanceable, so individuals may choose to receive the credit in advance of filing taxes on a monthly basis to coincide with the payment of insurance premiums (technically, advance payments go directly to insurers). Advance payments automatically reduce monthly premiums by the credit amount. Therefore, the direct cost of insurance to an individual or family eligible for premium credits generally will be lower than the advertised cost for a given exchange plan. In order to be eligible to receive premium tax credits, individuals must meet the following criteria: file federal income tax returns; enroll in a plan through an individual exchange; have annual household income at or above 100% of the federal poverty level (FPL) but not more than 400% FPL; and not be eligible for minimum essential coverage (see " Not Eligible for Minimum Essential Coverage " section in this report), with exceptions. These eligibility criteria are discussed in greater detail below. Because the premium assistance is provided in the form of tax credits, such assistance is administered by the Internal Revenue Service (IRS) through the federal tax system. The premium credit process requires qualifying individuals to file federal income tax returns, even if their incomes are at levels that normally do not necessitate the filing of such returns. Married couples are required to file joint tax returns to claim the premium credit. The calculation and allocation of credit amounts may differ in the event of a change in tax-filing status during a given year (e.g., individuals who marry or divorce). Premium credits are available only to individuals and families enrolled in plans offered through individual exchanges; premium credits are not available through SHOP exchanges. Individuals may enroll in exchange plans if they (1) reside in a state in which an exchange was established; (2) are not incarcerated, except individuals in custody pending the disposition of charges; and (3) are citizens or have other lawful status. Undocumented individuals (individuals without proper documentation for legal residence) are prohibited from purchasing coverage through an exchange, even if they could pay the entire premium. Because the ACA prohibits undocumented individuals from obtaining exchange coverage, these individuals are not eligible for premium credits. Although certain individuals are not eligible to enroll in exchanges due to incarceration or legal status, their family members may still receive premium credits as long as these family members meet all eligibility criteria. Individuals generally must have household income within a statutorily defined range (based on FPL) to be eligible for premium credits, with some exceptions. Household income is measured according to the definition for modified adjusted gross income (MAGI). An individual whose MAGI is at or above 100% FPL up to and including 400% FPL may be eligible to receive premium credits. Table 1 displays the income ranges that correspond to the eligibility criteria for premium credits in 2018 (using poverty guidelines updated by the Department of Health and Human Services [HHS] for 2017). To be eligible for a premium credit, an individual may not be eligible for minimum essential coverage (MEC), with exceptions (described below). The ACA broadly defines MEC to include Medicare Part A; Medicare Advantage; Medicaid (with exceptions); the State Children's Health Insurance Program (CHIP); Tricare; Tricare for Life, a health care program administered by the Department of Veterans Affairs; the Peace Corps program; any government plan (local, state, federal), including the Federal Employees Health Benefits Program (FEHBP); any plan offered in the individual health insurance market; any employer-sponsored plan (including group plans regulated by a foreign government); any grandfathered health plan; any qualified health plan offered inside or outside of exchanges; and any other coverage (such as a state high-risk pool) recognized by the HHS Secretary. However, the ACA provides certain exceptions regarding eligibility for MEC and premium tax credits. An individual may be eligible for premium credits even if he or she is eligible for any of the following sources of MEC: the individual (non-group) health insurance market; an employer-sponsored health plan that is either unaffordable or inadequate; or limited benefits under the Medicaid program. Under the ACA, states have the option to expand Medicaid eligibility to include all non-elderly, nonpregnant individuals with incomes up to 138% FPL. If an individual who applied for premium credits through an exchange is determined to be eligible for Medicaid, the exchange must have that individual enrolled in Medicaid instead of an exchange plan. Therefore, in states that have expanded Medicaid eligibility to include individuals with incomes at or above 100% FPL (or any state in which such individuals currently are eligible for Medicaid), premium credit eligibility begins at the income level at which Medicaid eligibility ends. The amount of the premium tax credit varies from individual to individual. Calculation of the credit is based on the household income (i.e., MAGI) of the individual (and dependents), the premium for the exchange plan in which the individual (and dependents) is enrolled, and other factors. For simplicity's sake, the following formula may be used to calculate the credit: Premium for Standard Plan – Required Premium Contribution = Premium Tax Credit As mentioned in the " Background " section of this report, premiums are allowed to vary based on a few characteristics of the person (or family) seeking health insurance. Standard P lan refers to the second-lowest-cost silver plan (see text box in " Eligibility " section of this report) in the person's (or family's) local area. Required Premium Contribution refers to the amount that a premium credit-eligible individual (or family) may pay toward the exchange premium. The required premium contribution is capped according to household income, with such income measured relative to FPL (see Table 1 ). The cap requires lower-income individuals to contribute a smaller share of income toward the monthly premium, compared with the requirement for higher-income individuals (see Figure 1 ). The Premium Tax Credit is the difference between the premium and the required contribution. Given that the premium and required contribution vary from person to person, the premium credit amount likewise varies greatly. An extreme example is when the premium for the standard plan is very low, the tax credit may cover the entire premium and the individual may pay nothing toward the premium. The opposite extreme scenario, for some higher-income individuals, is when the required contribution exceeds the premium amount, leading to a credit of zero dollars, meaning the individual (or family) would pay the entire premium amount. To illustrate the premium credit calculation for 2018, consider a premium credit recipient living in Lebanon, KS—the geographic center of the continental United States—with household income of $18,090 (150% FPL, according to premium credit regulations). Such an individual would be required to contribute 4.03% of that income toward the premium for the standard plan in his or her local area (see Figure 1 ). In other words, the maximum amount that this person would pay for the year toward the standard plan is approximately $729 (that is, $18,090 × 4.03%), or around $61 per month. In contrast, an individual residing in the same area with income of $30,150 (250% FPL) would be required to contribute 8.10% of his or her income toward the premium for the same plan. The maximum amount this individual would pay for the standard plan would be around $2,442 for the year, or approximately $204 per month. A similar calculation is used to determine the required premium contribution for a family. For instance, consider a couple and one child residing in Lebanon, KS, who are eligible for premium tax credits with household income of $30,630 in 2018. For a family of this size, this income is equivalent to 150% FPL for premium credit purposes. Just as in the example above of the individual with income at 150% FPL, this family would be required to contribute 4.03% of its annual income toward the premium for the standard plan in its local area. This means that the maximum amount the family would pay for that plan is approximately $1,234 in 2018, or around $103 per month. Generally, the arithmetic difference between the premium and the individual's (or family's) required contribution is the tax credit amount provided to the individual (or family). Therefore, factors that affect either the premium or the required contribution (or both) will change the premium credit amount. The hypothetical examples below illustrate those changes based on the following selected factors: age, family size, and choice of metal plan. (For simplicity purposes, the premium, contribution, and credit amounts used in these examples have been rounded to the nearest dollar.) Consider the individual residing in Lebanon, KS, with annual household income of $18,090 (as discussed in the " Required Premium Contribution Examples " section of this report). This hypothetical person would be required to contribute about $61 per month toward the premium for the standard plan. If this person were 21 years of age, he or she would face a premium of $421 for the standard plan in his or her local area. Therefore, the amount of the monthly premium credit this individual would receive would be the difference between that premium and his or her required premium contribution, or $421 - $61 = $360. In other words, a 21-year-old resident of Lebanon, KS, with annual household income at 150% FPL who is enrolled in the standard plan that costs $421 per month would contribute $61 toward the monthly premium and receive a monthly credit of $360. In contrast, an older individual residing in the same area, with the same income level, would face a different monthly premium based on his or her age. For example, a 60-year-old individual would face a monthly premium of $1,143 for the same standard plan as the 21-year-old person. But given that an individual's required premium contribution is capped, the 60-year-old Lebanon resident would spend the same amount on the standard plan's premium as would the 21-year-old Lebanon resident because they have the same income level. The difference between these two hypothetical calculations is the amount of the credit. In the case of the 60-year-old individual, the amount of the monthly premium credit would be $1,082 (the arithmetic difference between the premium and the required premium contribution). The 21-year-old individual would face a less expensive monthly premium and thus would receive a lower monthly premium credit amount than would the 60-year-old individual for the same plan (see Table 2 ). Given that premiums for exchange plans (and similar plans offered outside of exchanges) are allowed to vary based on family size, this characteristic affects the calculation of the premium tax credit. For example, take the hypothetical couple and child residing in Lebanon, KS, with annual income at 150% FPL (as discussed in the " Required Premium Contribution Examples " section of this report). The family's required contribution toward the monthly premium for the standard plan in its local area is $103 per month. If you assume both of the adults are 21 years of age, the monthly premium for the standard plan in their area is $1,164. Therefore, this hypothetical family of three would receive a monthly premium credit of $1,061. If this hypothetical family instead had two children and income at 150% FPL for a family of four, but all other facts remained the same as in the previous example, the family of four's required premium contribution would be $124 per month. The family would face a monthly premium of $1,487 for the standard plan in its local area, which would result in a monthly premium credit of $1,363. Although the required premium contribution is based on a standard plan, an individual (or family) may choose to enroll in any metal plan and still be eligible for premium tax credits. However, when an eligible individual enrolls in a plan that is more expensive than the standard plan, that person must pay the additional premium amount. Using the same hypothetical 21-year-old individual from above (see Table 2 ), he or she would be required to pay $61 toward the monthly premium and would receive $360 as a premium credit for the standard plan. If this individual decided to enroll in the highest-cost gold plan instead of the standard plan, he or she would face a premium of $538. Because the individual chose a more expensive plan, he or she would be required to pay the difference in premiums. Specifically, this individual would be required to pay an additional $117 per month, on top of the required $61 monthly premium contribution (see Table 3 ). Therefore, the individual's total monthly premium contribution would be $178 after receiving a monthly premium credit of $360. As mentioned previously, an eligible individual (or family) may receive advance payments of the premium credit to coincide with when insurance premiums are due. For such an individual, advance payments are provided on a monthly basis and are based on income in the prior year's tax return. When an individual files his or her tax return for a given year, the total amount of advance payments he or she received in that tax year is reconciled with the amount he or she should have received. If an individual's income decreased during the year and he or she should have received a larger tax credit, the additional credit amount will be included in the individual's tax refund for the year or used to reduce the amount of taxes owed. By contrast, if an individual's income increased during the year and he or she received too much in premium credits, the excess amount will be repaid in the form of a tax payment. For individuals with incomes below 400% FPL, the repayment amounts are capped, with greater tax relief provided to individuals with lower incomes (see Table 4 ). The IRS has published preliminary data about the ACA tax credit in its annual "Statistics of Income" (SOI) reports. The most recently published SOI reports are for tax years 2014 and 2015. The following data provide summary statistics, for each tax year, about two overlapping taxpayer populations: individuals who received advance payments of the ACA tax credit and individuals who claimed the credit on their individual income tax returns. For tax year 2014, approximately 3.4 million tax returns indicated receipt of advance payments of the ACA tax credit, totaling to almost $12 billion. Of those 3.4 million returns, nearly 1.5 million taxpayers received advance payments that were less than what they were eligible for, and approximately 1.8 million taxpayers received advance payments that were more than what they were eligible for. The remaining difference (less than 60,000) represents taxpayers who received the correct amount in advance payments. The SOI data indicate that approximately 3.1 million tax returns for the 2014 tax year claimed a total of nearly $11.2 billion of ACA tax credit. The 3.1 million returns represent the number of taxpayers who were actually eligible for the ACA tax credit, based on the information provided in the 2014 tax returns. These eligible taxpayers represent those who did receive advance payments of the credit and those who claimed the credit after the end of the tax year. The IRS also has published limited tax credit data by state, county, and zip code. For tax year 2015, approximately 5.7 million tax returns indicated receipt of advance payments of the ACA tax credit, totaling to almost $20.2 billion. In comparison to the 2014 amounts mentioned above, the 2015 data represent a two-thirds increase in both tax return claims and advanced credit amounts. Of the 5.7 million returns indicating advance payments, more than 2.3 million taxpayers received advance payments that were less than what they were eligible for and nearly 3.3 million taxpayers received advance payments that were more than what they were eligible for. In addition, approximately 5 million tax returns for the 2015 tax year claimed a total of nearly $18.1 billion. This represents approximately a 60% increase in both tax return claims and claimed credit amounts compared to 2014. HHS regularly publishes data on persons selecting and enrolling in exchange plans, including individuals who were determined eligible for the premium tax credit. For 2017, HHS made reports and public-use files available with national enrollment data, as well as limited data by state, county, and zip code. As of February 2017, more than 8.7 million individuals were eligible for the ACA tax credit. This figure represents approximately 84% of all exchange enrollees. An individual who qualifies for the premium tax credit, is enrolled in a silver plan (see text box above, "Actuarial Value and Metal Plans"), and has annual household income no greater than 250% FPL is eligible for cost-sharing subsidies. The purpose of these subsidies is to reduce an individual's (or family's) expenses when he or she receives health services covered under the silver plan. There are two types of subsidies, and both are based on income (see descriptions below). Individuals who are eligible for cost-sharing assistance may receive both types of subsidies, as long as they meet the applicable eligibility requirements. The ACA requires the HHS Secretary to provide full reimbursements to insurers that provide cost-sharing subsidies. Federal outlays for such reimbursements totaled the following amounts: FY2014: $2.111 billion; FY2015: $5.382 billion; FY2016: $5.652 billion; and FY2017: $7.317 billion. Although the ACA authorized the cost-sharing subsidies and payments to reimburse insurers, it did not address the source of funds for such payments. The Obama Administration made cost-sharing subsidy payments to insurers using an appropriation that finances the premium tax credits. The House of Representatives filed suit, claiming that the payments violated the appropriations clause of the U.S. Constitution. After holding that the House has standing to sue the Obama Administration, the U.S. District Court for the District of Columbia concluded that the payment of the cost-sharing subsidies was unconstitutional for lack of a valid appropriation enacted by Congress. The court barred the Obama Administration from making the payments but stayed its decision pending appeal of the case. Following the November 2016 election, the court delayed the case to allow for nonjudicial resolution, including possible legislative action. Congress did not provide appropriations, and on October 13, 2017, the Trump Administration filed a notice announcing it would terminate payments for these subsidies beginning with the payment that was scheduled for October 18. However, the administrative decision to terminate cost-sharing reduction payments provides no relief to insurers that are required under federal law to provide subsidies to eligible individuals. Each metal plan limits the total amount an enrollee will be required to pay out of pocket for use of covered services in a year (referred to as an annual cost-sharing limit in this report). In other words, the amount an individual spends in a given year on health care services covered under his or her plan is capped. For 2018, the annual cost-sharing limit for self-only coverage is $7,350; the corresponding limit for family coverage is $14,700. One type of cost-sharing assistance reduces such limits (see Table 5 ). This cost-sharing subsidy reduces the annual limit faced by premium credit recipients with incomes up to and including 250% FPL; greater subsidy amounts are provided to those with lower incomes. In general, this cost-sharing assistance targets individuals and families that use a great deal of health care in a year and, therefore, have high cost-sharing expenses. Enrollees who use very little health care may not generate enough cost-sharing expenses to reach the annual limit. For example, consider the hypothetical individual who resides in Lebanon, KS, and has household income at 150% FPL (as discussed in the " Premium Tax Credit Examples " section of this report). A person eligible to receive cost-sharing subsidies would face an annual cost-sharing limit of $2,450. The practical effect of this reduction would occur when this individual spent up to that amount. For additional covered services received by the individual, the insurance company would pay the entire cost. Therefore, by reducing the annual cost-sharing limit, eligible individuals are required to spend less before benefitting from this financial assistance. The second type of cost-sharing subsidy also applies to premium credit recipients with incomes up to and including 250% FPL. For eligible individuals, the cost-sharing requirements (for the plans in which they have enrolled) are reduced to ensure that the plans cover a certain percentage of allowed health care expenses, on average. The practical effect of this cost-sharing subsidy is to increase the actuarial value (AV) of the exchange plan in which the person is enrolled ( Table 6 ), so enrollees face lower cost-sharing requirements than they would have without this assistance. Given that this type of cost-sharing subsidy directly affects cost-sharing requirements (e.g., lowers a deductible), both enrollees who use minimal health care and those who use a great deal of services may benefit from this assistance. To be eligible for cost-sharing subsidies, an individual must be enrolled in a silver plan, which already has an AV of 70% (see text box above, "Actuarial Value and Metal Plans"). For an individual who receives the subsidy referred to in Table 6 , the health plan will impose different cost-sharing requirements so that the silver plan will meet the applicable increased AV. The ACA does not specify how a plan should reduce cost-sharing requirements to increase the AV from 70% to one of the higher AVs. Through regulations, HHS requires each insurance company that offers a plan subject to these cost-sharing subsidies to develop variations of its silver plan; these silver plan variations must comply with the higher levels of actuarial value (73%, 87%, and 94%). When an individual is determined by an exchange to be eligible for a cost-sharing subsidy, the person is enrolled in the silver plan variation that corresponds with his or her income. Consider the same hypothetical individual discussed in the previous section. Since this person's income is at 150% FPL, if he or she receives this type of subsidy, the silver plan in which he or she is enrolled will have an AV of 94% (as indicated in Table 6 ), instead of the usual 70% AV for silver plans. This marked change in AV entails notable reductions in cost-sharing requirements. For example, the annual medical deductible of the standard plan in the local area for this hypothetical individual is $3,000 in 2018. However, the plan variation with a 94% AV has a deductible of $250. The practical effect for this hypothetical person is that he or she would have to spend $250, instead of $3,000, before the insurer would begin to pay for medical claims associated with that person's use of covered services. | Certain individuals without access to subsidized health insurance coverage may be eligible for premium tax credits, as established under the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended). The dollar amount of the premium credit varies from individual to individual, based on a formula specified in statute. Individuals who are eligible for the premium credit, however, generally are still required to contribute some amount toward the purchase of health insurance. In order to be eligible to receive premium tax credits, individuals must have annual household income at or above 100% of the federal poverty level (FPL) but not more than 400% FPL; not be eligible for certain types of health insurance coverage, with exceptions; file federal income tax returns; and enroll in a plan through an individual exchange. Exchanges are not insurance companies; rather, exchanges serve as marketplaces for the purchase of health insurance. They operate in every state and the District of Columbia (DC). The premium credit is refundable, so individuals may claim the full credit amount when filing their taxes, even if they have little or no federal income tax liability. The credit also is advanceable, so individuals may choose to receive the credit on a monthly basis to coincide with the payment of insurance premiums. The ACA premium credit is financed through permanent appropriations authorized under the federal tax code. Individuals who receive premium credits also may be eligible for subsidies that reduce cost-sharing expenses. The ACA established two types of cost-sharing subsidies (or cost-sharing reductions). One type of subsidy reduces annual cost-sharing limits; the other directly reduces cost-sharing requirements (e.g., lowers a deductible). Individuals who are eligible for cost-sharing reductions may receive both types. Although applicable health plans must provide these cost-sharing reductions, such plans are no longer receiving payments to reimburse them for the cost of providing the subsidies. |
A presidential transition—the period from campaigning through placement of new administration personnel—is a unique time in American politics and holds the promise of opportunity as well as a real or perceived vulnerability to our nation's security interests. On a given day the outgoing administration has the ability to change the policies of a nation and possibly affect the international security environment, yet the following day the President and the national security leadership team are replaced by a new set of leaders who may have very different strategy and policy goals. This political dynamic, coupled with the inherent uncertainty accompanying a presidential transfer of power, may provide a target of opportunity that may be too enticing to resist by those who wish to harm U.S. security interests. Unlike other man-made incidents that may occur with little warning, the presidential transition offers a broadly defined time frame in which an enemy of the United States may decide to undertake an incident of national security significance with the hope of manipulating the electoral process or changing the nation's foreign and domestic policies. Presidential transitions during times of U.S. involvement in military operations and national security-related activities are not unique to the 2008-2009 presidential transition period (see Appendix A ). However, based on the current international security environment and recent attempts to disrupt transfers of power in other countries, many observers see the United States as lurching toward a period of uncertainty and increased risk (see Appendix B ). While the mere presence of a upcoming presidential transition does not ensure an incident of national security significance will occur, security experts argue that this window of potential risk is not lost on the enemies of the United States. At present, the intelligence community assesses that "Al-Qaida will increase the frequency, sophistication, timeliness and Western targeting of its propaganda statements as the United States advances toward the presidential election." While many terrorism experts are concerned about the internal and external threats to the United States during the presidential transition period, the intelligence community is "uncertain what impact [terrorist propaganda] statements will have on the Western Muslim community and other individuals who are Al-Qaeda's primary target audience." According to a presidential transition-related report provided to the Department of Homeland Security (DHS) by the Homeland Security Advisory Committee (HSAC), "briefings, research, and recent history have provided an appreciation of the potential vulnerabilities during transition periods. Not only are we [United States] aware that vulnerabilities exist, but our enemies are as well." As observed by Frances Townsend, former Homeland Security and Counterterrorism Advisor to President George W. Bush, I worry about the period of vulnerability between the time we have nominees for each party through and just after the inauguration of a new President. I think that's a particular period of vulnerability, because of what we know about Al Qaeda's attempts to influence the elections in Spain. We've seen the attacks after [author name scrubbed] took over as Prime Minister in the U.K. We see in the 2004 election where they were issuing videos days before the [United States] election, including bin Laden talking about the streets in the United States running with blood. We know from their history that Al Qaeda wants to influence elections and have political influence. The executive branch is not alone in attempting to ensure the country passes power from one administration to the next in a safe and thoughtful manner. However, the outgoing and incoming administrations are viewed as primarily responsible for addressing risks to the nation and taking actions to prevent and respond to any incident that may affect the electoral process. Whether the enemies of the United States choose to undertake action that may harm national security interests during this period of transition or the new President experiences a relative peaceful period shortly after entering office, many national security issues will be awaiting the new Administration. How the newly elected president recognizes and responds to these challenges will "depend heavily upon the planning and learning that takes place during the transition from one Administration to another." During recent presidential transitions, the current and incoming administrations and Congress have traditionally undertaken numerous activities to facilitate a smooth transfer of executive branch power. Some of the actions often taken during presidential transitions include consulting with government and private sector experts who have presidential transition expertise, providing information to the President-elect after the election and prior to the inauguration, offering operational briefings on ongoing national security matters to prospective presidential nominees and their staff, preparing briefings books and policy memos detailing the issues of most concern to the current administration, and expediting security clearances for president-elect transition team members. Other activities that the current and incoming administrations and Congress may wish to consider undertaking during the presidential transition period include undertaking public outreach efforts to discuss possible risks to the nation, involving the national security representatives of presidential hopefuls in all transition-related discussions, establishing joint advisory councils responsible for addressing all transition-related risks, requiring the Director of National Intelligence (DNI) to undertake efforts to support the nation's awareness of risks, reflecting the national security priorities of the new Administration in the 2009 budget, passing the FY2009 appropriations without undue delay; quickly assigning newly elected and existing Members of Congress to committees focused on national security, holding hearings comprised of national security experts to gather ideas on prospective U.S. national security policies and goals, and holding hearings soon after the inauguration of the new President to determine the Administration's national security-related priorities. The next Administration is likely to face many national security challenges on taking office. Some security experts suggest that the presidential transition period of 2008-2009 may be unique given the quantity, diversity, and breadth of security risks confronting the nation. The incoming Administration is likely to face three distinct types of national security challenges that could translate into short- and long-term national security risks. For purposes of this report, the national security challenges the next administration might face include the following: Current U.S. military engagements : Iraq, Afghanistan, and other military support or training activities related to the global war on terrorism and counter-proliferation efforts. Risks posed in countries and regions of concern : Iran, North Korea, Russia, China, Republic of Serbia, Venezuela, Cuba, and the Middle East; and Risks associated with contemporary issues : the role of U.S. foreign policy in international security matters, the role of the military in nation-building activities and diplomatic endeavors, international terrorism, non-proliferation, and homeland security. While the issues are not exhaustive and may not require the same level of attention and priority based on the new Administration's foreign and domestic security objectives, time devoted to understanding these and other challenges prior to the inauguration to may better prepare the newly elected President to make well-reasoned decisions on assuming office. Many presidential historians argue that during the early days of the new Administration the knowledge and decision-making activities will, in part, be based on information provided by the outgoing Administration. With the presidential transition period running from the formal announcement of candidates for the office of the presidency to long past the inauguration, members of the current Administration and potential incoming Administration may wish to initiate substantive transition activities in an efficient and productive manner as soon as possible. Specifically, some scholars state that "enhanced cooperation and communication between the two Administrations is demanded by national security and foreign policy concerns." It is further observed that, "as the world becomes more dangerous and the risks to harm more immediate, the need for effective and seamless transitions becomes correspondingly greater." Thus, with respect to national security issues in particular, the need for outgoing and incoming Presidents to work together is no longer an option, but an unavoidable demand of the contemporary world. Throughout the entire presidential transition period, a number of national security-related concerns and opportunities may be presented to the incoming and outgoing administrations. Even under the best of circumstances, the sitting President and President-elect may encounter unexpected issues that can lead to decision-making perils. However, many observers argue that the national security-related collaborative efforts of the current administration and members of the potential new administration coupled with oversight activities throughout the transition period offer the nation the best hope of being prepared to recognize and respond to acts taken to disrupt the transfer of power or change U.S. policies. Congress may wish to request classified and unclassified hearings and reports regarding the Administration's knowledge and efforts related to the following issues. Threats to the 2008-2009 presidential election may be numerous with "dangers associated with the transition emanating both from within the homeland and internationally." Some national security observers are convinced that a terrorist group will take action against United Stares interests during the presidential transition period. It is argued that enemies of the U.S. may see the nation as physically and politically vulnerable and that disseminating threatening propaganda or undertaking an incident of national security significance during the election period would likely result in a change in the election results or future policies. Statements or incidents may be undertaken with the desire to demonstrate a group's ability to reestablish its status as an entity to be feared, intimidate the voting public, suggest perceived weaknesses in a given candidate's national security position, change the results of the election, or change future U.S. policies. Many national security observers speculate that, if an incident of national security significance is to occur, enemies of the United States would prefer to take action just prior to the presidential election date. However, such acts at anytime during the presidential transition period could have desired and unintended effects on the presidential election and resulting policies. Conversely, while many national security experts speculate that Al Qaeda, other extremist groups, and some foreign powers may see the presidential transition period as a desirable time to undertake action against U.S. interests, the mere fact that such activity occurs may not necessarily indicate that the act was committed with the desire to manipulate the results of the election. The timing of such acts may be solely based on the convergence of an entity attaining a desired capability with a perceived best opportunity to successfully complete its objective. One factor complicating the 2008-2009 transition is the recent establishment of numerous new national security agencies with responsibilities for preventing future terrorist attacks or harms to U.S. interests. These organizations have not undergone a presidential transition and may see many political appointees depart federal government service prior to the inauguration of the next President. Also, the organizations that existed during the last presidential transition and the new agencies may have employed many new personnel who are not well-versed in addressing matters of national security during times of presidential transition. Additionally organizations that pre-date the attacks of September 11, 2001, and that previously had national security responsibilities, may be asked to devote additional attention and resources to presidential transition-related issues. Based on the length of time between the previous presidential transition, the departure of senior political and career officials, and the influx of new personnel addressing national security issues, it is possible that some federal agencies may not be properly anticipating the attention required or resources needed to support the incoming Administration's preparation and policy familiarization efforts. Some security observers contend that if proper planning has not occurred efforts to support the incoming Administration may require personnel and resources to be transferred. This reallocation could detract from ongoing national security related activities and possibly place the nation at risk. In May 2007, President Bush signed Presidential Directives focused on Continuity Of Government (COG) and Continuity of Operations (COOP) procedures during times of crisis. Contained in these Directives was a provision describing the national essential functions that are to be continued to support the perseverance of the U.S. government during times of crisis. In recognizing the importance to plan for unforeseeable events that may effect the functioning of the nation, the Directives identified a need for a "cooperative effort among the executive, legislative, and judicial branches of the federal government to preserve the constitutional framework under which the Nation is governed and to execute constitutional responsibilities and provide for orderly succession, appropriate transition of leadership, and interoperability and support of the national essential functions during a catastrophic emergency." Some security observers contend that the outgoing and incoming Administrations may wish to coordinate closely throughout the presidential transition period on these two activities. During previous presidential elections, some officials in the federal government have seen the need to address and plan for options that might be considered should the presidential election be delayed. While noting federal election dates are set by law requiring congressional action to change the current schedule, DeForest Soaries, former Chairperson of the United States Election Assistance Commission, wrote to then-DHS Secretary Ridge on June 25, 2004, that the process and procedures are undertaken in very different manners in the nation's 8,000 voting jurisdictions. Chairperson Soaries stated that DHS and the federal interagency structure provide assistance to federal, state, and local government's by collaborating on a plan to address voting options should a terrorist attack occur around the time of the election. Many security experts argue that federal, state, and local election-contingency planning and coordination should occur during the early phases of the transition period. It is further suggested that, barring such discussions, the issuance of general guidelines, or a genuine effort toward collaboration, the prospects for electoral chaos might occur should an incident of national security significance take place just before or on the date of election. During all phases of the presidential transition process, many national security experts suspect the federal government will receive information that heightens the risks to U.S. national security interests that may be, in part, based on activities by enemies of the United States attempting to influence the upcoming election. Should such a heightened risk environment occur, some observers suggest that one of the best ways to meet this challenge is by a showing of national unity among the outgoing Administration and individuals vying for the presidency. To support a collegial and collaborative environment, the Homeland Security Advisory Council (HSAC) suggests the nominees issue a joint statement addressing potential threats to the nation or in response to an incident of national significance. Some foreign policy experts suggest joint statements and activities by the current President and the prospective Presidents-elect take place with regularity to put forth a common voice to both the American public and the enemies of the United States that security issues will be addressed in a unified and coordinated manner. Throughout the presidential transition period the federal government may wish to undertake outreach and education efforts directed at the American public. A public awareness campaign, led by the federal government, discussing a need for citizens to be more-vigilant during the election period and providing insight into what the federal government will do in the event of an incident prior to election day may provide confidence to a concerned voting public. Activities such as this may prove useful in preparing the voting public to be aware of the possibility of an incident of national security significance occurring during the presidential transition period and also may lower the anxiety of citizens planning on participating in the electoral process. With respect to security-related issues in the homeland, many observers argue that awareness on the part of the citizenry offers the best opportunity to provide indicators of anomalies that might be indicative of a group's preparation to undertake criminal activity to affect the presidential election process. To this degree, the DHS HSAC contends that continuous interaction with the media and the public regarding potential threats during this time period will maximize the chances of having a nation prepared for harmful activities that may occur during any phase of the presidential transition. The DHS HSAC specifically opined: It is important that the American public become engaged in understanding the unique vulnerabilities posed by this transition period. This will require public education and media engagement during this critical period in our history. Before, during, and after the transition, the public must learn about the choices faced by the Nation, communities, families, and individuals. The public must become a partner with their government, sharing the burden. In addition, DHS should continue to engage the media as an ally in the timely dissemination of accurate and actionable information. DHS must work with the multiple messengers, trusted within diverse communities, to effectively communicate this information. The DHS has the responsibility to notify the American public of current or prospective threats to U.S. domestic security interests, and the Department of State has the responsibility to alert U.S. citizens located overseas of security related concerns. Both organizations have numerous communication mechanisms to inform U.S. citizens and organizations regarding concerns related to the presidential transition period and, when required, to share threat information. Communication mechanisms for conveying information about the presidential transition period include: Department of Homeland Security: Official public announcements to the media, public service announcements, changes to the Homeland Security Advisory System, dissemination of information to state and local fusion centers and to private sector organizations, and posting information to DHS managed websites. Department of State: Official public announcements to the media, warden system alerts, travel alerts, country specific warnings, country background notes, and posting information to State Department managed websites. Modern presidential transition activities are no longer constrained to the time between the election and inauguration. Some presidential historians argue that, "history tells us that any winning candidate who has not started (transition efforts) at least six months before the election will be woefully behind come the day after the election day." While the time period and phases of a presidential transition are not statutorily derived, for purposes of this paper, the presidential transition period is comprised of five phases extending from presidential campaigning activities to the new President's establishment of a national security team and accompanying strategies and policies. Each phase identifies issues to consider by the outgoing and incoming Administrations and the Congress. The phases of the presidential transition are as follows: Phase 1 : Campaigning by presidential candidates Phase 2 : Selection of party nominees Phase 3 : Election day Phase 4 : Post election day to prior to the inauguration Phase 5 : Presidential inauguration to formation of the new Administration's national security team and issuance of policy directives Phase 1 of the presidential transition includes the time frame from campaigning by presidential hopefuls to the national political conventions that officially select the party nominees. This period can last a few months to a year or longer depending on a number of factors, including the current President's desires and constitutional ability to run for re-election, the plans of individuals from the same party as that of the sitting President to challenge the President's re-election bid, and the opposing party's time frame for launching unofficial or official presidential nomination activities. A number of activities can occur during the first phase of presidential transition activities that would benefit the incoming President and may prove useful toward providing continuity with respect to U.S. national security matters. As noted in the Homeland Security Advisory Council Presidential Transition Report , "it is important that DHS take action now to ensure a seamless and agile transition to new leadership and optimize the new leadership's ability to assume operational control of the Department." Recommendations offered by the Advisory Council that could be undertaken during the first phase of the transition include clarifying the meaning of "heightened threat" during the transition period by notifying all homeland security partners of historical patterns; developing contingency plans around the homeland security themes of prevent, prepare, respond, and recover; providing prospective presidential nominees information regarding lessons learned from incidents occurring during previous leadership transitions; and offering operational briefings on ongoing national security matters to prospective presidential nominees and their staff. The current Administration may wish to consider initiating information exchanges and collaborative efforts with the major party candidates in this, the earliest phase of the transition. Generally speaking, as the campaign for President progresses through the spring and leading up to the presidential conventions, relatively few leading candidates will emerge as viable contenders for gaining the nomination of a given political party. The current Administration could bring this relatively few number of individuals, and their designated senior national security staff, into briefings and discussions regarding national security issues that will likely be of concern to incoming Administrations. As stated by the former Homeland Security Advisor and Counterterrorism Advisor to President George W. Bush, "over the next 12 months the current Administration has a special obligation to have a far more robust transition plan in a post-9/11 world than we've ever seen before." An issue of concern to some presidential transition observers is the turnover of personnel occupying key positions in the federal government. There are over 7,000 federal government leadership, management, and support positions that are non-competitively filled by political appointees. Some observers suggest that many of the 7,000 positions have, as part of their primary function, national security responsibilities. Should large numbers of political appointees depart in the months preceding the inauguration, the federal government would likely rely on Senior Executive Service personnel, career diplomats, senior military officers, and senior general-schedule employees for continuity of operations, leadership, and management of most national security related activities. While the occupation of senior policy positions by career government employees may not necessarily be a problem, a number of considerations arise in such an environment. Appointing career civil servants to mid- to high-level positions in federal departments and agencies has been offered by national security observers as a way to provide continuity during presidential transitions. This action may allow agencies to operate without interruption and provide the new congressionally confirmed or presidentially appointed agency directors with in-house expertise and historical context about the organization. As a proponent of converting some of the federal government's national security leadership positions to career civil servants, DHS Acting Deputy Secretary Schneider noted "it's important to realize that major terrorist attacks, both here and abroad, are often launched shortly before or after national elections or inaugurations. By promoting dedicated civil servants who've proven their mettle, we're not only building for the future, but are helping ensure that during the transition, as the perceived weakness grows, our Department is prepared." While the promotion of civil servants into federal agency deputy positions is welcomed by many national security observers, others are concerned with the selection process that supports this activity. Some are concerned that the individuals chosen for these positions are being selected by the current Administration's political leadership and that this may be a way for individuals with like-minded political philosophies to maintain control over an agency and pursue policies that are counter to a new Administration. The National Security Council (NSC) is the President's "principal forum for considering national security and foreign policy matters with senior national security advisors and cabinet officials," whereas as the Homeland Security Council's (HSC) purpose is to "ensure coordination of all homeland security-related activities among executive departments and agencies, and to promote the effective development and implementation of all homeland security policies." The current Administration might consider establishing a joint advisory council that draws on the expertise and experience of both the NSC and HSC to assist with transition issues. This new body could be comprised of political and career staff from the NSC and HSC, outside experts with transition expertise, and members of the prospective president-elects national security team. Organizational responsibilities could include coordinating the presidential transition policies of agencies having national security missions. In assisting the transition process, the entity could attempt to ensure presidential transition period activities are coordinated in an interagency manner and are cognizant of the effects current efforts may have on a new Administration. If so desired by the President-elect, this organization could continue for a period of time into the next Administration. The council could have responsibility for advising the outgoing and incoming Presidents on possible policy implications of national security decisions made and actions taken during all phases of the presidential transition. The Office of the Director of National Intelligence (ODNI) is responsible for assessing and reporting on risks to the Nation and has many organizations that directly or indirectly provide analytical and operational support to the President and senior members of the national security community. The following options are activities that the DNI could undertake to facilitate the federal government's understanding and ability to respond to risks during the 2008-2009 presidential transition. Require the National Intelligence Council (NIC) to lead an analytic effort to assess risk to U.S. interests during the presidential transition period. This effort could result in the issuance of a classified and unclassified National Intelligence Estimate discussing the intelligence aspects of the upcoming transition. Establish a presidential transition Mission Manager to lead and coordinate all federal intelligence and law enforcement analytic efforts. Enhance the National Counterterrorism Center's (NCTC) ability to receive and assess threat information. Ensure the DHS' Office of Intelligence and Analysis receives relevant threat information in a timely manner to facilitate sharing activities with domestic federal, state, local, tribal, and private sector organizations. Enhance the Interagency Threat Assessment Coordination Group's ability to coordinate and report federal and local threat information that may be related to the presidential transition. Provide the nation's state fusion centers information and specific indicators of suspicious activity that may portend possible risks associated with the presidential transition. During phase 1 of the transition, the presidential candidates and their assembled national security teams may be attempting to ascertain the current Administration's national security policies and activities and collaborate with it on issues that may affect the prospective presidency. To support these efforts, according to a senior Administration official, since the summer of 2007, the DHS has been working on a plan to prepare for the presidential transition. While the details of this plan have not been made public, news articles have reported that the former Deputy Secretary of the DHS spent a great deal of time addressing transition-related issues. In consideration of some work already being pursued at DHS, and in making new recommendations, the HSAC Presidential Transition Report proposed that the following issue areas be addressed during the Department's transition: threat, leadership, congressional oversight, policy, operations, succession, and training. While many national security observers found the report to be a good effort at addressing transition related issues that require the focus of DHS, others argue that the report fell short of meeting the needs of all facets of the transition period. Specifically, some national security observers argued that the options put forth were to narrow in scope and found the report lacking in the following areas. Too much focus on outgoing Administration efforts, and too little attention given to the activities related to preparing the incoming Administration for the challenges it will likely face; Too much emphasis on the administrative process of transitioning to a new Administration, rather than ensuring incoming Administration employees are cognizant of current and projected substantive homeland security issues likely to be faced during the first year of the Presidency; No discussion of how state, local, tribal, and private sector leaders with homeland security responsibilities should prepare for activities related to the upcoming presidential Administration transition; Little detail provided on how training, education, and exercise activities can be used to prepare incoming Administration officials with national security responsibilities to be better prepared to meet current and future challenges; and No discussion or apparent plans to use the members of the HSAC task force to provide assistance or support to incoming Administration homeland security leaders. What is unclear is whether the transition-related efforts pursued by DHS or recommended by the HSAC are being undertaken by other federal agencies with national security responsibilities. Also unclear is the role, if any, of non-federal entities with security responsibilities and members of the prospective presidential candidates national security teams, in participating in the current Administration's transition planning efforts. Current Administration officials responsible for interagency coordination activities have stated that they have, and will continue to, undertake a number of transition efforts designed for the next Administration's national security leaders. The stated focus of these efforts include meeting with government and private sector experts who have presidential transition expertise, preparing briefings books and policy memos detailing the issues of most concern to the current Administration, and developing interagency policy coordination reference manuals. Senior Administration officials also stated that, after election day and prior to the inauguration, the current Administration plans to offer the incoming Administration's national security team the opportunity to attend exercises focused on understanding and testing national security coordination capabilities. While this idea may have merit, some argue that, in order for such an activity to be useful to the incoming Administration, early participation by members of the prospective President-elects national security team should be included in initial discussions of designing the parameters of these exercises. Some national security observers are concerned about the selection of the issues that the current Administration decides to use as the basis for the incoming Administrations exercise activities. Some suggest that the exercises should focus on catastrophic issues; nuclear terrorism (at home or abroad), major natural disaster, major offensive against deployed military forces, or some other significant national security incident. Others opine that the most likely non-catastrophic scenarios should be used as a basis of these exercises: increased threat environment, detonation of an improvised explosive device in the homeland, or some less significant incident. Regardless of the scenario, it does not appear that the goals of the exercises are to convey a sense of subject-matter expertise on a topic or design the perfect prevention or response plan for each possible incident that might affect United States interests. Rather, the training appears to be focused on assisting the incoming national security team members to understand United States national security capabilities and limitations and how the federal government's interagency team might coordinate activities in a heightened risk environment. Some national security observers see congressional interest in and support of presidential transitions as a crucial aspect of orderly transfers of power in the executive branch. Others argue that Congress should confine its activities to simply providing the funds necessary to support the transfer of presidential authority and act quickly to confirm the President-elect's nominated senior leadership team. Regardless of the level of involvement in the presidential transition desired by the incoming and outgoing Administrations, congressional leaders have already voiced concern about the upcoming election period, and noted a desire to provide oversight and resources to support the change of Administrations. Some suggest that, without early and substantive congressional involvement in presidential transition activities, foreign and domestic security risks may not be addressed in as full a manner as possible. Possible Congressional Activity . During phase 1, congressional support and inquiry may include appropriating resources to support outgoing and incoming national security collaboration efforts, holding classified and unclassified hearings and meetings with the both the incoming and outgoing Administrations to ascertain current transition activities, submitting questions to the outgoing Administration to ascertain transition planning activities and the known and projected risks during the transition period, and providing a sense of the Congress resolution that notes the importance of effective and collaborative activities between the departing Administration and the incoming Administration. Congress may also wish for the current Administration to provide the names of agency leaders responsible for making national security related decisions during the presidential transition period, briefings on the possible risks to the presidential transition process, information about the significant national security operations that will be ongoing during the transfer of power, and briefing about the Administration's efforts to engage and collaborate with prospective new Administration senior security officials. Congress may also consider addressing the upcoming presidential transition with legislation requiring the outgoing Administration to refrain from activities that could commit the next administration to national security actions that would unnecessarily bind the hands of the next president. An area of apparent congressional interest is the near-term departure of knowledgeable political appointees and career managers during a presidential transition that may significantly hamper the federal government's ability to prevent and respond to issues of national security importance. Chairman Thompson of the House Homeland Security Committee recently observed that vacancies at the DHS are "an enormous security vulnerability should an attack occur during the upcoming presidential transition." Early in the presidential transition period, Congress may choose to determine the executive branch departments and agencies with national security responsibilities, review the projected leadership succession plan, and obtain the names of the individuals who have the authority to undertake action in the event an incident occurs during the transfer of power. In the months leading up to the 2008 presidential election, many national security observers expect that Members of Congress will increase the number of questions posed to current national security leaders about plans to support the presidential transition period and require more specificity with respect to current and future planning efforts. Phase 2 of the presidential transition includes the time frame from the selection of individuals at the two major political party presidential nominating conventions to the day of the presidential election. This phase will last a few months as the political party conventions usually occur in the summer preceding the November election. Many national security experts suggest that phase two may be the time when the specter of increased risks to the nation is heightened. Officials at all levels of government may become concerned about national security interests being affected during the time leading up to election day. It is possible that the current administration may consider undertaking military or law enforcement-related actions during this time to prevent a group from disrupting the election or threatening national security interests. Such actions, while possibly needed to safeguarded the nation's security interest, are often the source of frustration as some question the veracity of the threat information and the need for related preventative actions. Some see these activities as pursued purely for political purposes. Others argue that the current national security leaders are placed in an unenviable position of trying to protect national security interests during times of heightened political skepticism. With the field of potential presidential candidates likely reduced to two major party candidates, the outgoing Administration may wish to consider continuing the historical pattern of routinely providing presidential nominees and their senior staff information and briefings on matters of national security. Scholars who follow matters of national security note that, "in the pre-election period, it has proved feasible and desirable to provide intelligence briefings to candidates from both or even multiple political parties. For the most part this has been done and it should certainly be continued." Section 7601 (c)(2) of the Intelligence Reform and Terrorism Prevention Act of 2004 (IRTPA ( P.L. 108-458 ; 50 U.S.C. 435b)) allows each major party candidate for President to submit, before the date of the general election, requests for security clearances of prospective transition team members who will require access to classified information to carry out their responsibilities as a member of the President-elect's transition team. The Act further states that, to the fullest extent practicable, necessary background investigations and eligibility determinations of prospective transition team members shall be completed by the day after the date of the general election. During phase 2 of presidential transition activities, the prospective Presidents and their staffs will likely undertake efforts to fully understand current United States national security policies and related operational activities, and may request meetings with current Administration security officials. Completion of security clearance reviews for relevant personnel would greatly assist these efforts. During phase 2 of the federal transfer of executive branch power, Congress may desire to provide resources to federal and non-federal security entities to facilitate the transition efforts, effectuate incident deterring activities, and shore up programs that may be required to respond to an incident. Support to Non-Federal Entities with Security Responsibilities . Some national security observers are concerned that a lack of sufficient coordination and planning between federal and state security entities could affect the presidential electoral results should an incident of national security significance occur prior to or on election day. In addition to providing funds to the incoming and outgoing Administrations to support transition related activities, including national security-related support provided by departments and agencies, Congress may wish to provide resources to non-federal entities responsible for safeguarding the homeland during the presidential transition. Just as all homeland security issues emanate from a local community, an incident occurring in the United States will initially be managed by local responders. Whether it's a man-made incident or natural disaster, some scholars state that all levels of government may wish to consider the constitutional and practical options that would facilitate a transfer of power in the event a domestic security incident occurs prior to or on the day of election. With a possibility of decision-making paralysis during phase two due to the departure of key national security personnel prior to the election, and acting directors assigned to positions of significant responsibility having uncertainty about agency roles and capabilities, federal prevention, response, and recovery efforts could be delayed. Should such a dynamic occur, greater burden will be placed on local homeland security entities to identify risks to local communities and respond to an incident or set of incidents. Phase 3 of the presidential transition is the actual day of the presidential election. Consistent with the opportunities for public outreach efforts noted in phase 2, senior federal government leaders may wish address risks to the homeland on the day of election. In addressing any known or possible threats, senior federal officials might offer that citizen involvement in the democratic process is an effective way to demonstrate to those who wish to harm the nation that acts of intimidation will not affect the electoral process. Other actions the Administration might take to support the voting public's confidence in participating in the presidential elections include providing relevant threat information to state homeland security fusion centers in a expedited manner, working with state and local security officials to secure the nation's polling places, and increasing security for suspected targets in the United States to prevent or mitigate damage from attacks meant to disrupt the voting activities. Resolving the presidential election in a timely manner is crucial to allowing the incoming Administration the time necessary to prepare for current and future national security challenges. The longer the presidential election results are delayed the less time the current Administration has to assist the new Administration, President-elect personnel decisions are delayed, and, some security observers would see the U.S. as increasingly at risk due to the uncertainty in who will lead the country. While the actual day of the presidential election may be uneventful, some observers argue that legislative oversight of transition activities of the current Administration taken to this point may key to ensuring the incoming Administration is as well prepared as possible. In enacting the Presidential Transition Act of 1963, Congress provided the current Administration significant discretion in deciding the level of support to be given to the incoming Administration. In recognizing the potential risks that may be associated with a presidential transition, the Act noted the need for an orderly transfer of executive power. The national interest requires that such transitions in the Office of the President be accomplished so as to assure continuity in the faithful execution of the laws and in the conduct of the affairs of the Federal Government, both domestic and foreign. Any disruption occasioned by the transfer of the executive power could produce results detrimental to the safety and well-being of the United States and it people. Accordingly it is the intent of Congress that appropriate actions be authorized and taken to avoid or minimize any disruption. Phase 4 of the presidential transition includes the eleven-week time frame from the selection of the winning candidate to the date the President-elect is sworn in to office: inauguration day. National security considerations unique to this phase of the transition period include incidents of national security significance that are intended to take advantage of the perceived confusion in national leadership. Such incidents may be undertaken with the idea of attempting to have the outgoing and incoming Administrations at odds with one another with respect to presidential decision-making desires and to try and take advantage of perceived interagency coordination confusion. With many of the prior Administration's political appointees stepping down from their positions and the as of yet to be named or confirmed new political appointees placed in their agencies, some are concerned about the ability of the federal government's ability to effectively recognize, prevent, or respond to an incident of national security interest. Some security experts are concerned that the remaining leadership in various departments and agencies, some of whom are presumably career civil servants that are serving in an acting capacity, could fall victim to receiving conflicting direction from both the outgoing and incoming national security leaders. While some presidential observers argue that there is little motivation for the staff of the outgoing Administration to cooperate with incoming Administration members, others suggest that, when it comes to matters of national security, the desire to protect U.S. interests and preserve the outgoing President's legacy should supersede adverse actions or lack of effort by those soon to depart the White House. It is often observed that the level of animus shown by the outgoing President to the President-elect will have a great deal to do with the cooperation the incoming Administration's transition planning team receives from individuals currently in positions of power. It has also been noted that transitions between Administrations of the same party appear to go smoother. The President's statements and actions with respect to the ongoing transition, specifically as it involves matters of national security, will set the tone and spirit of efforts taken by current staff to assist members of the incoming Administration. Any actions or statements that are perceived to undermine the incoming Administration's policy views on national security matters could be seen as attempting to frustrate the transition process, and have negative security repercussions for the new Administration's efforts to conduct foreign policy or address national security-related issues. Some presidential historians see the primary role of the outgoing Administration during the post-election day period as facilitating a transparent and productive transition environment. The desire is that such actions will allow the incoming Administration to be in the best possible position to identify and respond to any significant national security issues that may arise soon after taking office. Such security-related strategic, operational, and policy transition-related activities can be offered in the form of briefings, written product, exercises to simulate day-to-day and crisis environments, and other aspects of collaboration and coordination awareness activities. http://www.usnews.com/blogs/news-desk/2008/02/27/homeland-security-cites-successes.html . Activities that could facilitate an effective national security transition include the providing of timely and relevant national security information, the formation of a council specifically focused on national security issues, and expediting the security clearance process for incoming members of the President-elect's national security team. Effective Use of Presidential Transition Funds . Prior to 1963, funds were not allocated by Congress to support the presidential transition and coordination between incoming and outgoing Administrations was generally limited to the administrative issues. Since the enactment of the Presidential Transition Act of 1963, Congress has provided the General Services Administration (GSA) funds to support the substantive aspects of the incoming and outgoing change of Administration activities. For FY2009, GSA has requested $8.5 million to support presidential transition efforts. The requested funds include $5.3 million for staffing and training of incoming Administration employees; $2.2 million to provide President Bush with accommodations, a pension, office space and basic staffing, and $1 million to support executive branch briefing, training, and workshop activities for members of the new Administration. Historically, funds allocated for presidential transition activities have also been used for travel expenses, the hiring of consultants, and reimbursing federal agencies for various types of support. As authorized by the Act, funds provided by GSA to the incoming Administration can only be used from the time period of the day following the general election to 30 days after the presidential inauguration. The Presidential Transition Act of 1963, an amended by the Act of 2000, authorizes the GSA to provide a greater level of support to the President-elect and prospective senior leaders of the incoming Administration. The Act allows the GSA to coordinate briefings for incoming Administration leaders, provide communication devices to these individuals, and create a directory of legislative and administrative materials that would be useful for new Administration leaders. Ensure the President-Elect is Aware of Issues that May Affect National Security Interests . During this phase of the transition, every effort should be taken to apprise the incoming President and the senior national security staff of current and near-term threats that may affect United States interests. While the new Administration may be aware of many strategic foreign policy and national security issues, activities relating to tactical, operational, and near-term threats will be the items most likely to surprise and negatively affect the new Administration soon after the inauguration. Consistent with section 7601 of IRPTA of 2004 and a recommendation contained in the 9/11 Commission report, Congress requires the outgoing Administration to "prepare a detailed classified, compartmented summary by the relevant outgoing executive branch officials of specific operational threats to national security; major military or covert operations; and pending decisions on possible uses of military force." To assist with Administration national security-related transition efforts, the Act also requires the aforementioned summaries to be provided to the President-elect "as soon as possible after the date of the general elections." Establishment of a Presidential Transition National Security Coordination Council . The outgoing President may wish to consider creating a Presidential Transition Coordinating Council. However, unlike the make-up of previous Councils, the current Administration may wish to involve members of the President-elect's national security team to participate interagency discussions and decision-making activities. In light of the national security issues the next Administration is likely to encounter and the possibility of increased risk to national security interests during the transition period, the Presidential Transition National Security Coordination Council could focus on current and projected issues that might affect policy formation and the short-term actions of the new Administration. A joint Administration Presidential Transition National Security Coordinating Council could oversee the national security transition related activities of federal departments and agencies; facilitate national security focused training and orientation activities to prepare incoming appointees; discuss and collaborating on substantive national security issues that are currently underway or pending decision; and offer lessons learned from past policy and operational national security activities. Expedited Security Clearance Processing for President-Elect Transition Team Members and Nominated Members of the New Administration . If not already occurring during an earlier phase of the transition period, soon after the election, it is common for the President elect, Vice President elect, and senior members of the incoming Administration's transition security team to start receiving classified intelligence briefings. For those individuals who do not already possess an active security clearance, the IRPTA of 2004 allows the President-elect to submit to the FBI or other appropriate agency the names of candidates to be nominated for high-level national security positions through the level of under secretary as soon as possible after the date of the general elections. Prior to the inauguration, the FBI or other appropriate agencies are responsible for undertaking the background investigations necessary to provide appropriate security clearances to individuals who have been designated by the President-elect as key administration officials. While the adjudication of security clearances is often a concern for individuals who have recently been hired into the federal government, it appears the FBI does have the ability to put forth the resources necessary to ensure senior national security officials are investigated and, where warranted, receive the approval to view classified material in an expeditious manner. From a national security standpoint, phase 4 of the transition period is quite possibly the most hectic and exciting. With eleven weeks between election day and the inauguration ceremony, the outgoing and incoming Administrations have much work to accomplish. As the presidential transition period continues and the window for affecting the electoral process narrows, some see this phase as the most likely time for an enemy of the United States to undertake an action to attempt to throw the country into presidential decision-making chaos. With the campaigning and the election no longer a concern, the President-elect will have little time for celebration and reflecting on the past, as collaboration with the current Administration being seen as an essential element of future success. In this regard the HSAC Administration Task Force has proposed, the incoming and outgoing Administrations work closely together toward a shared commitment to ensuring a smooth transition of power. This is facilitated by a positive attitude and open mind in both incoming and outgoing Administrations, combined with the willingness to respect and listen to each other's concerns and priorities. The same attitude must also characterize the behaviors of the senior career personnel who remain with the Department and will be counted on to ensure a smooth transition between Administrations. While numerous transition-related activities commence shortly after a presidential election, some national security experts suggest that none is more important than the efforts undertaken by the national security and intelligence communities to assist in providing information and context to the incoming President and the accompanying new national security team. Given current and projected security challenges, "the transition can no longer be taken for granted as a honeymoon [period] and significant attention needs to be provided to managing the transition." While the incoming Administration has eleven weeks to prepare for assuming the presidency, many activities will need to occur. The President-elect will formally announce leaders of the transition team; personnel will be interviewed to possibly occupy positions in the new Administration; and interaction with the outgoing Administration, Congress, and foreign leaders may occur. The incoming Administration may also: Select cabinet members, with the desire to formally submit to Congress, soon after the presidential inauguration (phase 5), a prioritized list of names of those individuals selected to fill key national security leadership positions. Select non-statutory members to be appointed to the National Security Council, Homeland Security Council, and others to serve as the President's and Vice-President's senior national security advisors. Generally, other senior agency positions are left vacant until the Senate has confirmed the President's nominee and the individual has joined the organization. While many senior leaders of the national security community require Senate confirmation, other senior political staff with significant national security responsibilities do not require Senate confirmation, including staff of the NSC and HSC. Create a presidential transition website to seek out individuals with national security expertise who will be needed to meet the upcoming challenges and opportunities Request current Administration political appointees to remain in their jobs through the inauguration and possibly the confirmation of new national security leaders to allow for continuity and collaboration. Overlap in key positions is allowed for limited circumstances. While agencies cannot employ multiple individuals in the same job billet ("dual incumbency"), options exist to temporarily allow both outgoing and incoming Administration personnel to be assigned to an organization. Select career federal employees with significant national security expertise to be detailed to the transition team. Specific focus given to members of the military, intelligence community, and diplomatic corps with expertise in the policy priorities of the new Administration. Request substantive briefings on policies and programs of concern to assess historical challenges prior to deciding to revise or eliminate current activities. Some security observers are concerned about a perceived leadership void that can occur during the transition period when the outgoing Administration has constitutional authority, but diminished influence, and the President-elect has much influence, but no authority. However, actions can be taken by the outgoing President and President-elect to ameliorate any suspected appearance of presidential decision-making ambiguity. Issues of foreign policy were hotly debated during the presidential campaign of 1992. After the general election, in which Bill Clinton was elected President, many wondered if the President-elect would attempt to initiate foreign policy changes prior to the inauguration. During the transition period, President-elect Clinton addressed these concerns by stating, "President Bush is to be viewed as the sole voice of United States policy and that the greatest mistake any adversary could make would be to doubt America's resolve during this period of transition." Also during this phase of the transition period the incoming Administration may wish to discuss prospective strategy and policy changes to national security programmatic activities with Members of Congress. If the new Administration desires to announce any new initiatives or changes to existing national security policy or programs, much work will have to be done between the time of the inauguration and the time in which the budget will need to be transmitted to Congress. After the inauguration, the new Administration will have approximately two weeks to submit to Congress a revision of the fiscal year budget proposal submitted by the previous Administration. During phase 4, Congress has required some agencies, such as DHS, to have a current senior departmental official "develop a transition and succession plan to be presented to the incoming Secretary and Under Secretary for Management to guide the transition of management functions in a new Administration." The deadline for submitting the plan is the first of December of the year in which a presidential election occurs. While this legislative requirement appears to provide agency transition guidance that some security experts argue was lacking during previous transfers of power, others see potential problems in the manner in which it will be implemented. For the current Administration's transition plan to be of strategic substantive value, some observers recommend that the individual responsible for drafting the plan should be a career civil servant with a multi-year term appointment. This requirement would allow the main author and proponent of the transition plan to remain with the agency for a prescribed period of time and provide continuity and advice to a new Administration. Traditionally, Congress is out of session during much of the phase 4 transition period and may also be undergoing a change in membership. Thus congressional oversight activities during this phase are uncommon. However, some security experts contend that given the current risks to U.S. national security interests, a special session of Congress may be beneficial to ensuring the two Administrations are properly coordinating on national security-related issues. Once Congress returns to session and the new members are sworn in, little time is available prior to the presidential inauguration to inquire about past actions and recommend changes. A special session of Congress might be considered soon after the election to ascertain what the outgoing and incoming Administrations will do with respect to transition-related activities. If still in session during the later stages of phase 4, Congress may wish to hold additional hearings to assess the administration's progress on stated national security transition-related activities. Congressional concerns during this phase might include the status of incoming and outgoing Administration collaboration efforts, how resources are being expended and toward what purpose, and to ascertain the incoming Administration's national security foreign and domestic policy goals. Congress may also wish to make itself available during phase 4 to address resource requests that emanate from the two Administrations should an incident of national security significance occur. Phase 5 of the presidential transition includes the time frame from the presidential inauguration to a period when the new Administration has its senior national security leaders confirmed, designated other non-congressionally confirmed political appointees and advisors in place, and established and implemented new national security policies. This phase can last a few months to well into the first year of the presidency. National security considerations unique to this phase of the transition period would include incidents of national security significance that are intended to subject the new Administration to a crisis and test the actions and policies of the new leaders. An incident of national security significance could occur while the new Administration's national security leadership positions are vacant; personnel have been confirmed, but are new to their respective positions; or national security policies are being developed. Entities that wish to affect United States national security interests may see this time period as uniquely vulnerable, with the President and newly assigned staff being perceived as ill-equipped to handle a domestic or foreign national security crisis. While the outgoing Administration will no longer have constitutional responsibility or authority for safeguarding the country, the actions that were or were not taken prior to the presidential inauguration will be a part of the departing President's legacy. The "Protective Power"as referenced in the presidential oath "has been interpreted as investing the President with expansive authority to take actions necessary to protect the property and personnel of the United States from attack or other dangers." Some scholars argue that the President's duty to protect the country is not limited to the time in which the office was occupied with responsibility extending into the next President's term to a point at which the new Administration has had reasonable opportunity to organize itself and formulate national security policies. As such, any "failure to alert and cooperate with the incoming President with respect to imminent dangers facing the nation directly exposes the country to substantial risk," and may negatively affect the previous President's legacy. Similarly, the outgoing President should be cautious of any activity taken in the last few days of the Administration or after the inauguration that could hamper the incoming Administration's transition efforts. Such actions might include establishing or revising national security organizations, policies, or programs that are clearly counter to the positions of the incoming President; interacting with foreign leaders that may have the perception of attempting to portray future U.S. foreign policy desires; and undertaking any steps that would have a negative effect or produce unintended national security consequences. The newly elected President, who will wish to quickly set an agenda and move toward implementing goals stated during the campaign, may find the issuance of executive orders and other presidential directives as a way to distinguish new policies from the outgoing President. This may be particularly desirable when outgoing and new President are from different parties, and such changes might offer the appearance of instituting change in the early days of the new Administration. Likewise, the new Administration may wish to quickly promulgate new national security policies and strategies for departments and agencies that have national security responsibilities. While the issuance of new strategies and policies may not, in and of themselves, make the country safer, they will convey the new Administration's national security priorities and provide the nation an opportunity to assess the new President's intentions. In undertaking efforts to memorialize the new President's national security policies, many national security observers suggest that the new President may be well served to proceed cautiously and take the time to review and assess current policies, and listen to the views of outgoing political officials and remaining career government, military, and diplomatic personnel prior to implementing significant changes in current strategies or operations. To support continued transition efforts and to be afforded the opportunity to learn of the previous Administration's national security policy and program successes and failures, the new President may wish to have prior Administration officials maintain their security clearances and routinely receive briefings regarding current and emerging threats to United States interests. Some presidential historians suggest that legislative inquiry and support during the incoming Administration's transition efforts is crucial if Congress' is to provide effective oversight during the new presidency. Professor Williams of the Massachusetts Institute of Technology argues that, "the coming transition to a new Administration and Congress opens a window for reform of the organizational structures and processes that surround planning and resource allocation for homeland (and national) security in the executive branch and Congress." While the transition is an opportunity for Members and staff to interact and have substantive discussions regarding the national security policies and goals of the new Administration, some presidential historians note that "transitions are hit-and-miss affairs that handicap the new President in shifting from campaigning to governing and create problems for the Congress." Should the new Administration not make an effort to avail Congress of its foreign and domestic security policy intentions and if Congress does not undertake an active role in understanding the policies and direction of the new Administration, both entities might encounter frustration as neither will feel it is receiving the necessary support to fully uphold its responsibilities. As noted by Mr. Ink, President Emeritus of the Institute of Public Administration, new appointees are in danger of stumbling during the first crucial weeks and months of an Administration, not so much from what they are striving to do, but from how they are functioning and a lack of familiarity with the techniques that are most likely to get things done in a complex Washington environment." In overseeing and supporting the new Administration's national security objectives, Congress has a number of activities it can undertake. Prioritize Hearings for Nominated Senior Executive Branch Leaders Who Have Significant National Security Responsibilities . A congressional authority that is often noted for making it possible for the incoming Administration to be in the best position to address national security issues shortly after inauguration is to quickly confirm qualified key political appointees. While Congress will also be undergoing a transition having just been sworn in two weeks prior to the presidential inauguration, some analysts see this as the ideal time for the new Congress to meet with the incoming President's national security leadership team and put in place a foundation to allow for expedited confirmation hearings soon after the President takes the oath of office. As noted by a recommendation of the 9/11 Commission Report of 2004: Since a catastrophic attack could occur with little or no notice, the federal government should minimize as much as possible the disruption of national security policymaking during the change of Administrations by accelerating the process for national security appointments. We (9/11 Commission) think the process could be improved significantly so transitions can work more effectively and allow new officials to assume their new responsibilities as quicky as possible. Consistent with recommendations contained in the 9/11 Commission report, IRPTA of 2004 provides a sense of the Congress regarding an expedited consideration of individuals nominated by the President-elect to be confirmed by the Senate. The Act further holds that the Senate committees to which these nominations are referred and the full Senate should attempt to complete consideration of these nominations within 30 days of submission by the newly elected President. In undertaking this responsibility, many security observers see a healthy tension between Congress' desire to act quickly to hold confirmation hearings and the need to ensure that individuals with the relevant national security background and experience have been put forth by the President-elect. In many cases, highly qualified career Senior Executive Service personnel will be in an acting capacity for some of these Senate confirmed positions. Thus the perceived urgency to fill these positions quickly may be negated while Congress ensures individuals capable of meeting the demands of the position are selected and confirmed. Congress may also work with the new Administration to understand its national security priorities and where applicable have the changes in policies and programs reflected in the 2009 budget; pass FY2009 appropriations without undue delay; quickly assign new and existing Members of Congress to committees focusing on national security issues to allow these individuals to receive briefings and understand the issues for which they have oversight; hold hearings comprised of national security experts to gather ideas on prospective U.S. national security policies and goals; and hold hearings soon after the new Administration has produced its national security strategies, policies, and presidential directives to discuss objectives and determine presidential priorities. While the first presidential transition in the post 9/11 era is of concern to many national security observers, risks during the transition period may be minimized with proactive executive branch and congressional actions. It is likely the new President will face many national security-related challenges upon taking office. Whether the enemies of the United States choose to undertake action counter to the nation's security interests or the new President experiences a relatively peaceful period during the transition, the new Administration's recognition and response to these challenges will depend heavily on the preparation and education activities that have occurred prior to the inauguration. While it may be impossible to stop an incident of national security significance during the presidential election process, there are steps that can be taken during all phases of the transition to lessen the risks to the nation. Such actions may be helpful in preparing the nation for possible risks to the presidential election period and mitigating the effects of acts taken by those that wish to cause confusion during the transfer of presidential power. The transition-related actions or inactions of the outgoing and incoming Administration may have a long-lasting affect on new President's ability to effectively safeguard United State's interests and may also effect the legacy of the outgoing President. Appendix A. Recent Military Operations Occurring During United States Presidential Transition Periods Appendix B. Representative Examples of Incidents of National Security Interest Occurring During Periods of Governmental Transition Appendix B provides a representative listing of incidents of terrorism that have occurred during times of transitions of heads of state. The criteria for inclusion in this chart was based on the aggressor's real or perceived intent to change the course of an election or affect future policy of the country during a time of transfer of presidential authority. It should be noted that, barring relatively few examples, there is little evidence that incidents of national security significance were planned for a specific date prior to an election. While varying levels of planning occur prior to an incident, as with most criminal acts, the leader directs, or the individuals act, when opportunity for the best possible outcome is presented. With respect to times of presidential transition, the most optimal time for an attack, for a variety of reasons, may not present the best opportunity for the aggressors to attempt an incident. As such, the potential time frame for risk is present during any phase of the transition, with the effects of an incident differing based on the location of the event, the proximity to the election date, and the reaction and actions of the U.S. national security enterprise. Many security experts believe that some of the incidences noted below had a significant impact on the outcome of the country's national election or subsequent policies. National security observers are fearful that terrorists groups may see some of the incidences as successes and feel embolden to attempt to affect future national transfers of power by launching attack just before the election. These groups may see the timing of such an action as a viable strategic opportunity to further the goals of their cause. However, it should be noted, other security experts suggest that incidences of national significance taken prior to a national election could produce a reaction that is counter to the long-term goals of the terrorist group. Appendix C. Congressional Legislation Addressing Various Aspects of National Security Considerations During Presidential Transitions, in Chronological Order (1963-2008) | A presidential transition is a unique time in America and holds the promise of opportunity, as well as a possible risk to the nation's security interests. The 2008-2009 election marks the first presidential transition in the post-9/11 era, and is of concern to many national security observers. While changes in administration during U.S. involvement in national security related activities are not unique to the 2008-2009 election, many observers suggest that the current security climate and recent acts of terrorism by individuals wishing to influence national elections and change foreign policies portend a time of increased risk to the current presidential transition period. Whether the enemies of the United States choose to undertake action that may harm the nation's security interests during the 2008-2009 election, or the new President experiences a relatively peaceful period during the transition, many foreign and domestic policy and security challenges will await the new Administration. How the new President recognizes and responds to these challenges will depend heavily on the planning and learning that occurs prior to the inauguration. Actions can be taken by the outgoing President and President-elect that may ameliorate decision-making activities in the new administration. Whether an incident of national security significance occurs just before or soon after the presidential transition, the actions or inactions of the outgoing Administration may have a long-lasting effect on the new President's ability to effectively safeguard U.S. interests and may affect the legacy of the outgoing President. This report discusses historical national-security related presidential transition activities, provides a representative sampling of national security issues the next administration may encounter, and offers considerations and options relevant to each of the five phases of the presidential transition period. Each phase has distinct challenges and opportunities for the incoming administration, the outgoing administration, and Congress. This report will be updated as needed. |
T his report provides an overview of statutory inspectors general (IGs) in the federal government, including their structure, functions, and related issues for Congress. Statutory inspectors general (IGs) are intended to be independent, nonpartisan officials who prevent and detect waste, fraud, abuse, and mismanagement within federal departments and agencies. To execute their missions, IGs lead offices of inspector general (OIGs) that conduct audits, investigations, and other evaluations of agency programs and operations and produce recommendations to improve them. Statutory IGs exist in more than 70 federal entities, including departments, agencies, boards, commissions, and government-sponsored enterprises. The origins of the modern-day IGs can be traced back to the late 1950s, with the statutory establishment of an "IG and Comptroller" for the Department of State in 1959 and administrative creation of an IG for the Department of Agriculture. Prior to the establishment of IGs in the federal government, agencies often employed internal audit and investigative units to combat waste, fraud, and abuse. Congress established the first statutory IG that resembles the modern-day model in 1976 for the Department of Health, Education, and Welfare (HEW; now the Department of Health and Human Services). Congressional investigations uncovered widespread inefficiencies and mismanagement of the department's programs and operations, as well as weaknesses within the department's audit and investigative units. The House Committee on Government Operations investigative report recommended, among other things, that the Secretary of HEW place all audit and investigation units "under the direction of a single official who reports directly to the Secretary and has no program operating responsibilities" who would be responsible for identifying "serious problems" and "lack of progress in correcting such problems." Congress ultimately established the HEW IG under this model. Congress also established the Department of Energy IG under a similar model in 1977. The establishment of the HEW and Department of Energy IGs laid the groundwork for Congress to create additional statutory IGs through the Inspector General Act of 1978 (hereinafter IG Act). According to the Senate Committee on Governmental Affairs report that accompanied the bill that became law, the committee believed that extending the IG concept to more agencies would ultimately improve government programs and operations. The committee further identified IG independence from agency management as a key characteristic in fostering such improvements. The IG Act initially created 12 IGs for federal "establishments" and provided a blueprint for IG authorities and responsibilities. The act laid out three primary purposes for IGs: 1. conduct audits and investigations of programs and operations of their affiliated federal entities; 2. recommend policies that promote the efficiency, economy, and effectiveness of agency programs and operations, as well as preventing and detecting waste, fraud, and abuse; and 3. keep the affiliated entity head and Congress "fully and currently informed" of fraud and "other serious problems, abuses, and deficiencies" in such programs and operations, as well as progress in implementing related corrective actions. Congress has substantially amended the IG Act three times since its enactment, as described below. The amendments generally aimed to expand the number of statutory IGs and enhance their independence, transparency, and accountability. The Inspector General Act Amendments of 1988 (P.L. 100-504) expanded the total number of statutory IGs, particularly by authorizing additional establishment IGs and creating a new category of IGs for "designated federal entities" (DFEs). The act also established a uniform salary rate and separate appropriations accounts for each establishment IG. Further, the act added several new semiannual reporting requirements for IGs, such as a requirement for IGs to provide a list of each audit report issued during the reporting period. Finally, the law required external peer reviews of OIGs, during which a federal "audit entity" reviews each OIG's internal controls and compliance with audit standards. The Inspector General Reform Act of 2008 (P.L. 110-409) established a new Council of Inspectors General on Integrity and Efficiency (CIGIE) to coordinate and oversee the IG community, including an Integrity Committee to investigate alleged IG wrongdoing. The law also increased the uniform salary rate for establishment IGs and established a salary formula for DFE IGs. The act also provided additional authorities and protections to enhance the independence of IGs, such as budget protections, access to independent legal counsel, and advanced congressional notification for the removal or transfer of IGs. Finally, the act further amended IG semiannual reporting obligations and required OIG websites to include all completed audits and reports. The Inspector General Empowerment Act of 2016 (P.L. 114-317) aimed to enhance IG access to and use of agency records. The act exempted IGs from the Computer Matching and Privacy Protection Act (CMPPA), which is intended to allow IGs to conduct computerized data comparisons across different agency automated record systems without restrictions in the law. The act also directed CIGIE to resolve jurisdictional disputes between IGs and altered the membership structure and investigatory procedures of the CIGIE Integrity Committee. Regarding transparency and accountability, the act required IGs to submit any documents containing recommendations for corrective action to agency heads and congressional committees of jurisdiction, as well as any Member of Congress or other individuals upon request. Statutory IGs may be grouped into four types: (1) establishment, (2) DFE, (3) other permanent, and (4) special. Federal laws explicitly define the first two types of IGs but not the latter two types, though stakeholders sometimes describe IGs in this way. Consequently, this report groups IGs into the four types based on criteria that are commonly used to distinguish between IGs, including authorizing statute, appointment method, affiliated federal entity and the branch of government in which it is located, oversight jurisdiction, and oversight duration. Table 1 describes each IG type according to these criteria. As of January 2019, 74 statutory IGs operated in the federal government. The IG Act governs 65 IGs, including 33 establishment and 32 DFE IGs. The remaining nine IGs are governed by individual statutes outside the IG Act, including seven other permanent and two special IGs ( Figure 1 ). Five out of seven other permanent IGs operate for legislative branch agencies—the Architect of the Capitol (AOC), Government Publishing Office (GPO), Government Accountability Office (GAO), Library of Congress (LOC), and U.S. Capitol Police (USCP). The remaining two operate for executive branch intelligence agencies—the Central Intelligence Agency (CIA) and Intelligence Community (IC). The two special IGs include those for Afghanistan Reconstruction (SIGAR) and the Troubled Asset Relief Program (SIGTARP). Appendix A lists current statutory IGs by type. The majority of IGs oversee the activities of a single affiliated federal entity and its components. For example, the IG for the Department of Homeland Security (DHS) is responsible for evaluating programs and operations of the entire department and its components, such as the Federal Emergency Management Agency. In some cases, however, multiple IGs operate for a single entity. In other cases, one IG operates for multiple entities. Two cabinet-level departments are affiliated with more than one IG: the Department of Defense (DOD) and the Department of the Treasury. Both departments have a department-wide IG and one or more separate IGs for certain components ( Table 2 ). Congress has authorized some IGs to oversee the programs, operations, and activities of more than one entity either on a permanent or temporary basis. The expansion of an IG's jurisdiction to include multiple entities has generally stemmed from agency reorganizations or congressional concern regarding oversight of a particular agency or program. Table 3 provides examples of IGs who have permanent expanded jurisdiction. In the past, Congress has also temporarily expanded IG jurisdiction to include operations of unaffiliated agencies. For example, Congress directed the GAO IG to serve concurrently as the IG for the Commission on Civil Rights for FY2012 and FY2013. The Consolidated Appropriations Act, 2014, authorized the DOT IG to oversee the Metropolitan Washington Airports Authority (MWAA), a nonfederal entity. IGs conduct reviews of government programs and operations. The genesis and frequency of such reviews can vary. An IG generally conducts a review in response to a statutory mandate, at the request of Congress or other stakeholders (e.g., the President), or upon self-initiation. Reviews can occur once or periodically. IG reviews can be grouped into three broad categories: (1) performance audits, (2) inspections or evaluations, and (3) investigations. Table 4 and the sections below discuss certain differences between the review types in terms of three characteristics: quality standards, scope of analysis, and type of analysis. IG reviews are governed by different quality standards. IG audits are subject to the generally accepted government auditing standards (GAGAS) developed by GAO. Inspections or evaluations and investigations, by contrast, are governed by separate standards developed by the CIGIE. While several standards are identical or similar across the three review types, the requirements to meet those standards differ by type. For example, one GAO report noted that IG audits are "subject to more depth in the requirements for levels of evidence and documentation supporting findings" than IG inspections. IG audits and inspections or evaluations include programmatic analysis, which may involve analyses related to the compliance, internal control, or efficiency and effectiveness of agency programs and operations. They also often include recommendations to improve such programs and operations. IG investigations, by contrast, typically include nonprogrammatic analysis and instead focus primarily on alleged misuse or mismanagement of an agency's programs, operations, or resources by an individual government employee, contractor, or grantee. Unlike audits and inspections or evaluations, IG investigations can directly result in disciplinary actions that are criminal (e.g., convictions and indictments) or administrative (e.g., monetary payments, suspension/debarment, or termination of employment). Performance audits may be broader in scope compared to inspections or evaluations and investigations. A performance audit may assess the agency-wide implementation of a program across multiple agency components and facilities. An inspection or evaluation, by contrast, may sometimes focus on a specific aspect of a program or the operations of a particular agency facility or geographic region containing agency facilities. Investigations typically focus on the actions of a specific agency employee, grantee, or contractor for alleged misconduct or wrongdoing. IGs possess many authorities and responsibilities to carry out their respective missions, many of which aim to establish and protect IG independence from undue influence. For example, the IG Act grants covered IGs with broad authority to conduct audits and investigations, which cannot be prohibited or prevented by the affiliated entity head (except, in some cases, for national security reasons); access directly the records and information related to the affiliated entity's programs and operations; request assistance from other federal, state, and local government agencies; subpoena information and documents; administer oaths when conducting interviews; independently hire staff and manage their own resources; and receive and respond to complaints of waste, fraud, and abuse from agency employees, whose identity is to be protected. The subsections below and Appendix B compare selected statutory authorities and requirements by IG type: establishment, DFE, other permanent, and special. However, the manner in which each IG interprets and implements these authorities and responsibilities can vary widely, thus potentially resulting in substantially different structures, operations, and activities across IGs. The discussion in this section focuses on IG authorities and requirements that are expressly mandated in the applicable authorizing statute. Although special IGs and other permanent IGs in the legislative branch are not created under the IG Act, their authorizing statutes incorporate—and therefore make applicable—certain provisions of the IG Act. These "incorporation by reference" provisions are subject to some interpretation. Even when the authorizing statute for a special IG or other permanent IG in the legislative branch clearly and unequivocally incorporates a specific provision of the IG Act, interpretation may vary regarding whether subsequent amendments to that incorporated provision apply to the IGs if they occurred after the enactment of the IG's authorizing statute. As mentioned previously, establishment, DFE, and other permanent IGs generally do not have cross-agency jurisdiction and therefore evaluate only the programs, operations, and activities of their respective affiliated agencies. For example, the DHS IG must annually evaluate the department's information security programs and practices, but it does not evaluate such programs and practices for another department. Oversight jurisdiction, however, can extend to nonfederal third parties, such as contractors and grantees. For example, the IG for the National Archives and Records Administration audited the agency's management of grant fund use by certain grantees. Special IGs, by comparison, possess express cross-agency jurisdiction: They are authorized to evaluate a specific program, operation, or activity irrespective of the agencies implementing them. For instance, SIGAR oversees all federal funding for programs and operations related to Afghanistan reconstruction, which involves multiple agencies. SIGAR, therefore, may examine government-wide efforts to train, advise, and assist the Afghan National Defense and Security Forces. The DOD IG, by contrast, may examine only reconstruction activities under DOD's purview, such as the military's efforts to train, advise, and assist the Afghan Air Force. Most (72 of 74) statutory IGs must be appointed "without regard to political affiliation" and "on the basis of integrity and demonstrated ability in accounting, auditing, financial analysis, law, management analysis, public administration, or investigations." Statutory IGs are appointed under one of three different methods: 1. by the President, by and with the advice and consent of the Senate; 2. by the President alone; or 3. by the head of the affiliated federal entity. As shown in Table 5 , a total of 37 out of 74 statutory IGs are appointed by the President, 36 of which—establishment IGs (33), other permanent IGs in the executive branch (2), and SIGTARP—require Senate confirmation. The IG for SIGAR is the only statutory IG appointed by the President alone without Senate confirmation. In addition, 37 out of 74 IGs are appointed by the heads of their affiliated federal entities: DFE (32) and other permanent IGs in the legislative branch (5). Unlike other IGs, the USCP and AOC IGs must be appointed by their affiliated entity heads in consultation with other permanent IGs in the legislative branch. IGs can be removed or transferred to another position under one of two different methods: (1) by the President or (2) by the head of the affiliated federal entity. Establishment, special, and other permanent IGs in the executive branch are removable or transferrable by the President. In contrast, DFE IGs and other permanent IGs in the legislative branch are removable or transferrable by the heads of their affiliated entities. Additional procedures are required to remove or transfer certain IGs as follows: DFE IG headed by a board, committee, or commission . Removal or transfer upon written concurrence of a two-thirds majority of the members of the board, committee, or commission. U.S. Postal Service (USPS) IG. Removal upon written concurrence of at least seven out of nine postal governors and only "for cause" (e.g., malfeasance or neglect of duty). USCP IG. Removal upon a "unanimous vote" of all voting members on the Capitol Police Board. In most cases, Congress must receive advanced notice of an IG's removal or transfer. The removal authority must communicate to both houses of Congress, in writing, the reasons for the IG's removal or transfer 30 days in advance for establishment, DFE, and special IGs—representing 67 out of 74 IGs. Advanced notice requirements for removal vary across other permanent IGs. Authorizing statutes for other permanent IGs in the executive branch require the same 30-day advanced written notice of removal but only to the congressional intelligence committees. Authorizing statutes for the other permanent IGs in the legislative branch do not explicitly require advanced notice and instead require written communication to Congress explaining the reason for removal. Advanced notice to Congress is not explicitly required for transfers of other permanent IGs. All but two statutory IGs may serve indefinitely. The USPS and USCP IGs, however, are subject to term limits. The USPS IG is appointed to a seven-year term and can be reappointed for an unlimited number of terms. The USCP IG is appointed to serve a five-year term for up to three terms (15 years total). Establishment, DFE, and other permanent IGs in the executive branch are required to develop annual budget estimates that are distinct from the budgets of their affiliated entities. Further, such budget estimates must include some transparency into the requested amounts before agency heads and the President can modify them. The budget formulation and submission process for the aforementioned IG types includes the following key steps: IG budget estimate to affiliated agency head. The IG submits an annual budget estimate for its office to the affiliated entity head. The estimate must include (1) the aggregate amount for the IG's total operations, (2) a subtotal amount for training needs, and (3) resources necessary to support CIGIE. Agency budget request to President. The affiliated entity head compiles and submits an aggregated budget request for the IG to the President. The budget request includes any comments from the IG regarding they entity head's proposal. President's annual budget to Congress. The President submits an annual budget to Congress. The budget submission must include (1) the IG's original budget that was transmitted to the entity head, (2) the President's requested amount for the IG, (3) the amount requested by the President for training of IGs, and (4) any comments from the IG if the President's amount would "substantially inhibit" the IG from performing his or her duties. This process arguably provides a level of budgetary independence from their affiliated entities, particularly by enabling Congress to perceive differences between the budgetary perspectives of IGs and affiliated agencies or the President. Governing statutory provisions outline the following submission process, although it is unclear whether every IG interprets the statute similarly. Notably, one congressional committee investigation questioned whether the President was consistently following the IG Act's requirements for transparency of IG budget formulation. Treatment of budget estimates for other permanent IGs in the legislative branch varies. The authorizing statues for the USCP, LOC, and GAO IGs do not explicitly require the IGs to develop budget estimates that are distinct from the affiliated entity's budget request. The extent to which these budget estimate requirements apply to the special IGs and the GPO and AOC IGs is unclear. Some of these IGs have historically developed separate budget estimates. In FY2018 and FY2019, the House and Senate Committees on Appropriation have called for legislative branch agency budget requests to include separate sections for IG budget estimates. Federal laws explicitly provide establishment IGs and other permanent IGs in the executive branch a separate appropriations account for their respective offices. This requirement provides an additional level of budgetary independence from the affiliated entity by preventing attempts to limit, reallocate, or otherwise reduce IG funding once it has been specified in law, except as provided through established transfer and reprogramming procedures and related interactions between agencies and the appropriations committees. Appropriations for DFE IGs and other permanent IGs in the legislative branch, in contrast, are part of the affiliated entity's appropriations account. Absent statutory separation of a budget account, the appropriations may be more susceptible to some reallocation of funds, although other protections may apply. Authorizing statutes for special IGs do not explicitly require separate appropriations accounts, although in practice the President may propose, and Congress may fund, special IGs through separately listed accounts. Statutory IGs have various reporting obligations to Congress, the Attorney General, agency heads, and the public. Some reporting requirements are periodic, while others are triggered by a specific event. The subsections below highlight some of the required reports for statutory IGs. The IG Act requires establishment and DFE IGs to issue semiannual reports that summarize the activities of their offices. For example, the reports must include a summary of each audit and inspection or evaluation report issued before the start of the reporting period that includes "outstanding unimplemented recommendations" and the aggregate potential cost savings of those recommendations. The IG Act further requires DFE and establishment IGs to make semiannual reports available to the affiliated entity head, Congress, and the public, as follows: The IG submits report to the affiliated entity head by April 30 and October 31 each year. The a ffiliated entity head submits the report to the appropriate congressional committees within 30 days of receiving it. The report must remain unaltered, but it can include additional comments from the agency head. The affiliated entity head makes the report available to the public within 60 days of receiving it. Other permanent IGs must also issue semiannual reports, though required content can vary by IG. For example, the semiannual report for the IC IG must include comparatively less information on OIG activities than establishment and DFE IGs. Further, the IC IG has an additional reporting requirement to certify whether the IG has had "full and direct access to all information" relevant to IG functions. Special IGs are required to issue quarterly reports rather than semiannual reports, which must include a "detailed statement" of obligations, expenditures, and revenues associated with the programs, funds, and activities that they oversee. Establishment, DFE, and most other permanent IGs (five out of seven) are required to immediately report to their affiliated entity heads any "particularly serious or flagrant problems, abuses or deficiencies relating to the administration of programs and operations" at their affiliated entities. The affiliated entity head must transmit the report unaltered to Congress within seven calendar days. This type of report is commonly referred to as the "seven-day letter." Authorizing statutes for the USCP and GAO IGs do not explicitly require issuance of seven-day letters, but they may do so in practice. The extent to which such requirements apply to special IGs is unclear. The Reports Consolidation Act of 2000 requires IGs for executive branch agencies to annually identify the "most serious management and performance challenges" facing their affiliated agencies and to track the agency's progress in addressing those challenges. These are commonly referred to as top management and performance challenges (TMPCs). A covered IG must submit the statement to the affiliated entity head 30 days in advance of the entity head's submission of the Annual Financial Report (AFR) or Performance and Accountability Report (PAR). The agency head must include the statement unaltered (but with any comments) in the entity's AFR or PAR. IGs for government corporations in the executive branch, as well as special IGs and other permanent IGs in the legislative branch, are not explicitly required to identify TMPCs. However, some of these IGs have elected to do so. In April 2018, CIGIE released its first ever report on common TMPCs facing multiple agencies. Federal laws require varied levels of transparency for IG reports and related recommendations for corrective action. The IG Act requires the following for establishment and DFE IGs: Public availability of semiannual reports. Semiannual reports must be made available to the public "upon request and at a reasonable cost." Audits and inspection or evaluation reports on OIG websites. Audit, inspection, and evaluation reports must be posted on the OIG's website within three days of submitting final versions of the report to the affiliated entity head. Documents containing recommendations on OIG websites. Any "document making a recommendation for corrective action" must be posted on the OIG's website within three days of submitting the final recommendation to the affiliated entity head. Application of these transparency requirements varies among other permanent IGs as follows: Semiannual reports. Four out of five other permanent IGs in the legislative branch are statutorily required to make semiannual reports available to the public in the same manner specified in the IG Act. The GAO IG and other permanent IGs in the executive branch, by contrast, are not explicitly required to make the reports publicly available. Audits and inspections or evaluation reports on OIG websites. Authorizing statutes for all seven other permanent IGs do not explicitly require the IGs to post individual audit, inspection, or evaluation reports on their respective OIG websites. Documents containing recommendations on OIG websites. The GAO IG and other permanent IGs in the executive branch are not explicitly required to post documents containing recommendations on their respective OIG websites. It is unclear whether the AOC, GPO, LOC, and USCP IGs must post such documents. Some IGs have elected to post certain reports on their websites. For example, the GAO OIG website includes reports on audits and inspections or evaluations as well as semiannual and peer review reports. By contrast, the USCP OIG website lists only peer review reports. Special IG reports are also subject to certain transparency requirements. SIGTARP's authorizing statute requires the IG to make its quarterly reports available to the public, but the statute does not explicitly require those reports to be posted on a public website. SIGAR, by contrast, must make its quarterly reports available to the public and post them on a public website in English and other languages that the IG determines "are widely used and understood in Afghanistan." The extent to which special IGs must post individual audits, inspections, or evaluation reports and documents containing recommendations on their websites or other public websites is unclear. The majority of IGs have elected to participate in Oversight.gov—an electronic repository launched in October 2017 that contains IG reports from 2000 through the present. Unlike many individual OIG websites, Oversight.gov features a searchable database that can filter reports across OIGs based on several criteria, such as a specific IG, review type, or keyword. Establishment of, and participation in, Oversight.gov is not statutorily required. As of January 2019, 71 of 74 IGs had posted reports on the website. IGs determine which reports to post on the website. Many posted reports are also available on individual OIG websites, although some are not. For example, the AOC IG audit, inspection or evaluation, and investigation reports are posted on Oversight.gov but not on the OIG's website. CIGIE is the primary oversight and coordinative body for the IG community. The council consolidated and replaced two IG coordinative bodies previously established by executive order: the President's Council on Integrity and Efficiency and the Executive Council on Integrity and Efficiency. CIGIE members include all statutory IGs along with other relevant officers, such as representatives of the Federal Bureau of Investigation (FBI) and the Office of Special Counsel. The council chairperson is an IG elected from members of the council, and the Office of Management and Budget Deputy Director for Management serves as the executive chairperson. Pursuant to the IG Act, CIGIE's mission is to "address the integrity, economy, and effectiveness of issues that transcend individual Government agencies" and "increase the professionalism and effectiveness of [OIG] personnel." The IG Act vests CIGIE with several responsibilities to accomplish this mission, which can be grouped into the following categories: IG workforce training and development. CIGIE maintains at least three training academies for auditors, investigators, inspectors/evaluators, and other personnel in IG offices. CIGIE also develops and maintains other resources and guides to aid OIG personnel in conducting their work. Coordination of IG external peer reviews. CIGIE develops and manages the policies and procedures that govern how IGs conduct external peer review—a process that involves one OIG assessing whether another OIG's audits, inspections, and investigations comply with the applicable quality standards. Investigations of alleged IG wrongdoing. The CIGIE Integrity Committee—the sole statutorily established committee within the council—receives, reviews, and refers for investigation allegations of misconduct by the IG or other OIG officials according to processes and procedures detailed in the IG Act. Identification of IG candidates . The IG Act requires CIGIE to submit recommendations of candidates for vacant IG positions to the appropriate the appointing authority. In response to this provision, the council established a Candidate Recommendations Panel, which identifies and vets candidates for IG positions. Cross-jurisdictional reports. CIGIE periodically publishes reports on issues that transcend individual agency and IG jurisdictions. For example, as mentioned previously, CIGIE issued in 2018 a report on cross-cutting top management and performance challenges facing multiple agencies, such as IT security and management. Historically, CIGIE has not received a direct appropriation from Congress. Rather, the council is financed by the IG member offices, which contribute a pro rata amount of their annual funding to CIGIE together with payments received in connection with attendance at CIGIE training. The contributions are placed into a no-year revolving fund. Other interagency mechanisms have been created by law or administrative directive to support coordination among IGs for specific issues. Current examples are described below. Lead Inspector General (LIG) for Overseas Contingency Operations (OCO) . The LIG is a formal coordination role assigned to the IG for DOD, the Department of State, or the U.S. Agency for International Development. The LIG provides comprehensive oversight of programs and operations in support of OCO, including the management and coordination of all related audits, inspections or evaluations, and investigations conducted by the three IGs. The chair of CIGIE must designate a LIG for each covered OCO. Council of Inspectors General on Financial Oversight (CIGFO). CIGFO is composed of IGs for nine financial regulatory agencies and is chaired by the Treasury IG. The mission of CIGFO is to facilitate information sharing among the nine IGs and develop ways to improve financial oversight. In some cases, CIGFO has engaged in activities that build upon existing work of individual IGs. For example, CIGFO identified cross-cutting top management challenges facing all nine financial regulatory agencies. Statutory IGs play a key role in government oversight, and Congress plays a key role in establishing the structures and authorities to enable that oversight. The structure and placement of IGs in government agencies allows OIG personnel to develop the expertise necessary to conduct in-depth assessments of agency programs. Further, IGs' dual reporting structure—to both agency heads and Congress—positions them to advise agencies on how to improve their programs and policies and to advise Congress on how to monitor and facilitate such improvement. Congress, therefore, may have an interest in ensuring that statutory IGs possess the resources and authorities necessary to fulfill their oversight roles. As the federal government continues to evolve, so too does the role of IGs in government oversight. Agency programs and operations have increased in breadth, complexity, and interconnectedness. Consequently, IGs may face increasing demand to complete statutorily mandated reviews of programs and operations that require (1) a broader focus on program performance and effectiveness in addition to waste, fraud, and abuse; (2) analysis of specialty or technical programs, possibly in emerging policy areas; and (3) use of more complex analytical methods and tools. Congress may consider several options regarding IG structures, functions, and coordination as the role of IGs in government oversight evolves. In serving Congress with nonpartisan and objective analysis and research, CRS does not make recommendations or take positions on particular options. Federal laws and administrative standards require IGs to be independent of the entities and/or activities they evaluate. There is no standard definition, however, for what constitutes IG independence. Rather, IGs derive independence from a combination of statutory authorities and requirements, such as the requirement that IGs be appointed on the basis of integrity and demonstrated ability in certain skill sets, and independence and transparency of IG budgets. It could be argued that challenges remain to ensuring that IGs possess the requisite independence to carry out their missions. Congress may consider several broad questions if it weighs further options related to IG independence, such as the following: What constitutes IG independence? IGs, agencies, and Congress may perceive independence differently, and by extension, may interpret and exercise statutory authorities that affect independence in varied (and possibly divergent) ways. A GAO report that assessed an IG's level of independence stated the following: To a large extent, independence is a state of mind of the auditor. The extent to which an auditor's independence has been affected by surrounding influences cannot be easily assessed by a third party. Any effort to assess auditor independence requires considerable subjective judgment, and reasonable people have room for disagreement. What factors affect IG independence? Several internal and external factors may also affect an IG's independence. Examples of internal factors include self-interest, familiarity with agency personnel in units undergoing a review, and other "threats to independence" outlined in CIGIE's quality standards. Examples of external factors include IG statutory authorities—such as appointment and removal methods and access to agency records—structure and leadership of the affiliated entity, and political influence. What is the appropriate balance between IG independence and agency management? The IG Act established a dual reporting structure that requires IGs to report to both Congress and their affiliated entity heads. This structure creates potential tension between IGs and their affiliated entity heads. An IG, therefore, must maintain independence from the agency head to assess the agency's programs and operations objectively while also fostering a working relationship with agencies to ensure the effectiveness of those assessments. As noted earlier in this report, IGs can generally be appointed under one of three methods: (1) by the President, with the advice and consent of the Senate (PAS); (2) by the President alone (PA); or (3) by the affiliated entity head. Observers have asserted that appointment and removal methods affect an IG's independence and effectiveness—both directly and indirectly—though opinions vary regarding the level and type of impact. Direct impact . Some observers have argued that the PAS appointment method strengthens IG independence. For example, GAO general counsel Gary Kepplinger suggested that PAS-appointed IGs experience greater organizational independence compared to agency-appointed IGs, noting that "the further removed from the appointment source is from the entity to be audited, the greater the level of independence." Others have asserted that PAS appointments—including converting an IG from agency appointment to a PAS appointment—might politicize the IG position and reduce IG effectiveness. Similar debates exist regarding IG removal methods. Some observers have expressed concern over potential politicization of the IG removal process, which may undermine IG independence. Some have suggested that limiting the removal of IGs "for cause" could mitigate arbitrary removal (such as for political reasons) and enhance IG independence. Others have asserted that this limitation might prevent the President or agency heads from removing IGs for legitimate reasons (such as poor performance), thus diminishing IG accountability. Indirect impact. IG appointment and removal methods may also indirectly affect independence by contributing to IG vacancies. Concerns exist that the IG vetting and confirmation processes (particularly PAS appointments) take too long, leading to prolonged IG vacancies and use of acting IGs. It could also be argued that removal methods (such as "for cause" removal and term limits) might increase the number and length of IG vacancies. Some observers have argued that acting IGs are inherently, or may be perceived as, less independent or effective compared to permanent IGs for various reasons. Examples include not having gone through formal vetting processes, reduced ability to set long-term strategies and priorities, and perverse incentives to not report problems in agency operations or resist political pressure from agency heads—particularly for those seeking the permanent position. For example, in a letter to the majority and minority leaders of the Senate for the 115 th Congress, CIGIE stated that no matter how able or experienced an Acting Inspector General may be, a permanent IG has the ability to exercise more authority in setting policies and procedures and, by virtue of the authority provided for in the IG Act, inevitably will be seen as having greater independence. Other observers have asserted that acting IGs are not inherently less independent, nor do they appear or are perceived as less independent, than permanent IGs. For example, in a GAO report, some permanent IGs and OIG employees responding to a survey provided several reasons for why acting IGs are not less independent than permanent IGs. Examples include that acting IGs have the same statutory authorities as permanent IGs, are held to the same standards as permanent IGs, and are typically career OIG employees who prioritize independence. While IGs are authorized to develop recommendations to improve government programs and operations, they are not authorized to enforce them. Rather, agencies possess the authority to ensure the implementation of IG recommendations and resolve any disagreements on recommendations between the IG and the agency. Certain agencies must "take action to address deficiencies" identified in IG reports or to certify that no action is necessary or appropriate. Congress and other observers have expressed concern about the total number of unimplemented IG recommendations and potential barriers to resolving them, such as the quality and consistency of agency and IG audit follow-up procedures, tracking unimplemented recommendations, and determining the resolution of recommendations. Some observers have discussed options to improve audit follow-up and oversight of IG recommendations, such as standardized and enhanced audit follow-up procedures, including defined roles and responsibilities for IGs and their affiliated agencies; uniform terminology for the status of IG recommendations, including a standard definition for what constitutes an "open" recommendation; systematic tracking of and reporting on the total number and status of IG recommendations; prioritization of IG recommendations; and a centralized, public database of all open recommendations. OIGs need personnel with an appropriate mix of skills to effectively pursue their statutory missions to prevent and detect government waste, fraud, and abuse. Traditionally, OIG workforces have been primarily composed of auditors and investigators, though OIG workforce professions and skills have diversified. These positions generally require education and experience in audit and investigative procedures, such as assessing agency programs according to government auditing standards and compiling and analyzing evidence. However, the qualification requirements for these positions may not require experience in certain specialty areas that OIGs might evaluate, such as information technology (IT). Some have argued that OIGs should further diversify their workforces, including by building expertise in specialty areas beyond auditing and investigations such as IT, cybersecurity, and data analysis. Some observers have further argued that broadening the mix of OIG personnel skills could improve the quality and utility of audits and inspections or evaluations. For example, it could be argued that building IT expertise within an OIG might enhance audit findings and recommendations related to securing and modernizing legacy IT systems—a key management and performance challenge facing multiple agencies. Some observers have asserted that IG reviews disproportionately focus on program compliance and outputs rather than program outcomes. The Partnership for Public Service characterized this dichotomy as "the difference between counting the number of people who show up at a job training program, versus examining the number of attendees who get and keep a job after participating in the program." Observers have further argued that greater emphasis on program outcomes could better improve agency programs and operations and, by extension, increase IG effectiveness. Some IGs already assess program outcomes in addition to outputs and compliance. For example, a Department of Labor IG audit concluded that the Job Corps program could not demonstrate that it helped place participants in meaningful jobs related to their training due primarily to noncompliance with certain program policies and ineffective transition services. In addition, some observers have argued that certain statutory requirements do not promote IG effectiveness. For example, the Project on Government Oversight argued that statutorily required metrics in IG semiannual reports focus on program outputs—such as the dollar value of disallowed costs—but not necessarily on program outcomes and that the IG peer review process focuses on compliance with applicable quality standards and does not evaluate the quality or effectiveness of an IG's work. Including an evaluation of IG performance and effectiveness as part of the peer review process might warrant consideration the potential impact on the way in which IGs approach, conduct, and report on audits and investigations. Some observers have argued that CIGIE's structures and operations could be altered to strengthen coordination and oversight of the IG community. Examples include the following: Strengthening oversight of the IG community. Examples include enhancing the peer review process, expanding the duties of the CIGIE Integrity Committee, and elevating the role of the CIGIE Candidate Recommendations Panel in vetting IG candidates. Reforming reporting requirements. Examples include maintaining an index of IG reporting requirements, developing standardized templates for semiannual reports, statutorily altering required content in semiannual reports, and statutorily requiring maintenance of and participation in Oversight.gov. Enhancing data analytics capabilities . Responsibilities could include systematic tracking and analysis of data across IGs (such as IG vacancies and budgets), strengthening analyses to identify cross-agency top management and performance challenges, and developing an open recommendations database. Enhancing coordination and resource sharing. CIGIE could, for example, research and identify opportunities for IGs to utilize shared services. Reforming the CIGIE funding model. CIGIE and other stakeholders have recommended authorizing a direct appropriation for the council to help facilitate accomplishment of statutory duties as well as existing and proposed administrative duties (such as further developing Oversight.gov). Appendix A. Statutory Inspectors General by Type The four tables below list statutory inspectors general (IGs) by type—establishment, DFE, other permanent, and special. The tables include the IG's affiliated entity, year of establishment, original authorizing statute, and relevant U.S. Code citation. The tables do not include IGs that have been abolished or administratively established. Appendix B. Selected IG Statutory Authorities and Requirements Table B-1 compares selected statutory authorities and requirements across the four different types of statutory IGs in the federal government. Unless otherwise noted in bold, the listed authorities and requirements apply to all IGs grouped under each type. The table focuses on IG authorities and requirements that are expressly mandated in the applicable authorizing statute. Although special IGs and other permanent IGs in the legislative branch are not created under the IG Act, their authorizing statutes incorporate—and therefore make applicable—certain provisions of the IG Act. These "incorporation by reference" provisions are subject to some interpretation. Even when the authorizing statute for a special IG or other permanent IG in the legislative branch clearly and unequivocally incorporates a specific provision of the IG Act, interpretation may vary regarding whether subsequent amendments to that incorporated provision apply to the IGs if they occurred after the enactment of the IG's authorizing statute. The list below defines and explains recurring terms included in the table: Identical requirement . The requirement is identical to the corresponding requirement in the IG Act. The authorizing statutes for the listed IGs explicitly state the identical requirement or clearly incorporate the sections of the IG Act that contain the requirement. Applies to the listed IGs. Similar requirement . The requirement is similar, but not identical, to a corresponding requirement in the IG Act. The authorizing statutes for the listed IGs explicitly state the similar requirement or clearly incorporate portions of the sections of the IG Act that contain the requirement. Applies to the listed IGs. No similar requirement specified in authorizing statutes . The authorizing statutes for the listed IGs do not explicitly state the requirement, nor do they incorporate sections of the IG Act containing the requirement. Does not apply to listed IGs. Unclear requirement . The authorizing statutes for the listed IGs incorporate the IG Act section that includes the requirement, but the requirement was added as an amendment to the IG Act after enactment of the authorizing statutes for the listed IGs. May or may not apply to the listed IGs. | This report provides an overview of statutory inspectors general (IGs) in the federal government, including their structure, functions, and related issues for Congress. Statutory IGs—established by law rather than administrative directive—are intended to be independent, nonpartisan officials who aim to prevent and detect waste, fraud, and abuse in the federal government. To execute their missions, IGs lead offices of inspector general (OIGs) that conduct various reviews of agency programs and operations—including audits, investigations, inspections, and evaluations—and provide findings and recommendations to improve them. IGs possess several authorities to carry out their respective missions, such as the ability to independently hire staff, access relevant agency records and information, and report findings and recommendations directly to Congress. Statutory IGs play a key role in government oversight, and Congress plays a key role in establishing the structures and authorities to enable that oversight. The structure and placement of IGs in government agencies allows OIG personnel to develop the expertise necessary to conduct in-depth assessments of agency programs. Further, IGs' dual reporting structure—to both agency heads and Congress—positions them to advise agencies on how to improve their programs and policies and to advise Congress on how to monitor and facilitate such improvement. Congress, therefore, may have an interest in ensuring that statutory IGs possess the resources and authorities necessary to fulfill their oversight roles. As the federal government continues to evolve, so too does the role of IGs in government oversight. Agency programs and operations have increased in terms of breadth, complexity, and interconnectedness. Consequently, IGs may face increasing demand to complete statutorily mandated reviews of programs and operations that require (1) a broader focus on program performance and effectiveness in addition to waste, fraud, and abuse; (2) analysis of specialty or technical programs, possibly in emerging policy areas; and (3) use of more complex analytical methods and tools. Congress may wish to consider several options regarding IG structures, functions, and coordination as the role of IGs in government oversight evolves. |
Over the last two years, U.S. policymakers, many Members of Congress, and their European counterparts have struggled with how best to respond to the swift pace of change in several countries in the Middle East and North Africa (MENA). Fueled by deeply rooted economic, social, and political frustrations, popular uprisings began in Tunisia in late 2010 and quickly spread to Egypt and Libya in early 2011. In all three of these countries, this so-called "Arab Spring" or "Arab Awakening" led to the downfall of autocratic leaders in power for decades. Such events also encouraged some citizens in Morocco and Jordan to press the existing monarchies for further political and constitutional reforms. And in Syria, demonstrations challenging the ruling Asad regime triggered a brutal government response that has since escalated into a civil war, in which tens of thousands have been killed. Almost immediately after the onset of the "Arab Spring," analysts on both sides of the Atlantic began calling for robust U.S.-European cooperation to help promote a more peaceful and prosperous MENA region. Those of this view noted that the United States and Europe share a multitude of common concerns in the region (from countering terrorism to guaranteeing a reliable flow of energy exports), and similar interests in ensuring that the transitions underway result in more open and democratically accountable governments, greater economic opportunities, and long-term stability and security. These experts argued that greater transatlantic cooperation, in particular between the United States and the European Union (EU), would enable both sides to leverage one another's strengths, ensure synergy in trade and development policies, and prevent a duplication of diplomatic and economic resources at a time when the United States and Europe are each facing their own political and economic challenges. Despite significant cultural, historical, and geopolitical differences, some commentators early on drew analogies with the way the United States and its West European allies worked together to support the transitions in Central and Eastern Europe after the end of the Cold War. In light of the sweeping changes, U.S. and European officials alike asserted their intentions to pursue policies in the MENA region that emphasized supporting democratic and economic reforms to a greater degree than before in countries such as Egypt and Tunisia. At the same time, some observers have criticized U.S. and European responses to date as modest at best. Although only one gauge, analysts point out that the bulk of EU financial assistance for the MENA countries for 2011-2013 was budgeted prior to the start of the "Arab Spring," and that U.S. financial support for the transitions in the MENA region over the last two years has largely come from reallocating funding from existing programs. Experts contend that stronger EU efforts toward the MENA region have been hindered by different member state policy preferences and competing priorities, such as managing the Eurozone financial crisis. Similarly, many note that the United States has been constrained in its response by its own economic and budgetary problems, a growing sense of "intervention fatigue" among the American public after more than a decade of war, and policy debates over the appropriate design and funding level for assistance programs in the region. For example, although the Obama Administration requested new funding to support the changes underway in the MENA region for FY2013, congressional approval of this request was largely derailed by broader disagreements over the U.S. budget and how to handle the national debt. Some analysts suggest that the September 11, 2012, terrorist attack on the U.S. diplomatic mission in Benghazi, Libya—which resulted in the death of U.S. Ambassador Christopher Stevens and three other Americans—may also weaken the U.S. political appetite for robust engagement in the MENA region. Amid such political and fiscal realities, several commentators have suggested that U.S.-European cooperation may be crucial to providing a significant, effective, and complementary package of Western economic and political support to help shape a positive outcome for the MENA region as a whole. The United States and the EU already share a dynamic political and economic relationship, and the United States often looks to the EU for partnership on an extensive range of global challenges. For years, many Members of Congress have called for European allies and friends—both in NATO and the EU—to shoulder a greater degree of the burden in protecting shared interests and addressing common challenges, including many of those emanating from the greater Middle East. However, others contend that despite the possible benefits of greater U.S.-European coordination toward the Middle East and North Africa, it is likely to remain a lofty and elusive goal. Both the United States and Europe face inherent difficulties in dealing with a changed political landscape in the MENA region in which new actors and unsettled conditions make for considerable uncertainty. As events unfold in the region, potential U.S.-European policy differences—on issues ranging from how best to encourage Egypt's democratic progress and prevent state failure, to how to manage the role of Islamist parties, or what to do about the deteriorating situation in Syria—could arise and complicate the prospects for closer U.S.-European cooperation. Some U.S. policymakers and Members of Congress may also be cautious about working too closely with European governments or the EU if doing so might constrain U.S. policy choices toward the MENA countries or U.S. options in managing challenges elsewhere in the region. Furthermore, experts note that the United States and its European partners are limited in what they can or should do to influence events in the region. Past U.S. and European policies that emphasized stability and good relations with autocratic regimes may continue to taint public perceptions in the MENA countries. Others point out that too much Western involvement could be counterproductive if perceived as an attempt to protect U.S.-European interests at the expense of the aspirations of local populations, or if used by some MENA leaders to deflect blame for domestic and regional problems. And some note that the United States and Europe do not have the same tools or global standing as they did when seeking to bolster the transformations in Central and Eastern Europe after the end of the Cold War—that is, the ability to provide significant economic incentives to the MENA countries given current domestic financial concerns, or to offer a European or transatlantic "perspective" in the form of EU and/or NATO membership. This report provides a broad overview of European and U.S. responses to the changes in six MENA countries (Egypt, Tunisia, Jordan, Morocco, Libya, and Syria). European countries have different histories and relationships in the MENA region, but much of the European response to the events of the last two years has been focused through the EU. As such, the report emphasizes EU efforts, although it also discusses how bilateral member state relations are influencing EU policy. All six of the MENA countries discussed in this report are either part of or considered eligible for the EU's European Neighborhood Policy (ENP)—the centerpiece of EU efforts in the region. Discussion of U.S. and European policies toward most of these countries is focused on measures aimed at promoting political reform, good governance, and economic development. The report does not address U.S. and EU policies toward Algeria (although future iterations may do so should reform efforts there gain more momentum), the Middle East peace process, or Gulf states such as Yemen and Bahrain (which are not included in the EU's ENP). The final section of the report describes the current status of U.S.-European efforts to coordinate political and economic policies toward the MENA region, including ongoing diplomatic contact and U.S.-European initiatives to promote a more coherent international response through institutions such as the G8, the European Bank for Reconstruction and Development, and the International Monetary Fund (especially with respect to Egypt). It also presents an array of potential areas and options for further U.S.-European cooperation, and discusses possible challenges and pitfalls to the United States and Europe working more closely together in the MENA region in the future. Europe's geographic proximity to and history with the Middle East and North Africa, as well as the nature of its economic ties, shape its relations with the region in ways that are distinct from those of the United States. Over the years, the European Union has established an array of formal policies that seek to guide its relations and those of its member states with the MENA region. Many critics contend, however, that the EU in the past focused more on promoting stability and protecting economic interests—prioritizing concerns such as controlling migration, fighting terrorism, and ensuring access to energy supplies—at the expense of pressuring governments in the MENA region to reform. EU policies toward the transformations in the Middle East and North Africa continue to evolve in response to ongoing events. In general, however, the EU has been seeking to impose greater conditionality in its relations with the MENA countries in the wake of the "Arab Spring," offering more financial support and closer ties to those countries more committed to instituting political and economic reforms. But some experts contend that despite such rhetoric, EU policies toward the Middle East and North Africa remain largely the same as before, and many stress that the EU's influence on events in the region is limited by a variety of factors. Europe and the MENA region have a long and complex history, and some MENA countries were once European colonies. Today, most European leaders and EU policymakers view the Middle East and North Africa as part of Europe's "backyard." They consider stability in the region as key to Europe's own political and economic security for several reasons. First, Europe's geographic proximity to the MENA region makes it the destination of choice for many refugees and migrants fleeing political repression or economic hardship. The political upheaval and unrest in North Africa and parts of the Middle East in early 2011 at the start of the "Arab Spring" sparked new refugee flows, especially from Tunisia and Libya, to European countries such as Italy, France, and Malta. Although these refugee flows were relatively small and soon dissipated as the former regimes crumbled, they were a stark reminder for many in Europe about the potential for problems and instability in the MENA region to spill over into Europe. Second, a number of European countries (including France, Belgium, Denmark, Spain, and the Netherlands) have large immigrant populations or diaspora communities with roots in various MENA countries (especially Morocco, Tunisia, and Algeria). Some experts assert that the presence in Europe of these diaspora communities, many of which are predominantly Muslim, makes unrest or conflict in the Middle East not just a foreign policy concern but also a domestic one for European governments. Over the last four decades, for example, groups or individuals with ties to the MENA region have carried out or planned terrorist attacks in Europe; although some incidents have been driven by grievances related to colonial legacies, others have been linked to the ongoing Israeli-Palestinian conflict or opposition to European foreign policies (especially those aimed at the "war against terrorism" that are perceived by some Muslims as a "war against Islam"). Studies also indicate that upticks in anti-Semitic attacks in Europe, many of which have been committed by disenfranchised Muslim youth in recent years, often correspond to surges in violence or unrest in the Middle East. Third, Europe's dependency on the region's natural resources, especially oil, and its extensive trade ties with many MENA countries, engender significant European economic interests in the MENA area. The EU is the largest trading partner for most of the MENA countries that border the Southern Mediterranean (and which take part in or are eligible for the EU's European Neighborhood Policy), and has free trade agreements with many of them. Oil and trade in manufactured goods currently account for the biggest portion of trade between the EU and the MENA region. As Table 1 shows, in 2012, total EU trade in goods with the Southern Mediterranean countries was valued at over $241 billion, with exports and imports nearly in balance. In comparison, the EU exports more than four times as much to these countries and imports almost three times as much from them as does the United States. Some European officials and business leaders believe that additional economic development in these MENA countries would increase their potential as European export markets. Finally, many European policymakers view stability in the Middle East and North Africa as imperative for ensuring a reliable flow of energy exports and commercial transit in and through the region given that it straddles key maritime trading routes and links Europe commercially to Asia and the Persian Gulf. For many years, European countries have supported a strong EU role in managing European relations with the Middle East and North Africa, believing that the EU's collective political and economic weight provides greater clout and influence in dealing with the region. The EU has sought to develop common policies toward the MENA countries in order to encourage the political and economic conditions seen as necessary for long-term stability and prosperity in the Southern Mediterranean. Some analysts question, however, the degree to which the EU has succeeded in keeping the policies of its individual member states on the same page. Undoubtedly, bilateral member state relations with the MENA countries play a significant part in shaping EU policies toward the region. EU member states have their own national interests, historical relationships, and regional priorities in the Middle East and North Africa. Although the EU strives for consensus and foreign policy coordination in the MENA region, each EU member state retains its own national foreign and defense policy, and commercial ties or military relations are often managed country-to-country. For example, EU member states that border the Mediterranean tend to have greater political and economic interests in the region than do the Nordic countries. As such, the differing national priorities of the various member states may generate conflicting policy preferences and commercial rivalries, and at times, complicate the formulation of common EU policies toward the MENA region. In the early part of 2011, some experts suggested that close relations between certain EU member states and authoritarian governments in the MENA region led to what they viewed as the EU's slow response to the changes underway, as well as to a number of incidents considered embarrassing for member state governments. The French foreign minister, for example, was forced to resign in February 2011 amid revelations about her personal ties to members of the former Tunisian regime. In addition, as the Qadhafi regime began a violent campaign against the Libyan opposition in February 2011, media sources reported that member state governments had issued a total of €343.7 million worth of arms export licenses and shipped €173.9 million of arms exports to Libya in 2009. The licenses included approximately €160 million for small arms and electronic jamming equipment, and Italy, the former colonial power in Libya, granted nearly €108 million in export licenses for military aircraft and related equipment. In 2010, EU member states approved €531 million of arms export licenses to the governments of Egypt, Libya, and Tunisia. For much of the last decade, the EU's European Neighborhood Policy has served as the focal point for EU efforts to engage many of the MENA countries. The ENP was launched in 2004 to coincide with the addition of 10 new EU member states; it aimed to develop deeper political and economic relations with a "ring of friends," that is, countries in close proximity to an enlarged Union. The ENP was proposed to 6 countries on the EU's eastern periphery, and 10 countries or entities to the EU's south along the shores of the Mediterranean (Algeria, Egypt, Israel, Jordan, Lebanon, Libya, Morocco, the Palestinian territories, Syria, and Tunisia). The ENP is chiefly a bilateral policy between the EU and each partner country. It offers an enhanced relationship with the EU—including enhanced trade and economic ties, increased mobility, and foreign aid and technical assistance—in return for a demonstrated commitment to EU values such as the rule of law, human rights, good governance, and market economy principles. To date, however, the ENP is not yet fully "activated" for Algeria, Syria, or Libya, and EU relations with each are at different stages of development. Since 1995, the EU has also sought to engage in regional, multilateral cooperation with the MENA countries on common political, economic, and social challenges through the Euro-Mediterranean Partnership (formerly known as the Barcelona Process). In addition to fostering greater stability and prosperity, many hoped that this initiative would complement the Middle East peace process by helping to build trust and confidence among all the Mediterranean partners, including Israel and the Palestinians. In 2008, the Barcelona Process was re-launched as the Union for the Mediterranean (UfM) in an effort to reinvigorate the initiative; emphasis in the UfM has been placed on cooperative projects in the areas of economic development, the environment, energy, health, migration, and culture. Although supporters maintain that the ENP and the UfM provide avenues through which the EU can advocate for the adoption of common political and economic values, others assert that these initiatives have failed to produce any significant reforms in the MENA countries. Critics contend that many MENA citizens have long viewed EU policies in the region as seeking to exploit their markets while backing stable, yet autocratic regimes. Libya's Qadhafi regime, in particular, was viewed as a key partner in controlling migration from Africa to Europe, and the renewed focus of many Europeans on migration issues related to the "Arab Spring" has presumably reaffirmed regional perceptions of European priorities to some extent. Observers note that perceived past policy trade-offs of values for interests and long-standing relations with autocrats may continue to taint views of Europe among the populations of transitioning MENA countries. Many also point out that cooperation in the UfM (like the Barcelona Process before it) has been at least partially stalled by the stalemate in the Middle East peace process and tense Arab-Israeli relations. Although the long-term conditions leading to the events of the "Arab Spring" were well known to observers of the region, the exact timing and sequence of developments were not anticipated. European officials, too, appeared to be caught unprepared as events quickly outpaced the relevance of the EU's policy approach. Consequently, EU officials acknowledged the need to dramatically reassess the ENP and have sought to develop a more values-oriented, conditionality-based ENP, with terms and incentives linked more tightly to the implementation of democratic reforms and free market economic principles. In mid-2011, the EU outlined this "more for more" approach by unveiling a revised ENP ("A New Response to a Changing Neighborhood") that will apply to all ENP partners on both the EU's eastern and southern borders, and a new "Partnership for Democracy and Shared Prosperity with the Southern Mediterranean," which sets out EU priorities and a roadmap for their implementation in the southern ENP countries. Over the last two years, the EU has stressed that ENP partner countries that go further and faster with reforms will be able to count on greater EU support. EU officials have also asserted that for those partners that stall or retrench on agreed reform plans, EU support will be reallocated or refocused. EU efforts in the region now focus on three key goals: Promoting "deep democracy" (i.e., building respect for the rule of law, an independent judiciary, and basic human rights) and institution-building; Fostering civil society and encouraging more people-to-people contacts; and Boosting economic growth, development, and job creation, especially by supporting small and medium-sized enterprises and expanding trade and investment relations. To promote these goals, the EU has devised incentives for the MENA countries largely organized around the three broad themes of "money, markets, and mobility," also known as the "3Ms." EU leaders maintain that these incentives will be deployed following the "more for more" principle. (See the text box on the next page for details on the "3Ms.") From a diplomatic and organizational perspective, the EU has sought to improve its capacity to respond to the changes in the MENA region by taking steps to enhance dialogue and improve the provision of its financial assistance. In July 2011, the EU appointed Bernardino Leon to a newly created position as the EU's Special Representative to the Southern Mediterranean. Leon's primary responsibility has been to coordinate the EU's response to countries in transition in the MENA region. Leon's remit includes not only Egypt, Tunisia, and Libya, which have undergone regime change, but also Jordan and Morocco, given their efforts to institute political and economic reforms. The EU has also developed a "task force" concept for countries in the MENA region, bringing together officials from the MENA countries with those from the EU and its member states, international financial institutions, the private sector, and civil society. These task forces seek to better identify a given country's political and financial needs and to coordinate offers of assistance from the international community. To date, EU task forces have been launched with Tunisia, Jordan, and Egypt. In addition, the EU has established a European Endowment for Democracy (EED), similar to the long-established U.S. National Endowment for Democracy, to help support political actors striving for democratic change. The EED is to function as a private foundation in both the EU's southern and eastern neighborhoods. Proponents argue that its independence should allow the EED to respond to new developments quickly and with greater flexibility. After a slow start-up process due to prolonged debates about the structure of the foundation, the EED has reportedly raised about €16 million, including an initial allocation of €6 million from the European Commission in November 2012, plus €5 million from Poland, whose foreign minister originally proposed the idea in early 2011. Additional member state pledges are expected. Nevertheless, some analysts suggest that EU commitments to a "new approach" to the MENA region and the revised ENP have merely amounted to a re-branding of existing practices, and note that to a large extent, the EU has continued to rely on the technical components and bureaucratic process of the ENP. These critics argue that EU leaders do not possess the political will to impose true conditionality in their relationships in the MENA region, especially if that essentially results in a deterioration of relations with some countries. For example, they contend that despite what some view as backsliding in countries such as Egypt and Tunisia on political reforms, the EU has not withheld or reduced its foreign assistance to those countries. Other experts question the use of conditionality by the EU in the MENA region, viewing it as less valuable and possibly off-putting in countries where change and reform came about as a result of domestic, not external, pressure. Many experts also point out that the EU's capacity to shape the Southern Mediterranean's future is severely limited. Many observe that in contrast to the EU's ability to encourage political and economic reforms in Central and Eastern Europe after the end of the Cold War, the EU does not have the same incentives available today with respect to the MENA region. Perhaps most obvious is that EU membership is not an option for the MENA countries because they are not part of Europe. The prospect of EU (and NATO) membership for the former communist countries of Central and Eastern Europe—and the extensive political and economic reforms required of these countries in order to permit their accession to the EU (and/or NATO)—are viewed by many analysts as key factors in transforming most of these countries into stable democracies and more affluent societies. In addition, the Eurozone crisis and the resulting political fall-out in many European governments continues to consume EU policymakers' time and attention, and has put severe pressure on European treasuries. As such, providing large-scale EU financial assistance for the MENA region is unlikely to be politically possible in the near term. Many EU governments have imposed or are considering austerity measures, and European publics do not appear to support spending significantly more money abroad given their economic problems at home. Although the EU has allocated some additional financial support in response to the events of the "Arab Spring," many commentators view it as relatively marginal, and analysts note that it is not of the same magnitude as that committed to Central and Eastern Europe after the revolutions of 1989, or to the countries of the Balkans following the break-up of the former Yugoslavia. Critics assert that the additional incentives the EU has offered in the form of "money, markets, and mobility" are inadequate to meet the immense needs of the region. Moreover, skeptics question the feasibility of certain EU incentives. For example, some experts doubt that any MENA countries will actually be able to conclude Deep and Comprehensive Free Trade Areas—intended to further liberalize trade in goods, services, and investment with the EU (see text box above on the "3Ms")—given the complex EU rules and demands embedded in them. In addition, analysts point out that several possible EU incentives can only be delivered if agreed to by the member states. However, a number of EU governments are unenthusiastic about certain measures—such as greater trade liberalization in the agricultural sector or visa liberalization in the mobility field—viewing them as too politically sensitive because they could impinge on national interests or conflict with key domestic sectors. Although the MENA countries share a number of significant common challenges, each also has its own particular set of circumstances, and the relationship of individual countries with the EU varies. The EU therefore has a differentiated approach to each MENA country, with relations defined by Association Agreements (AAs) and ENP Action Plans. Association Agreements are bilateral in nature; they set out a broad framework for political, economic, social, and cultural cooperation between the EU and each partner country. AAs are considered treaties, and must be ratified by both the EU and the partner country; they usually include free trade agreements for industrial goods and serve as the basis for the gradual liberalization of trade between the EU and the partner country. An Association Agreement must be completed before a country can participate in the ENP. Central to the ENP are bilateral Action Plans, which set out specific political and economic reforms and priorities in the short and medium term. In contrast to AAs, Action Plans are political documents, and reflect agreement between the EU and each European Neighborhood Policy partner country on the objectives and priorities for future relations. The EU may also grant a partner country "advanced status" relations or a "privileged partnership" to reflect the EU's satisfaction with political, economic, and social conditions and reform efforts in the partner country. An "advanced status" relationship or "privileged partnership" may allow for cooperation in a wider number of areas, increased EU aid, and privileged access to the EU market for the partner country's industrial and agricultural goods. Countries such as Tunisia, Egypt, Jordan, and Morocco have received EU economic support since joining the ENP through the European Neighborhood and Partnership Instrument (the EU financial instrument that provides the main source of funding for the ENP). In general, EU financial support referred to in this section for the period 2011-2013 does not represent entirely new funds allocated specifically in response to the "Arab Spring." Rather, while EU support may now have been increased or re-directed in response to events, initial EU funding levels were budgeted in advance as multi-year allocations that continued previous support committed in national ENP Action Plans. Libya and Syria are considered eligible for the ENP, but as noted above, the ENP is not fully activated for either of these countries, and EU relations with Syria are largely suspended at present. EU relations with Tunisia and Egypt are framed by Association Agreements and ENP Action Plans established prior to the events of the "Arab Spring." Following the overthrow of longtime leaders in Tunisia and Egypt, the EU has supported democratization and economic modernization efforts in both countries. Although some European leaders and publics worry about the rise of Islamist parties in Tunisia and Egypt, the EU and most member states maintain that they welcome any truly democratically elected government that embraces inclusivity, respects the rule of law and human rights, and is responsible and accountable to the people it serves. EU cooperation with Tunisia has been particularly close since the demise of the former regime of Ben Ali. For much of the last two years, the EU has viewed Tunisia as making tangible progress on political reforms and has touted its enhanced relations with Tunisia as a key example of its "more for more" approach. An EU observer mission helped monitor Tunisia's October 2011 elections for a Constituent Assembly, which the EU praised as largely free and fair. Among other measures taken in support of the transition in Tunisia, the EU has: Increased its planned financial assistance to Tunisia for the period 2011-2013 from an initial €240 million to €400 million; this includes €20 million for the poorest areas of Tunisia in order to improve living conditions, provide access to microfinance, and create jobs; Established a joint EU-Tunisia Task Force to bring together officials from the EU, Tunisia, and international financial institutions to improve dialogue and the delivery of political and economic support; Launched a dialogue with Tunisia on migration, mobility, and security issues; Begun preparatory work with Tunisia on establishing a Deep and Comprehensive Free Trade Area; and Concluded a "privileged partnership" with Tunisia in November 2012, signifying a deepening of relations across a wide range of political and economic areas, and announced an agreement to launch negotiations on an air services accord to help boost Tunisia's tourism sector. In early 2013, however, EU officials became alarmed by rising political tensions in the country. In particular, the EU has expressed concern about the February 2013 killing of a prominent Tunisian opposition leader and the increasing number of violent acts committed by extremist groups. Some experts view the EU's response to the changes in Egypt as more tentative. Following the end of the Mubarak regime, the EU was hopeful that Egypt's transition from military to civilian rule would proceed relatively quickly, but EU leaders were dismayed by its slow pace during 2011 and much of 2012. The EU re-directed some previously allocated ENP funding (€150 million per year for 2011-2013) in response to the political changes, but did not immediately allocate new funding. The EU provided technical assistance to Egyptian election officials for parliamentary and presidential elections in 2011-2012 and supported voter education through civil society organizations. In December 2011, the EU approved a negotiating directive for a Deep and Comprehensive Free Trade Agreement with Egypt, but preliminary work has yet to begin. EU-Egypt frictions rose in early 2012 following Egypt's arrest of personnel affiliated with U.S., Egyptian, and European nongovernmental organizations engaged in democracy promotion. Amid Egypt's ongoing economic problems and Egyptian President Morsi's moves to decrease the role of the military in government, the EU appears to have enhanced its support for Egypt. In November 2012, an EU-Egypt Task Force was established. The EU, together with the European Investment Bank and the European Bank for Reconstruction and Development, also pledged a combined additional financial package of roughly €5 billion in grants, loans, and concessional loans for the 2012-2013 period; a significant portion of this pledged funding, however, is conditional on Egypt concluding a deal on a loan agreement with the International Monetary Fund and on implementing substantive economic reforms. At the same time, EU officials and many Members of the European Parliament remain concerned about Egypt's progress toward democracy, the Morsi government's respect for human rights (including freedom of expression), the independence of the judiciary, and rising societal and sectarian tensions. Neither Morocco nor Jordan have experienced political upheaval on the scale of Tunisia, Egypt, or Libya, but both have responded to domestic pressures by initiating a process of gradual—though some would argue limited—political reform. The EU has been strongly supportive of the reform initiatives in both countries. Some observers assert that the pace and nature of change in Morocco and Jordan align with the EU's strengths and preferences, and the EU has, for the most part, been able to maintain its established approach to the two countries. Others criticize the EU for not being more forward-thinking in its relations with Morocco and Jordan, and still view EU efforts as shying away from vigorously encouraging more political reforms in the interest of preserving stable monarchies that are friendly to EU and European interests. Morocco is the largest recipient of ENP funds, with €580.5 million initially budgeted for 2011-2013 to support five priority areas: the development of social policies; economic modernization; institution-building; good governance and human rights; and environmental protection. In 2008, Morocco became the first Southern Mediterranean country to be granted "advanced status" in its relations with the EU. In November 2011, the EU deployed a team of election experts to assess Morocco's parliamentary elections. Among recent measures aimed at bolstering and further encouraging Morocco's reform efforts, the EU has: Allocated an additional €80 million to Morocco for projects in the human rights, governance, and socioeconomic fields; Launched a dialogue with Morocco on migration, mobility, and security issues; Approved a new accord that will expand Morocco's existing free trade agreement with the EU in goods to include preferential market access for agricultural and fisheries products; and Begun negotiations on a Deep and Comprehensive Free Trade Area. Jordan was upgraded to an "advanced status" partnership with the EU in 2010. For 2011, the EU increased its planned allocation of €71 million in assistance to Jordan to €111 million, bringing forward funds that were part of €223 million in aid initially budgeted for Jordan in 2011-2013 to support small- and medium-sized enterprises, innovation, and public financial management reform. In February 2012, the EU announced it would make an extra €70 million available (in two tranches) to support small businesses, vocational training, and good governance, and thus increasing total EU assistance to Jordan to almost €300 million for 2011-2013; EU officials stressed that the release of the second tranche would be linked to progress on democratic reforms. In January 2013, an EU election observer mission was deployed to help monitor Jordan's legislative elections, which initial EU assessments deemed to be in line with democratic standards. Over the last year, the EU has also: Established a joint EU-Jordanian Task Force; Started a dialogue with Jordan on migration, mobility, and security issues; and Begun preliminary work on a Deep and Comprehensive Free Trade Area. The EU remains concerned, however, about Jordan's deteriorating economic situation, due in part to the unrest in Egypt and especially, Syria. The EU is considering a €200 million Jordanian request for macro-financial assistance (which would likely be provided as a loan). The EU has also provided €137 million in humanitarian and other financial assistance since the outbreak of the Syrian crisis to help Jordanian authorities deal with the large influx of Syrian refugees. As noted previously, the EU has always considered both Libya and Syria as eligible for membership in the ENP, but the ENP mechanisms for these two countries have not been fully activated due to the lack of a prerequisite Association Agreement. Regarding Libya , the EU began informal and limited cooperation with the former Qadhafi regime in 2004 (following the lifting of international sanctions that had been imposed for two decades) and provided small amounts of financial and technical assistance related to migration and health issues. With the Qadhafi regime apparently uninterested in joining the ENP, negotiations on a Framework Agreement—a less intense contractual arrangement than an Association Agreement—began in 2008 to formalize EU-Libya relations. These negotiations were suspended, however, in February 2011 following the outbreak of hostilities between rebels and forces loyal to Qadhafi. As the United Nations began debating whether to authorize a military intervention against the Qadhafi regime, EU member states (21 of which also belong to NATO) were unable to form a consensus regarding the use of military force. France and the UK played a leading role in the 2011 NATO air operation in Libya; Germany, after abstaining from the U.N. Security Council vote that authorized force, was not among the operation's participants. During the conflict, the EU and its member states provided roughly €155 million in humanitarian assistance (of which €80.5 million was from the EU itself), and set up a liaison office in Benghazi in support of Libya's Transitional National Council (TNC). In October 2011, following the fall of Qadhafi, the EU announced that it stood ready to resume negotiations on a Framework Agreement with Libya's new government at an appropriate time. In 2012, an EU monitoring mission observed Libya's July elections, and the EU established a training program on parliamentary and constitutional process for Libya's new National General Congress. The EU is preparing to deploy a civilian border management mission to Libya under its Common Security and Defense Policy (CSDP) in June 2013. Prior to the revolution, the EU had budgeted €60 million in financial and technical support to Libya for the period 2011-2013, but this was suspended during the hostilities. Since the demise of the Qadhafi regime, the EU has been working with the TNC to conduct various need assessments and direct EU funding to areas such as health, migration, border management, the security sector, human rights, democratization, public administration, and the media. The EU put in place a package of short-term assistance measures at the end of 2011 worth €39 million, and has announced it will provide at least €68 million for 2012-2013. As for Syria , the escalation of the conflict into a civil war (in which an estimated 70,000 people have been killed) has become a matter of central concern for the EU, the United States, and the international community. The EU negotiated an Association Agreement with Syria in 2004, and the draft was revised in 2008, but progress on its formal approval was put on hold by the EU in 2011 in response to the Syrian regime's violent response to anti-government protestors. Since then, the EU has taken a leading international role in condemning the Asad regime's actions, and has progressively introduced an extensive set of sanctions aimed at pressuring the regime to agree to a ceasefire and negotiate a political solution (see Table 3 ). The EU had budgeted €129 million in bilateral assistance to Syria for the period 2011-2013, but all bilateral cooperation has been suspended. Financing and loan disbursements from the European Investment Bank have also been suspended. In December 2012, the EU recognized the National Coalition for Syrian Revolutionary and Opposition Forces as the "legitimate representative" of the Syrian people. EU members France and Britain extended bilateral recognition to the group. To date, the EU and its member states have provided €626 million in humanitarian aid for Syrian refugees and civilians remaining in Syria (€265 million from the EU's humanitarian assistance budget and over €361 million from the member states). European policymakers have debated arming the Syrian rebels and possible military intervention, but many have remained reluctant to pursue either option. In early 2013, the UK and France began seeking to lift the EU arms embargo on Syria in order to arm opposition forces; given a lack of consensus at the EU foreign ministers' meeting in late May, the arms embargo was allowed to expire despite strenuous objections from a number of member states. As a result, arms exports to the opposition may be authorized on a national, case-by-case basis, with safeguards intended to prevent misuse, although member states also agreed to refrain from such deliveries pending a review of the situation in August 2013. European countries have thus far provided non-lethal equipment, humanitarian assistance, and some training. In April 2013, the EU eased a number of its sanctions in order to help the opposition and the Syrian population, allowing member states to authorize oil-related transactions and investments after consultation with the opposition National Coalition. In the wake of the "Arab Spring," the U.S. government, like its European counterparts and the EU, has been examining long-standing U.S. policies in the Middle East and North Africa. This section provides a broad overview of U.S. policy in the region. It focuses largely on U.S. initiatives to encourage post-transition political and economic development in the MENA countries and highlights similarities and differences with European efforts to provide a basis for comparison when considering prospects for future U.S.-European cooperation. U.S. programs and policies described in this section should be considered illustrative, rather than exhaustive. For decades, U.S. policy in the Middle East and North Africa has largely focused on promoting stability and security. Although U.S. officials also sought to encourage political reforms, protect human rights, and foster economic growth in the region, many experts viewed these U.S. goals as largely secondary, and at times, sacrificed to preserve cooperation with autocratic allies. For example, the United States maintained a strategic partnership with Egypt's former Mubarak regime as a means of ensuring Egyptian-Israeli peace and combating terrorism, despite the regime's stifling of internal dissent. Some U.S. policymakers and analysts, along with many in Europe, also doubted that any Western attempts to promote democracy in the region would succeed, given the political history and lack of civil society in many MENA countries. Meanwhile, others in both the United States and Europe feared that the introduction of democratic reforms in these countries could lead to anti-Western factions, including Islamists, winning elections. Over the last two years, however, the United States has declared its intention to put greater emphasis than in the past on supporting democratic transitions, economic development, and the aspirations of the people of the MENA region. In a speech in May 2011, President Barack Obama asserted that the United States "respects the right of all peaceful and law-abiding voices to be heard, even if we disagree with them. We look forward to working with all who embrace genuine and inclusive democracy"; he also set out a new framework for U.S. policy toward the MENA region "based on ensuring financial stability, promoting reform, and integrating competitive markets with each other and the global economy." For many Europe-watchers, the degree to which President Obama highlighted working with the international community, particularly the EU, to help the transitions underway in the MENA region was particularly notable. Such measures outlined by the President in his May 2011 address included U.S. support for expanding the mandate of the European Bank for Reconstruction and Development; the launch of a U.S. Trade and Investment Partnership for the Middle East, in possible cooperation with the EU; and U.S. efforts to work with international partners and multilateral financial institutions to provide economic assistance to the MENA region (for more information on these initiatives, see " Prospects for U.S.-EU Cooperation " below). The United States has sought to respond to the transitions in the MENA region with a mix of diplomatic outreach, political engagement, and foreign aid. Initially by utilizing the State Department's existing Middle East Partnership Initiative (MEPI) and the U.S. Agency for International Development's Office of Transition Initiatives (USAID-OTI), U.S. officials and contract personnel worked directly with emerging political groups and civil society organizations in countries such as Tunisia and Libya. In Egypt, however, efforts in 2011 to expand U.S. democracy-support programs were strained by resistance from the former military transitional government, and severely dampened by police raids on U.S. and European non-governmental organizations engaged in democracy promotion in early 2012. In September 2011, the State Department established an Office for Middle East Transitions, led by Special Coordinator Ambassador William Taylor. This office has responsibility for managing U.S. outreach and transition support for Egypt, Tunisia, and Libya. It also coordinates U.S. engagement with international partners, including European allies and the EU, aimed at promoting political change and economic growth in the MENA region. Jordan and Morocco, however, are not included in Ambassador Taylor's mandate because they have not experienced regime change. U.S. policy toward Jordan and Morocco seeks to balance continued support for the ruling monarchies in those countries with efforts to encourage political and economic reforms. The Obama Administration has also reallocated portions of U.S. aid to support the transitions throughout the MENA region. For example, a Middle East Response Fund/Middle East and North Africa Incentive Fund (MERF/MENA-IF) was created from unobligated FY2011 and FY2012 Economic Support Fund (ESF) appropriations to support democratic and economic reforms. According to the U.S. State Department, in response to the events of the "Arab Spring," over $1.5 billion in total was identified in FY2011 and FY2012 from existing bilateral program accounts and other sources; this amount could presumably include humanitarian aid and security assistance, in addition to activities aimed at promoting democracy and economic opportunities. In its FY2013 budget request, the Obama Administration proposed $770 million over five years for the MENA-IF in order to meet continuing needs in the region, provide greater flexibility for responding to new contingencies, and create a lasting framework to support reform efforts in the MENA countries. Of this request, $700 million would have been new funding with the remainder intended for existing programs. However, Congress did not appropriate funding for MENA-IF in the FY2013 continuing resolutions covering State-Foreign Operations activities, in part because of broader disagreements over the size of the U.S. budget and how best to reduce the national debt. For FY2014, the Administration has requested $580 million over five years for the MENA-IF, of which $475 million would be new funding, $75 million would be for the existing Middle East Partnership Initiative, and $30 million would be for USAID's Office of Middle East Programs. The Administration does not specify how the MENA-IF funding would be allocated (or to what countries), but envisions that it could be used for a wide variety of interventions, including enterprise funds, loan guarantees, and humanitarian assistance. As for Syria, the United States has been providing humanitarian assistance to international organizations aiding Syrian civilians and non-lethal support to unarmed elements of the Syrian opposition. In 2012, the Obama Administration notified Congress of its intent to establish a USAID Office of Transition Initiatives program for Syria at an initial cost of $5 million in order to begin laying the foundation for U.S. support for Syria's political transition in the longer term. The Administration has also significantly expanded existing U.S. sanctions on Syria, freezing all U.S.-controlled assets of the Syrian government, prohibiting U.S. persons from engaging in any transaction involving the Syrian government, and banning U.S. imports of Syrian-origin petroleum products, among other measures. The Obama Administration views improving the socioeconomic conditions of many MENA countries as crucial to reducing inequalities, ensuring successful transitions, and creating a more affluent and peaceful region in the long term. Major Administration initiatives have focused on providing debt relief and loan guarantees (especially for Egypt and to a lesser extent, Tunisia), promoting private investment, and facilitating more trade with the Middle East and North Africa. The U.S. Overseas Private Investment Corporation (OPIC) has launched a $2 billion initiative to support private investment across the MENA region, and Congress has approved the establishment of U.S. enterprise funds (similar to those set up in Central and Eastern Europe after the revolutions of 1989) for Egypt, Tunisia, and Jordan. These enterprise funds will seek to encourage and support the development of small- and medium-sized businesses. As noted previously, a key proposal in President Obama's May 2011 speech called for launching a comprehensive Trade and Investment Partnership Initiative in the Middle East. This would seek both to facilitate more trade within the MENA region and to promote more trade and investment between the region and markets in the United States, the EU, and elsewhere. President Obama asserted, "Just as EU membership served as an incentive for reform in Europe, so should the vision of a modern and prosperous economy create a powerful force for reform in the Middle East and North Africa." Since then, the Administration has established a program called the Middle East and North Africa Trade and Investment Partnership (MENA TIP), to create a regional platform to foster greater trade and investment among the MENA countries and with international partners, as well as to encourage regulatory reform. Under this initiative, the United States has engaged primarily with Egypt, Jordan, Morocco, and Tunisia (holding an initial meeting on MENA TIP with these four countries in April 2012), and to a lesser extent, with Libya. Investment, trade facilitation, support for small- and medium-sized enterprises, and regulatory practices and transparency have been identified as initial areas for discussion and cooperation. However, some analysts point out that there has been little concrete progress to date and no significant efforts yet toward involving other international actors, such as the EU, in this process. Various experts have also argued for an expansion of bilateral U.S. free trade agreements (FTAs) in the MENA region. The United States already has FTAs with Jordan and Morocco, and some analysts have urged the United States to negotiate similar ones with Egypt and Tunisia as a way to advance economic development and other reforms related to transparency, good governance, and regulatory standards. To date, the pursuit of new FTAs in the MENA region does not appear to be a current goal of the Obama Administration, given domestic political tensions and ongoing political uncertainty in some MENA countries. However, the Administration has made some attempts to strengthen bilateral U.S. trade and investment ties with several MENA countries. For example, U.S. officials have been working to develop a country-specific action plan for Egypt aimed at increasing exports, supporting SMEs, and enhancing U.S. investment. The United States has also re-launched discussions under the U.S.-Tunisian Trade and Investment Framework Agreement (TIFA) to explore options for deepening bilateral and intra-regional trade and investment ties. And U.S. and Libyan officials have reportedly discussed possibilities for increasing market access, addressing intellectual property rights, and improving scientific cooperation. Such efforts could potentially lead to larger-scale trade and investment agreements in the future. For many Members of Congress, responding to the rapid pace of events and significant changes in the Middle East and North Africa since early 2011 has been challenging. Although many Members welcome the emerging aspirations of the people of the MENA region for political reform, economic equality, and self-determination, they are also concerned about how best to maintain the benefits of long-standing U.S. partnerships and to protect U.S. global security interests amid regional change. In particular, initial successes by Islamist parties in elections in countries such as Egypt and Tunisia have raised concerns among some Members given uncertainties about how such parties view Israel and whether they will respect social and political rights, particularly those pertaining to women and religious minorities. Congress has supported some of the policy proposals outlined by President Obama in May 2011 for the MENA region. As noted above, Congress has authorized debt relief and the creation of U.S. enterprise funds for some MENA countries. Nevertheless, these initiatives have been controversial among Members who worry about new spending commitments given U.S. fiscal constraints, and among those concerned about the eventual shape and political orientations of emerging regimes in the MENA region. For example, Congress attached new conditions on U.S. foreign assistance to Egypt in FY2012, requiring the U.S. Secretary of State to first certify that Egypt had held free and fair elections, was protecting civil liberties, and was meeting its obligations under its 1979 peace treaty with Israel. Congressional efforts to restrict or condition U.S. aid and debt relief to Egypt remain ongoing. Although U.S. foreign assistance to Libya has been more limited given Libya's vast resources, especially its petroleum reserves, Congress has supported a range of security and transition assistance programs in Libya. However, many Members continue to worry about security in the country, especially with regard to Qadhafi-era weapons and border security, and in light of the reported presence of Al Qaeda-related groups. Such security concerns have intensified since the September 2012 terrorist attack on the U.S. diplomatic mission in Benghazi. Identifying and bringing to justice those responsible for the Benghazi attack has become an important issue for many Members, with some calling for future U.S. assistance to Libya to be conditioned on full Libyan cooperation in the Benghazi investigations. Some Members have made similar calls regarding Tunisia, which recently released a suspect in the Benghazi attack from detention. As for Syria, some Members of Congress have called for more active U.S. and/or NATO engagement in support of the rebels, arguing that U.S. hesitation to arm the opposition forces or intervene militarily has prolonged the conflict, worsened the humanitarian situation, and allowed Islamist elements to seize the initiative. At the same time, many Members of Congress also worry that more direct U.S. intervention could further exacerbate the conflict and result in regional spillover, destabilizing countries such as Turkey or Lebanon, threatening Israel's security, and heightening tensions further with Iran. The United States and its European partners share similar interests in ensuring that the changes underway in the Middle East and North Africa result in a more stable, secure, and prosperous region. Common U.S. and European concerns in the region include countering terrorism, weapons proliferation, and transnational crime; curtailing Islamist extremism; ensuring a reliable flow of energy exports and commercial transit; and ensuring Israel's security and advancing peace negotiations with the Palestinians. Europe's geographic proximity to the MENA region also makes controlling migration a key priority for individual European countries and for the EU as a whole, while preserving military cooperation with MENA countries remains critical for the United States, especially given long-standing U.S. interests in Israel and the Persian Gulf. Many analysts suggest that to date, U.S. and EU policies have been closely aligned on most issues regarding the changes underway in the MENA region. As noted previously, numerous experts also argue that greater U.S.-European cooperation may be essential to providing robust and effective Western support to the region. This section describes the current status of U.S.-European efforts to coordinate political and economic policies toward the MENA region, presents an array of potential areas and options for future consideration, and discusses possible challenges and pitfalls to closer U.S.-European cooperation. Various sources indicate that U.S. and EU officials, from the Cabinet level to the working level, have been in frequent and continuing contact with each other as events in the Middle East and North Africa have unfolded. In October 2011, then-U.S. Assistant Secretary of State for European and Eurasian Affairs Philip Gordon asserted that "Close transatlantic cooperation is the indispensable starting point in our efforts to respond effectively and efficiently to locally driven demand for real and lasting change across the Arab world." He went on to note that, "while the transatlantic agenda ... is vast and there are hundreds of topics on it, we probably spent more time on this particular challenge over the past six to nine months than on any other." The U.S. State Department's Office for Middle East Transitions, led by Ambassador Taylor, and the office of the EU's Special Representative to the Southern Mediterranean Bernardino Leon, have reportedly developed close ties and a good working relationship with each other. Beyond such dialogue and diplomatic contact, U.S. and European policymakers point to two key initiatives on which they have cooperated closely in an effort to support the transformation of the MENA region as a whole: expanding the mandate of the European Bank for Reconstruction and Development, and establishing the Deauville Partnership. In addition, many observers note that U.S. and EU officials have been working together over the last two years in the International Monetary Fund to provide financial assistance to several MENA countries (including Egypt). The Obama Administration has strongly supported EU efforts to extend the area of operations of the EBRD beyond Europe and Central Asia into the MENA region. The EBRD is an international financing institution established in 1991 to support the emergence of market economies in Central and Eastern Europe following the collapse of the former Soviet Union; it is owned by 64 member countries in both Europe and worldwide, the EU, and the European Investment Bank. The United States is a founding member of the EBRD and the largest contributor after the EU institutions and EU member states combined; the U.S. Treasury Secretary sits on the EBRD's board of governors. The EBRD invests mainly in private sector enterprises, usually together with commercial partners, and helps mobilize foreign direct investment into the countries in which it operates. In October 2011, EBRD shareholders (including the United States) backed the expansion of the bank's activities into the MENA region. As this decision still requires the approval of national governments and/or legislatures to take full effect, the EBRD has opened "preliminary offices" in Egypt, Morocco, Tunisia, and Jordan to lay the groundwork for its expansion into these countries. Tunisia and Jordan joined the EBRD in December 2011 (Egypt and Morocco have been members of the EBRD since its inception). In May 2012, shareholders approved the creation of a special €1 billion fund to start the process of investments in Egypt, Morocco, Tunisia, and Jordan. The EBRD is expected to invest up to €2.5 billion a year in the MENA region by 2013. The United States, the EU, and key EU member states have cooperated to forge the Deauville Partnership in the context of the Group of Eight (G8). Launched in May 2011 under the French G8 presidency, the Deauville Partnership seeks to support strategies for sustainable and inclusive economic growth in the MENA region, encourage political reforms aimed at establishing accountable governments based on the rule of law, and create the conditions necessary for greater citizen participation in economic life. The Partnership brings together the members of the G8, international and regional financial institutions, several key Arab countries, and Turkey, to provide financial assistance to Tunisia, Egypt, Jordan, Morocco, and Libya (as well as Yemen). By September 2011, G8 leaders announced that the Deauville Partners, including the multilateral and regional development banks, had pledged a total of $38 billion (in loans, grants, budget support, and technical assistance) between 2011 and 2013 to support reform efforts in the MENA countries. The United States, which held the G8 presidency in 2012, developed a three-pillar structure for the Deauville Partnership to focus efforts on trade and integration, economic growth, and governance. The UK, which currently holds the G8 presidency, has identified a number of priorities within these areas for the Deauville Partnership for 2013, including the development of small and medium-sized enterprises and women's economic participation. Partnership members have also been working to establish several assistance vehicles, including a Transition Fund (with an initial capitalization target of $250 million) to provide short-term, quick response technical expertise for MENA countries in implementing reforms; a Capital Market Access Initiative to help transitioning countries gain easier and cheaper access to international capital with reasonable financing terms; and an Asset Recovery Action Plan, to facilitate the return of frozen assets to MENA countries such as Libya. Nevertheless, various observers criticize the Deauville Partnership for being slow to produce tangible benefits for the MENA countries and note that some of the financial institutions and donor countries have not yet followed through on their funding commitments. U.S. and European officials have also worked in tandem in the context of the IMF to provide financial support to several MENA countries in transition. The United States and the EU countries combined are the largest IMF shareholders, and thus wield considerable influence within the IMF. Over the last two years, Jordan, Morocco, and Tunisia have all reached financing agreements with the IMF to help promote economic stability and the conditions conducive to political reform. Egypt's deteriorating economic conditions since the demise of the former Mubarak regime and acute cash flow problems are of particular concern, and U.S. and European officials have been devoting considerable efforts to help finalize an IMF loan agreement for Egypt. Many U.S. and European policymakers alike contend that without IMF assistance, Egypt's fragile economic situation could jeopardize both its political transition and the stability of the region as a whole. Those of this view assert that a potential economic collapse in Egypt could have serious implications for U.S. and European interests in terms of access to the Suez Canal, Egypt's peace treaty with Israel, and Egyptian cooperation on counterterrorism. Although a "staff level" agreement was reached between Egyptian and IMF authorities in November 2012 for almost $5 billion in IMF assistance, it has not yet been finalized because Egyptian officials continue to balk at IMF conditions that would require politically unpopular structural reforms (such as tax and fuel price increases), and which some Egyptians believe could ultimately worsen the country's debt. Despite such difficulties, U.S. and European leaders continue to press for an IMF-Egyptian loan agreement as soon as possible. Despite the cooperative U.S.-EU efforts toward the MENA region described above, some commentators view such measures as relatively modest to date. Many observers continue to urge the United States and the EU to further coordinate their policies toward the region or explore options for joint action. Some argue that this is particularly necessary given the political and economic constraints facing both sides of the Atlantic. The United States and the EU could consider a number of possible cooperative approaches to further promote economic development, democratic governments, and civil society in the MENA region. These include: Joint or Coordinated Trade and Investment Initiatives. Some analysts assert that economic growth and job creation are crucial to achieving successful transitions in the MENA countries. While direct financial assistance (including through institutions such as the World Bank and the IMF) is a visible way to support development programs and ease cash flow problems, many experts argue that the key to long-term success lies more in stimulating and developing domestic economies, rather than in aid. A focus on trade is potentially one of the main organizing principles for these efforts, and some contend that the United States and the EU should pursue joint or coordinated trade and investment initiatives with the countries of the region, not only to benefit the MENA countries, but also to avoid negotiating competing trade arrangements with different regulatory requirements. Possible measures could include both sides' entering into new free trade agreements that open access to U.S. and EU markets; efforts that promote inter-regional trade and cooperative regional projects in areas such as energy and infrastructure; or technical assistance for regulatory and legal reforms that encourage greater foreign investment. As noted previously, the Obama Administration proposed working with the EU to launch a comprehensive Trade and Investment Partnership for the MENA region, but most observers suggest that it remains in the early stages. Coordinated Debt Relief and Debt Swaps. The United States and member countries of the EU could offer coordinated debt relief and debt swaps, allowing MENA countries in transition to use money for economically beneficial projects rather than repaying debt. Coordinating such efforts would hopefully help to reduce duplicative projects and help stretch such funds farther. The issue of debt relief is the responsibility of the individual EU member states, rather than the EU, and such coordination of debt relief initiatives would presumably take place in the Paris Club grouping of major creditor nations. Cooperation on Democracy Promotion and Civil Society. The United States and the EU also have a shared interest in maintaining and expanding support for a range of projects and organizations that relate to democratization, the development of civil society, security sector reform, and the values of a free and open society. In these areas too, analysts assert that it is important for the United States and EU (along with other countries) to coordinate their political messages and policies to avoid duplication and working at cross purposes. Some contend this is especially important "on-the-ground," and suggest that there should be regular meetings of U.S. and European embassy officials and development workers serving in the various MENA countries. Another possibility would be to arrange conferences bringing together U.S. and European non-governmental organizations with local civil society activists to encourage dialogue and partnership (along the lines of a forum organized by the EU in May 2012 that brought together Libyan and European NGOs). At the same time, experts have expressed concerns that associating a high degree of conditionality with democracy promotion policies could generate perceptions of Western interference or encourage regional partners to seek support elsewhere; on the other hand, the United States and the EU may not be able to influence intransigent decision-makers without insisting on coordinated aid conditionality. Cooperation on Police, Judicial, and Rule of Law Training. Both the United States and the EU have assisted a wide range of countries in political transition, from those of the former Yugoslavia to Iraq to East Timor, in developing their police and judicial services in line with the rule of law. Many observers point out that the EU in particular is well-suited to conducting such training, having developed the necessary institutional support structures and civilian capacities. Some analysts contend, however, that U.S. and EU civilian and rule of law missions in countries like Afghanistan have been duplicative or disadvantaged by a lack of coordination; as such, they assert that it might be more beneficial for the United States and the EU to cooperate closely in designing and establishing any potential rule of law or police training missions for the MENA region. Enhancing the Roles of the U.S. Congress and the European Parliament. Increased engagement by the U.S. Congress and the European Parliament with their counterparts in the MENA region could play a useful role in supporting democratic transitions and offering assistance on parliamentary procedure and process. Both Congress and the Parliament have prior experience in assisting legislatures in emerging democracies. In the past, the U.S. House Democracy Partnership, which grew out of House efforts to provide help to legislatures in Central and Eastern Europe in the 1990s, has worked with partner legislatures in numerous countries ranging from Haiti to Kenya to Iraq and Lebanon. Since the "Arab Spring," the European Parliament has increased its contacts and cooperation with elected assemblies in European Neighbourhood Partnership countries; for example, Members of the European Parliament served in the EU observer mission that helped monitor Tunisia's assembly elections in October 2011, and some Parliamentarians have been working to assist their Moroccan counterparts in contributing to the country's reform process. Some observers also suggest that greater Congress-Parliament coordination might be beneficial; among other possible steps, the two sides could consider undertaking joint trips to the MENA countries or establishing a parliamentary forum with elected representatives from the MENA region. U.S. Participation in EU Forums . Some observers advocate that the United States should have a role in the recently established EU task forces with Tunisia, Jordan, and Egypt, or similar ones that might be set up in the future with other MENA countries. This could potentially be a way to institutionalize U.S.-EU coordination toward individual countries in the MENA region and avoid unnecessary duplication of programs and projects. Skeptics of this option suggest that U.S. participation in EU task forces might be redundant given close working ties between U.S. and EU officials on MENA issues and existing forums such as the Deauville Partnership. Other experts contend that the most effective and practical form of U.S.-EU cooperation toward the MENA region might be through a "division of labor" approach. This would allow each side to play to its strengths, build upon the varying U.S. and EU pre-existing relationships with different MENA countries, and thus stretch limited financial resources farther. The United States could, for example, devote the bulk of its political and economic assistance to Egypt, given its extensive and long-standing ties to that country, while the EU could focus on Tunisia, Jordan, and Morocco. Many view the EU as already somewhat more engaged than the United States in bolstering reform efforts in Jordan and Morocco. As discussed earlier, the EU has included these two countries in the remit of its Special Representative for the Southern Mediterranean, but the mandate of the U.S. State Department's new Office for Middle East Transitions does not extend to Jordan and Morocco because the United States does not view these countries as undergoing the same sort of wholesale transition as other countries in the region. Critics of a "division of labor" approach argue that it would be impractical and that neither the United States nor the EU would be willing to cede complete influence over certain MENA countries to the other. Some analysts contend that despite the ongoing U.S.-EU dialogue and the potential benefits of greater U.S.-EU coordination toward the Middle East and North Africa, more robust and sustained cooperation between the two sides of the Atlantic faces numerous challenges. First, many point out that U.S. and European leaders remain preoccupied with their own respective economic and budgetary issues. Given the domestic pressures in both the United States and Europe, some observers suggest that both U.S. and EU policymakers are focusing on relatively low-cost initiatives that could attract multilateral or private sector investment. "Big ideas," such as a Marshall Plan for the MENA region, are not currently on the table, nor is there, as noted previously, a transatlantic "perspective" available for the MENA countries in the form of NATO and/or EU membership. Second, many commentators assert that the EU is still struggling to forge common foreign and security policies among member states that have different viewpoints and national interests. In the early months of the "Arab Spring," for example, EU leaders were divided on whether to pressure former Egyptian President Mubarak to resign and on whether to intervene militarily in Libya. A degree of intra-EU tensions also may exist over the European Neighborhood Policy; while many member states in Southern Europe have been advocating for the EU to do more to support the transitions underway in the Mediterranean, some Central and East European members worry that doing so could take EU attention and financial aid away from those countries on the EU's eastern periphery. An EU unable to "speak with one voice" may be a less reliable partner for the United States in promoting political and economic reforms in the MENA region. In addition, some analysts contend that the Eurozone crisis, as well as the resulting political challenges facing both the EU as a whole and individual member states, may generate a more inward-looking EU, at least in the short term, and impede Europe's ability to enhance its cooperation with the United States toward the MENA region. Third, observers suggest that potential policy differences between the United States and the EU could arise and complicate efforts to forge more cooperative or coordinated U.S.-European policies. For example, some experts posit that U.S. concerns about the effects of regional change on Israel's security and counterterrorism efforts could make some U.S. officials more hesitant than their European counterparts about imposing strict conditionality (i.e., aid for reforms) on countries such as Egypt. A number of analysts contend that European reactions to the June 2013 conviction in Egypt of 43 employees of U.S. and German pro-democracy organizations were much stronger and harsher than that of the Obama Administration. At the same time, some Members of Congress warned that the court's verdict would have "significant negative implications" for U.S.-Egyptian relations. Thus, some experts point out that divisions among U.S. policymakers as they struggle to balance competing interests in the MENA region could also potentially hinder greater transatlantic cooperation. Fourth, despite the emphasis in both the United States and the EU on increasing trade and investment opportunities as a way to promote economic development, some suggest that U.S. and EU commercial interests and businesses may be in competition in the MENA region. This could limit the political will on both the U.S. and EU sides to forge complementary trade and investment policies. Fifth, some skeptics question whether greater U.S.-European cooperation in the MENA region is desirable. Some European analysts argue that the EU would be better off having a more independent policy from the United States, given the negative perception of the United States among some segments of Arab society as a result of U.S. policies toward Israel and the U.S.-led invasion of Iraq in 2003. Meanwhile, some U.S. commentators suggest that Europe should take the lead in the Middle East and North Africa because Europe's proximity to and history with the region gives European governments not only a more intimate understanding of the MENA countries, but also a more immediate stake in their positive transformation. Finally, regardless of the extent of cooperation between the United States and EU, most experts agree that as external actors, the ability of the two partners to influence events in the MENA region will be limited and that ultimately, the governments and peoples of the region will be the main determinants of their own futures. Many analysts worry that the political and economic difficulties facing many MENA countries in transition, combined with deeply problematic issues involving Iran, the Israeli-Palestinian conflict, and Syria, could lead to a progressively worse regional situation in the years ahead. Whatever dynamics of U.S.-EU cooperation emerge, therefore, in the foreseeable future developments in the MENA region are likely to remain a significant foreign policy interest for policymakers on both sides. CRS Report RL33487, Armed Conflict in Syria: U.S. and International Response , by [author name scrubbed] and [author name scrubbed]. CRS Report R42393, Change in the Middle East: Implications for U.S. Policy , coordinated by [author name scrubbed]. CRS Report RL33003, Egypt: Background and U.S. Relations , by [author name scrubbed]. CRS Report R43053, Egypt and the IMF: Overview and Issues for Congress , by [author name scrubbed] and [author name scrubbed]. CRS Report R41959, The European Union: Foreign and Security Policy , by [author name scrubbed]. CRS Report RS21372, The European Union: Questions and Answers , by [author name scrubbed]. CRS Report RL33546, Jordan: Background and U.S. Relations , by [author name scrubbed]. CRS Report R42393, Change in the Middle East: Implications for U.S. Policy , coordinated by [author name scrubbed]. CRS Report RS21579, Morocco: Current Issues , by [author name scrubbed]. CRS Report RS21666, Political Transition in Tunisia , by [author name scrubbed]. CRS Report R42621, State, Foreign Operations, and Related Programs: FY2013 Budget and Appropriations , by [author name scrubbed], Marian Leonardo Lawson, and [author name scrubbed]. CRS Report R43043, The FY2014 State and Foreign Operations Budget Request , by [author name scrubbed], Marian Leonardo Lawson, and [author name scrubbed]. CRS Report R42153, U.S. Trade and Investment in the Middle East and North Africa: Overview and Issues for Congress , coordinated by [author name scrubbed]. | U.S. and European Responses to Changes in the Middle East and North Africa Over the last two years, many U.S. policymakers, Members of Congress, and their European counterparts have struggled with how best to respond to the wide range of challenges posed by the popular uprisings and political upheaval in many countries in the Middle East and North Africa (MENA). Almost immediately after the onset of the so-called "Arab Spring" in early 2011, U.S. and European leaders alike declared their intention to put greater emphasis than in the past on democratic reform and economic development in formulating their respective policies toward countries such as Egypt, Tunisia, Jordan, and Morocco. In Libya, the United States and many European allies participated in the NATO-led military intervention in support of rebel forces that ultimately toppled the Qadhafi regime. And as demonstrations in Syria escalated into a bloody civil war, the United States and the European Union (EU) have imposed sanctions, called for an end to the ruling Asad regime, and are considering greater material and financial support to the Syrian political and armed opposition. Possibilities for U.S.-European Cooperation and Potential Obstacles In light of the immense changes and what many have long viewed as common U.S. and European interests in the Middle East and North Africa, numerous analysts have advocated for significant U.S.-European cooperation to promote a more peaceful and prosperous MENA region. Such collaboration, they argued, would help prevent a wasteful duplication of Western diplomatic and economic resources amid competing domestic political priorities and financial constraints on both sides of the Atlantic. Despite notable cultural, historical, and geopolitical differences, some commentators early on drew analogies with the way the United States and its West European allies worked together to support the transitions in Central and Eastern Europe after the end of the Cold War, and hopes were high for a similar robust transatlantic effort in the MENA region. As events in the MENA region have unfolded, U.S. and European policymakers have been in frequent contact with each other. Analysts suggest that U.S. and European policies have been closely aligned on most issues regarding the changes underway. There have been some U.S.-European efforts to promote a more coherent international response through institutions such as the G8, the European Bank for Reconstruction and Development, and the International Monetary Fund (especially with respect to reaching a financial assistance agreement for Egypt). Nevertheless, many observers contend that so far, tangible joint or coordinated U.S.-European initiatives to encourage political transitions and economic opportunities in the MENA countries have been modest at best. Debate thus continues about the prospects for greater U.S.-European collaboration and the possible benefits of it for U.S. interests. Skeptics point out that both the United States and Europe are limited in what they can do to influence events in the region, and they worry that the political and economic difficulties facing many MENA countries in transition, combined with deeply problematic issues involving Iran, the Israeli-Palestinian conflict, and Syria, could lead to a progressively worse regional situation in the years ahead. Others are also concerned that more intensive Western involvement could be counterproductive if viewed in the region as an attempt to protect U.S.-European interests, or if used by some MENA leaders to deflect blame for domestic and regional problems. Issues for Congress Many Members of Congress have closely followed events in the MENA region. Congress has been and will be considering the appropriation of U.S. aid to the MENA countries. As such, some Members may be interested in ways to coordinate U.S. and European foreign assistance, debt relief, and trade and investment policies in order to maximize their effectiveness as well as to conserve U.S. political capital and economic assets in the years ahead. Members may also be interested in European responses to the transitions in the MENA region, and the degree of U.S.-European cooperation, as a test of whether Europe can be an effective partner for the United States in protecting shared global interests and addressing common challenges. At the same time, many Members of Congress are concerned about the eventual political orientation of emerging regimes in countries such as Egypt and Tunisia, and about the implications of regional change for Israel's security and U.S. counterterrorism efforts. Some Members may be apprehensive about working too closely with European governments or the EU if policy differences begin to emerge between the two sides, or if doing so might constrain future U.S. policy choices toward the MENA countries. Congress may also want to consider whether more robust U.S.-European cooperation in the MENA region could have implications for U.S. options in addressing challenges elsewhere in the greater Middle East (such as those related to Iran or the Israeli-Palestinian conflict). |
On February 20, 2003, the President signed into law the Consolidated Appropriations Act forFY2003, P.L. 108-7 , formerly H.J.Res. 2 The Act consolidates under one omnibusappropriations measure 11 appropriations acts, including the District of Columbia AppropriationsAct for FY2003, that the 107th Congress failed to complete action on before it adjourned. OnFebruary 13, 2003, the House and Senate approved the conference report ( H.Rept. 108-10 ) accompanying H.J.Res. 2 . The Senate approved its version of H.J.Res. 2 on January 23, 2003. A few weeks earlier, on January 8, 2003, the House approved its initialversion of H.J.Res. 2 , extending until January 31, 2003, P.L. 107-229 , a continuingappropriations measure that froze at the FY2002 approved funding level appropriations for 11 ofthe 13 appropriations bill for FY2003 that had not yet been approved by Congress, including theDistrict of Columbia Appropriations Act for FY2003. The House version of the bill included aprovision that would have allowed the District of Columbia to spend $5.8 billion in locally raisedfunds while Congress completed action on the proposed $517 million in federal contributions to theDistrict's FY2003 budget. On November 13, 2002, Congress passed H.J.Res. 124 , acontinuing resolution extending until January 11, 2003, P.L. 107-229 , a continuing appropriationsmeasure. The measure effectively postponed further congressional consideration of District ofColumbia appropriations bill until the start of the 108th Congress. Table 1. Status of District of Columbia Appropriations: FY2003 (1) The 107th Congressadjourned without the House or Senate passing their respective versions of the District ofColumbia Appropriations Act for FY2003 (H.R. 5521 or S. 2809). The108th Congress consideredthe FY2003 appropriations for the District of Columbia as a part of an omnibus appropriations bill (H.J.Res. 2)which the Senate amended and passed on January 23, 2003. Since the phaseout of the District of Columbia Financial Responsibility andManagement Assistance Authority (the Authority) (1) in September 2001, and thesigning of the District of Columbia Appropriations Act for FY2002, P.L. 107-96 , onDecember 21, 2001, the District of Columbia government has continued to makeprogress in improving the delivery of services and in the city's long-term financialhealth; however, issues remain. Most notably, the city faced a projected budgetshortfall of $323 million for FY2003, if corrective action was not taken. The CFO'sComprehensive Annual Financial Report (CAFR), released in January 28, 2002,certified that the city had achieved a $77.6 million budget surplus for FY2001,resulting in an accumulated General Fund balance of $526 million. This achievementmarks the city's fifth consecutive year of balanced or surplus budgets. However, thesignificance of this achievement has been eroded by the city's projected fiscalimbalance of $323 million. During the last year, the District of Columbia's elected and appointed leadership addressed a number of other governance-related issues, including school reform andmedical services for the uninsured. School reform, according to observers, is a work-in-progress. The new Boardof Education also had to address a $40 million budgetdeficit and issues surrounding special education services and the certification ofcharter schools. The downsizing of D.C. General Hospital and the creation of analternative health care delivery system for the city's poor residents was, andcontinues to be, a contentious political issue. The financial crisis facing the city'slead provider of health care for the city's indigent population, Greater SoutheastCommunity Hospital, has raised concerns about the viability of the new system thatreplaced the city's public hospital, D.C. General. The District of Columbia Financial Responsibility and Management Assistance Act of 1995, P.L. 104-8 , created the Authority and the Office of Chief FinancialOfficer (OCFO). Under the law the CFO is charged with producing auditedstatements of the city's financial condition; preparing the city's annual budget;borrowing on behalf of the District; collecting receipts, payments, and transactionsfor the District; investing the city's funds; and administering and enforcing tax laws. Working in concert, the District's elected political leadership, the presently dormantAuthority and the CFO implemented a series of financial and management reforms. The District ended FY1997 with a surplus of $186 million. For FY1998, the city's budget surplus was $445 million. (2) After a13-week delay, the city's CFO reported an FY1999 surplus of $135 million. For FY2000, the general fund surpluswas $241 million, and for FY2001, $77.6 million. (3) For FY2003, the city faced a projected budget shortfall of $323 millionaccording to the CFO. (4) The shortfall has requiredsignificant reductions in cityservices including education and human services. On September 17, 2002, the city'sCFO submitted revised budget estimates for FY2003 to FY2006, which included aprojected deficit of $323 million for FY2003. In response to the CFO's findings andat the urging of Congress, the mayor and the city council submitted a revised budgeton September 27, 2002, aimed at addressing the budget shortfall. The Office of the CFO has played a critical role in the city's success in maintaining budget discipline and its return to fiscal health. On January 28, 2002, theCFO released the city's Comprehensive Annual Financial Report (CAFR) forFY2001. The report, which is a critical barometer of the city's financial health,showed that it had a budget surplus of $77.6 million at the end of FY2001. TheFY2001 CAFR met the CFO's key objectives of producing an unqualified auditopinion and a balanced or surplus budget for the fifth consecutive year. In 2001, the city approved amendments to the D.C. Code making the OCFO a permanent part of the city's governing structure. Without such legislation or theintervention of Congress, the OCFO would have ceased operating on September 30, 2001, the end of the control period. (5) In July2001, a conference committeeconsidering supplemental appropriations for the District of Columbia for FY2001offered, but later withdrew, a proposal regarding the District's Chief FinancialOfficer. On June 19, 2001, the city council held a public hearing on the Independenceof the Chief Financial Officer Establishment Act of 2001, B14-0254. The legislation,which makes the position of CFO permanent; provides for the appointment andremoval of the CFO by the mayor, with the consent of the city council during a non-control year; and transfers tothe CFO the responsibility for the management of allexecutive branch agencies involved in managing the city's finances. The bill wasapproved by the Council by a voice vote on July 10, 2001 as legislative act 14-089. Reform of the city's health care delivery system for the poor continues to be a divisive political issue. During the past 2 years, the city's political leadership hasbecome bitterly divided over the downsizing of D.C. General Hospital, the demiseof the Public Benefit Corporation (PBC), and the restructuring of the city's healthcare delivery system for indigent and uninsured residents of the city. The downsizingand restructuring of the hospital from a 250-bed advance trauma center to acommunity access hospital that treats and releases or transfers patients within 23hours of admittance spawned a last minute challenge to the mayor's reelection bid. Reform in the city's delivery of health care to the poor was sought by Congress because of the PBC's mismanagement of D.C. General Hospital. From 1997 to itsdismantling in 2001, the PBC amassed $109 million in unbudgeted loans from thecity, using its power to borrow from the city's general fund to cover deficit spendingand defer mounting debt. In addition to these questionable financial managementpractices, the PBC had been the subject of newspaper stories detailing questionablehiring practices, including the hiring of friends and relatives of city council membersand former associates of the Executive Director of the PBC. The new system administered by the newly created Health Care Safety Net Administration, which was created with the passage of the Health Care PrivatizationAct of 2001 (D.C. Law 14-18) and replaced the PBC, began functioning on April 21,2001. It provides health care services to District residents with incomes that do notexceed 200% of the poverty level through the Health Care Alliance, a coalition ofhealth care providers headed by Greater Southeast Community Hospital, andincluding Chartered Health Plan, Unity Health Care, Children's National MedicalCenter, the George Washington University Hospital, and the District of ColumbiaDepartment of Health. Critics of the new plan complained that health care services to the poor would be severely curtailed, while supporters praised it as responsive and as an effectivemeans of widening the health care choices of the city's uninsured while reducing the cost of care. The effectiveness of the new system has been called into question bytwo recent revelations. First, Greater Southeast Community Hospital, the leadprovider of health care services to the city's indigent population, faces a financialcrisis caused, in some part, by security fraud involving the primary creditor to itsparent company. The hospital's weakened financial condition has resulted in acurtailing of services at the hospital and a resulting shift of demand for services toother hospitals. The hospital's weakened financial condition also provides newevidence for critics that the system of privatizing care is flawed. Second, an October 2, 2002 audit by the city's Inspector General found significant problems in the Department of Health's oversight of the city's contractwith the Health Care Alliance and the Health Care Alliances administration of theenrollment process. Specifically, the report noted that the Department of Health hadfailed to hire critical personnel in a timely fashion, and the Health Care alliance hadfailed to properly screen thousands of ineligible enrollees. The audit found that theAlliance rolls included individuals with unverified addresses and incomes, third partyinsurance, invalid social security numbers, and incomes exceeding enrollmentmaximums. Enrollment rules governing eligibility require enrollees to show proofof District residency, have incomes less than 200% of the poverty level, and have noother health coverage, including Medicaid. Supporters of the city's health careprivatization efforts contend that the system is superior to the one it replaced - D.C.General - the city's public hospital. On February 4, 2002, the Bush Administration released its FY2003 budget recommendations. The Administration's proposed budget included $378.8 millionin federal payments to the District of Columbia. (6) An overwhelming percentage ofthe President's proposed federal payments and assistance to the District involve thecourts and criminal justice system. This includes $161.9 million for the CourtServices and Offender Supervision Agency for the District of Columbia, anindependent federal agency that has assumed management responsibility for theDistrict's pretrial services, adult probation, and parole supervision functions. Inaddition, the Administration requested $159 million in support of court operations,and $32 million for Defender Services. These three functions (court operations,defender services, and offender supervision) represent $352.9 million, or 93.2% ofthe President's proposed $378.8 million in federal payments to the District ofColumbia (see Table 2). On June 4, 2002, District officials transmitted the city's $5.8 billion budget for FY2003 to the President for review and approval. On July 11, 2002, the BushAdministration transmitted the city's budget to Congress for its review and approval.The city's initial operating budget included a $70 million reserve fund. In addition,the District's budget would have decreased local funding for public education by $48million while seeking $23.2 million in special federal payments for charter schoolfinancing, early childhood education, and special education. The District's initialbudget also would have increased funding for human support services by $680million and for general government support by $42.6 million. On September 27, 2002, the District submitted an amended budget for FY2003, intended to address a $323 million projected deficit. The District's Fiscal Year 2003Budget Request Amendment Act, A14-46, would partially address the budget deficitby reducing total operating expenses by approximately 3.5%. The proposed reductions included government support activities (6.4%), economic developmentactivities (8.7%), public safety (3.5%), public education (3.4%) and human services(3.6%). The amended budget must be approved by Congress (see Table 3). TheDistrict of Columbia Appropriations Act for FY2003 is one of several appropriationsbills that the 107th Congress did not pass. It has been included in a series ofcontinuing appropriations. Section 302(a) of the Congressional Budget Act requires that the House and Senate pass a concurrent budget resolution establishing an aggregate spending ceiling(budget authority and outlays) for each fiscal year. These ceilings are used by Houseand Senate appropriators as a blueprint for allocating funds. Section 302(b) of theCongressional Budget Act of 1974 requires appropriations committees in the Houseand Senate to subdivide their Section 302(a) allocation of budget authority andoutlays among the 13 appropriations subcommittees. The House AppropriationsCommittee approved a Section 302(b) suballocation of $517 million in budgetauthority for FY2003 for the District of Columbia. Congress not only appropriates federal payments to the District to fund certain activities, but also reviews the District's entire budget, including the expenditure oflocal funds. The District subcommittees of both the House and Senate AppropriationsCommittees must approve--and may modify--the District's budget. House andSenate versions of the District budget are reconciled in a joint conference committeeand must be agreed to by the House and the Senate. After this final action, theDistrict's budget is forwarded to the President, who can sign it into law or veto it. 108th Congress. The 107thCongress was unable to complete action on 11 appropriations bills, including theDistrict of Columbia Appropriations Act for FY2003, before adjourning. The 108thCongress took up consideration of these bills in early January 2003, and eventualpassed a consolidated appropriation. In the interim Congress passed a series ofcontinuing budget resolutions aimed at providing temporary funding for affectprograms and activities. Table 2. District of Columbia General and Special Federal Payment Funds: Proposed FY2003 Appropriations (inmillions of dollars) a In previous years, funds would be provided as part of District of Columbia court operations. Congresscreated a separate appropriation to ensure payment of attorneys representing indigent persons, guardianship,and abused and neglected children in court proceedings. b Certified as a federal agency on August 14, 2000. c In FY2002 funds awarded under separate heading to the CFOfor a feasibility study of Eastern Marketrenovation. d FY2002 appropriations included $0.5 million forSoutheastern University and McKinley TechnologyCenter funding. e $5 million would be made available in FY2003 to fund thecrime lab activities only. Allows courts to reallocate not more than $1 million among activitiesfunded under this heading. f $0.5 million was appropriated to CFO in FY2002 for soccerfacilities at Kenilworth Park. g Funds administered under the CFO account. h Activity funded under Defender Services account. i Includes $16.4 million in unobligated balances from previousyear. j Funded under separate account for public charter schools. k Funded as an set aside under public school account House Version of H.J.Res. 2 (formerly H.R. 5521). On January 8, 2003, the Houseapproved a joint resolution, H.J.Res. 2 , extending P.L. 107-229 , throughJanuary 31, 2003. P.L. 107-229 , a continuing budget resolution, froze appropriationsfor 11 appropriations bills for FY2003 at their FY2002 budget levels. H.J.Res. 2 , was intended to serve as a vehicle for completing final fundingdecisions on the 11 remaining regular appropriations bills, including the District ofColumbia. Section 7 of H.J.Res. 2 , as approved by the House on January8, 2003, would have allowed the District to spend $5.8 billion in locally raised fundsfor operating expenses in accordance with the city's revised financial plan and budgetfor FY2003. Although city officials expressed support for the House provision thatwould have released that portion of the District of Columbia budget financed withlocally raised funds, the District's Delegate to Congress contended that the delay inapproving the city's budget argued for increased budget autonomy for the city inspending its own locally raised funds. During the 107th Congress, the House Appropriations Committee reported out its version of the District of Columbia Appropriations Act for FY2003, H.R. 5521 , on October 2, 2002, several days after the District submitted a revised budget forFY2003. The House bill included $517 million in special federal payments for theDistrict of Columbia. Like its Senate counterpart, the bill included $17 million for acollege tuition assistance plan, $15 million for security planning, and $154 million forcourt services and offender supervision. The House bill included $14 million in specialfederal payments to the D.C. public schools and $24 million for capital infrastructureprojects. The District requested $96 million for such activities. FY2003 General Provisions, House Bill. The House Appropriations Committee included a provision thatwould have removed the prohibition on the use of District funds for costs associatedwith implementing the District's Health Care Benefits Expansion Act of 1992. Theprovision was also included in the Senate version of the bill. Like its Senatecounterpart, the House bill retained a number of provisions that District officialswanted to eliminate or modify, including those related to medical marijuana, abortion,and needle exchange programs. Senate Version of H. J. Res. 2 (formerly S. 2809). On January 23, 2003. the Senate passed its versionof H. J. Res. 2, an omnibus appropriations measure that included the full-text of eachof the outstanding regular appropriations bills, as amended. The Senate bill included$512 million in special federal payments and earmarks for the District of Columbia. address the differences in House and Senate general provisions included the DistrictAppropriations Act. On July 26, 2002, the Senate Appropriations Committee reported S. 2809 , the District of Columbia Appropriations Act for FY2003. The bill included $517million in special federal payments and contributions to the District. The majority ofthe funds were slated to be used for courts, defender services, and offendersupervision-related activities. The Senate Appropriations Committee also included $15million for emergency planning and response activities, and an additional $15 millionfor capital infrastructure projects that support the creation of a unified communicationscenter to serve all D.C. first responders ($10 million) and a state-of- the-art forensiclaboratory ($5 million). The Committee also included $58 million for the AnacostiaWaterfront Initiative. Of this amount $5 million would be used to develop parks andrecreational facilities at Kenilworth Park and $50 million would be used to design andrebuild the water and sewer system that serves the nation's capital. These funds wereto be matched by local funds. The House bill did not include funding for the initiative. FY2003 General Provisions, Senate Bill. During its consideration of the bill, the Senate AppropriationsCommittee included a provision that would remove the prohibition on the use ofDistrict funds for costs associated with implementing the District's Health CareBenefits Expansion Act of 1992. The act allows a District employee to include acohabitating, but unrelated, person on the employee's health insurance plan. The actalso allows unrelated heterosexual and homosexual couples to register as domesticpartners. The Committee also would have reduced the number of general provisionsincluded in the bill to 36 from the 41 included in the FY2002 Appropriations Act. Itretained a number of provisions that District officials wanted eliminated or modified,including those related to medical marijuana, abortion, and needle exchange programs. Conference Version of H. J. Res. 2, P.L. 108-7. The 107th Congress adjourned without the House or Senate passingtheir respective versions of the District of Columbia Appropriations Act for FY2003( H.R. 5521 or S. 2809 ). The 108th Congress considered theFY2003 appropriations for the District of Columbia as a part of an omnibusappropriations bill ( H.J.Res. 2 ). The House originally introduced H.J.Res. 2 , on January 8, 2003, as a continuing budget resolutionproviding temporary funding for programs funded under 11 appropriations bills,including the District of Columbia Appropriations for FY2003, considered, but notpassed, during the 107th Congress. The Senate amended and passed its version of H.J. Res. 2, on January 23, 2003. P.L. 108-7, Special Federal Payments and Contributions. The conference version of H.J.Res. 2 , wasapproved by the House and Senate on February 13, 2002. The Act, which was signedby the President on February 20, 2003, appropriates $512 million in special federalpayments and contributions to the District of Columbia and associated public andprivate entities. The Act includes: $162 million for the operation of the District of Columbia Court system; $155 million for court services and offender supervision activities; $50 million federal payment to the Washington Water and Sewer Authority; $33 million for defender services; $30 million for security and emergency preparedness and response activities, including $15 million for security planningactivities; $20 million for public education, including $3 million in support of special education, and $17 million for the District's public charter schools; and $17 million for college tuition assistance plan. The Act also includes $40 million allocated to the CFO and earmarked for 56 public and private entities for specific projects and activities. P.L. 108-7, General Provisions. The Act, as passed by Congress, includes several provisions which city leaders sought tohave removed or modified characterizing the provisions as intrusive and anti-homerule. The Act prohibits the use of the use of federal and District funds for: lobbying for District statehood or voting representation in Congress; abortion services, except in the case of rape or incest; a needle or syringe exchange program intended to reduce the spread of AIDS/HIV; or legalize marijuana or the implementation of a medical marijuana initiative. The Act allows the District to continue to use local funds to implement the 1992 Health Care Benefits Expansion Act, which extends medical, employment, andgovernment benefits to unmarried couples, including homosexuals. The Act includesseveral provisions aimed at addressing public education issues in the District ofColumbia. In addition to appropriating a combined $20 million in special federalcontributions to the District of Columbia Public School System ($3) and public charterschools ($17 million), the Act includes language authorizing the establishment of theOffice of Public Charter School Financing and Support and the a new Charter SchoolFund. The Act also establishes a $4,000 ceiling payable to attorneys involved legalactions brought against the District of Columbia Public Schools under the Individualswith Disabilities Educations Act (20 U.S.C. 1400 et seq.). For additional backgroundon these and other key policy issues please see Key Policy Issues section of this report. Table 3. District of Columbia GeneralFunds (in millions of dollars) According to the city's CFO, the District faced a projected FY2003 budget deficit of $323 million. This revenue shortfall can, in part, be attributable to theresidual effects of the attacks of September 11, 2001, which reduced tourism,convention, and business travel income. Other factors such as a slowing economy,lower returns on investments, and overspending in such areas as public educationalso have contributed to the looming deficit. With a deadline of October 1, 2002, thestart of the 2003 fiscal year, city leaders, in order to avoid congressional interventionor the possible resurrection of the control board, developed an acceptable plan thatmay close the revenue and expenditure gap. City officials considered several options aimed at addressing the projected $323 million deficit. The mayor and city council considered action that would: reduce expenditures; increase taxes and fees; access the reserve fund; or any combination of the three. If city leaders had been unable to fashion a plan, the city faced the possibility that Congress would have intervened and made the cuts. According to press reportsat the time, , the most likely plan included significant cuts in the 10 agencies withthe largest budgets including education, health, and human services. (7) Cuts in theseareas would affect children and the poor. It could have also involved a significantreduction in the city's work force and the deferring of employee wage increases,planned capital expenditures or program increases. The city leadership asked unionsrepresenting city employees to temporarily put off raises built into their contracts forFY2003, which began October 1, 2002. The raises average about 4% with policeraises at 5%. According to estimates by the Williams administration, if the unionsagreed to a 4-month delay, for instance, it could save the city $8 million to $10million. (8) If the city had chosen tax and fee increases, the mostly likely targets were increases on alcohol, hotel, and tobacco. According to Jack Evans, chair of the citycouncil's Finance and Revenue Committee, increases in general sales or propertytaxes could prove politically unpopular, since city residents are among the mostheavily taxed in the nation. (9) The city also consideredrolling back planned incometax relief. Another option considered was the use of the city reserve funds. It should be noted that the District of Columbia Appropriations Act of 2002, P.L. 107-96 and theD.C. Code (�1-204.50a) require the District, when using reserve funds to close abudget gap in a given fiscal year, to replenish the fund the following fiscal year. Currently, the city's CFO projects annual budget deficits for the next 4 years that mayreach as much as $351 million in FY2006. (10) In addition to the $15 million earmarked for emergency planning and security, the city's budget includes additional emergency planning and homeland securityrelated funding. Specially, the city requested $22 million for a unifiedcommunications system for regional emergencies. The House bill includes $39.6million, including $19 million for a unified regional emergency communicationscenter. Table 4. Emergency Preparedness and Security Funding Whether to continue a needle exchange program funded with federal or District funds is one of several key policy issues that Congress considered when reviewingthe District's appropriations for FY2003. The controversy surrounding funding aneedle exchange program touches on issues of home rule, public health policy, andgovernment sanctioning and facilitating the use of illegal drugs. Proponents of aneedle exchange program contend that such programs reduce the spread of HIVamong illegal drug users by reducing the incidence of shared needles. Opponents ofthese efforts contend that such programs amount to government sanctioning of illegaldrugs by supplying drug-addicted persons with the tools to use them. In addition,they contend that public health concerns raised about the spread of AIDS and HIVthrough shared contaminated needles should be addressed through drug treatment andrehabilitation programs. Another view in the debate focused on the issue of homerule and the city's ability to use local funds to institute such programs free fromcongressional actions. The prohibition on the use of federal and District funds for a needle exchange program was first approved by Congress as Section 170 of the District of ColumbiaAppropriations Act for FY1999, P.L. 105-277 . The 1999 Act did allow privatefunding of needle exchange programs. The District of Columbia Appropriations Actfor FY2001, P.L. 106-522 , continued the prohibition on the use of federal andDistrict funds for a needle exchange program, and restricted where privately fundedneedle exchange activities could take place. Section 150 of the District of ColumbiaAppropriations Act for FY2001 made it unlawful to distribute any needle or syringefor the hypodermic injection of any illegal drug in any area in the city that is within1,000 feet of a public elementary or secondary school, including any public charterschool. The provision was deleted during congressional consideration and passageof the District of Columbia Appropriations Act of FY2002, P.L. 107-96 . The act alsoincluded a provision that allows the use of private funds for a needle exchangeprogram, but prohibits the use of both District and federal funds for such activities. Presently, only one entity, Prevention Works, a private nonprofit AIDS awarenessand education program, operates a privately funded needle exchange program. TheFY2002 District of Columbia Appropriations Act requires such entities to track andaccount for the use of public and private funds. District officials were seeking to lift the prohibition on the use of District funds for needle exchange programs. However, P.L. 108-7 , prohibits the use of bothDistrict and federal funds for needle exchange programs. The Act allows the use ofprivate funds for needle exchange programs and requires private and public entitiesaccount for these funds separately. The Senate version of the District'sAppropriations Act, S. 2809 , would have allowed the use of localgovernment funds for needle exchange programs, but would have maintained theprohibition on the use of federal funds. Like the final conference provision, the House bill, H.R. 5521 , prohibited the use of both District and federalfunds for a needle exchange program. The medical marijuana initiative provision in the District of Columbia appropriations legislation is another issue that engenders controversy. The Districtof Columbia Appropriations Act for FY1999, P.L. 105-277 , included a provision thatprohibited the city from counting ballots of a voter-approved initiative that wouldhave allowed the medical use of marijuana to assist persons suffering debilitatinghealth conditions and diseases including cancer and HIV infection. Congress's power to prohibit the counting of a medical marijuana ballot initiative was challenged in a suit filed by the D.C. Chapter of the American CivilLiberties Union (ACLU). On September 17, 1999, District Court Judge RichardRoberts ruled that Congress, despite its unique legislative responsibility for theDistrict under Article I, Section 8 of the Constitution, did not possess the power tostifle or prevent political speech, which included the ballot initiative. (11) This rulingallowed the city to tally the votes on the November 1998 ballot initiative. To preventthe implementation of the initiative, Congress had 30 days to pass a resolution ofdisapproval from the date the medical marijuana ballot initiative (Initiative 59) wascertified by the Board of Elections and Ethics. Language prohibiting theimplementation of the initiative was included in P.L. 106-113 , the District ofColumbia Appropriations Act for FY2000. Opponents of the provision contend thatit and similar actions undercut the concept of home rule. The District of Columbia Appropriations Act for FY2002, P.L. 107-96 , includes a provision that continues to prohibit the District government from implementing theinitiative. Congress' power to block the implementation of the initiative was againchallenged in the courts. On December 18, 2001, two groups, the Marijuana PolicyProject and Medical Marijuana Initiative Committee, filed suit in U.S. District Court,seeking injunctive relief in an effort to put a medical marijuana initiative on theNovember 2002 ballot. The District's Board of Elections and Ethics ruled that acongressional rider that has been included in the general provisions of each Districtappropriation act since 1998 prohibits it from using public funds to do preliminarywork that would put the initiative on the ballot. On March 28, 2002, a U.S. District Court judge ruled that the congressional ban on the use of public funds to put such a ballot initiative before the voters wasunconstitutional. (12) The judge stated that the effectof the amendment was to restrictthe plaintiff's First Amendment rights to engage in political speech. The decision wasappealed by the Justice Department and on September 19, 2002, the U.S. Court ofAppeals for the District of Columbia Circuit reversed the ruling of the lower courtwithout comment. The three-judge Appeals Court panel stated its decision would befully explained in an opinion to be issued at a later date. The Appeals Court notedthat it issued its ruling on September 19, 2002, because that was the deadline forprinting ballots of the November general election. Consistent with provisions included in H.R. 5521 and S. 2809 , P.L. 108-7 includes a provision that continues the prohibitionagainst the implementation of the medical marijuana ballot initiative. The public funding of abortion services for District of Columbia residents is a perennial issue debated by Congress during its annual deliberations on District ofColumbia appropriations. District officials cite the prohibition on the use of Districtfunds as another example of congressional intrusion into local matters. The Districtof Columbia Appropriations Act for FY2002, P.L. 107-96 , included a provisionprohibiting the use of federal or District funds for abortion services, except in caseswhere the life of the mother is endangered or the pregnancy is the result of rape orincest. This prohibition has been in place since 1995, when Congress approved theDistrict of Columbia Appropriations Act for FY1996, P.L. 104-134 . Since 1979, with the passage of the District of Columbia Appropriations Act of 1980, P.L. 96-93 , Congress has placed some limitation or prohibition on the use ofpublic funds for abortion services for District residents. From 1979 to 1988,Congress restricted the use of federal funds for abortion services to cases where themother's life would be endangered or the pregnancy resulted from rape and incest. The District was free to use District funds for abortion services. When Congress passed the District of Columbia Appropriations Act for FY1989, P.L. 100-462 , it restricted the use of District and federal funds for abortion servicesto cases where the mother's life would be endangered if the pregnancy was taken toterm. The inclusion of District funds, and the elimination of rape or incest asqualifying conditions for public funding of abortion services, was endorsed byPresident Reagan, who threatened to veto the District's appropriations act if theabortion provision was not modified. (13) In 1989,President Bush twice vetoed theDistrict's FY1990 appropriations act over the abortion issue. He signed P.L. 101-168 after insisting that Congress include language prohibiting the use of District revenuesto pay for abortion services except in cases where the mother's life was endangered. (14) The District successfully fought for the removal of the provision limiting District funding of abortion services when Congress considered and passed theDistrict of Columbia Appropriations Act for FY1994, P.L. 103-127 . The FY1994 Actalso reinstated rape and incest as qualifying circumstances allowing for the publicfunding of abortion services. The District's success was short lived. The District ofColumbia Appropriations Act for FY1996, P.L. 104-134 , and subsequent District ofColumbia appropriations acts, limited the use of District and federal funds forabortion services to cases where the mother's life is endangered or cases where thepregnancy was the result of rape or incest. P.L. 108-7 , continues the restrict on the use of District and federal funds for abortion services except in cases of rape or incest, or the life of the mother isendangered. This is consistent with provisions included in the House and Senate versions of the District of Columbia Appropriations Act for FY2003. P.L. 107-96 includes a provision lifting the congressional prohibition on the use of District funds to implement its Health Care Benefits Expansion Act. (15) Theprovision permits unmarried heterosexual and homosexual couples to register asdomestic partners. Under the Health Care Benefits Expansion Act, which wasapproved by the city's elected leadership in 1992, an unmarried person who registersas a domestic partner of a District employee hired after 1987 may be added to theDistrict employee's health care policy for an additional charge. The Act had not beenimplemented until 2002 because of a congressional prohibition first included in thegeneral provisions of District of Columbia Appropriations Act for FY1994. The city's Health Care Benefits Expansion Act allows two unmarried and unrelated individuals to register as domestic partners with the District for the purposeof securing certain health and family related benefits, including hospital visitationrights. Under the law, District government employees enrolled in the District ofColumbia Employees Health Benefits Program are allowed to purchase family healthinsurance coverage that would cover the employee's family members, includingdomestic partners. In addition, a District employee registered as a domestic partnermay assume the additional cost of the family health insurance coverage for familymembers, which would include the employee's domestic partner. Opponents of the Act believe that it is an assault on the institution of marriage, and that the Act grants unmarried gay and heterosexual couples the same standing asmarried couples. Congressional proponents of lifting the ban on the use of Districtfunds argue that the implementation of the Act is a question of home rule and localautonomy. Supporters of the amendment noted that at least nine states, 136 localgovernments, and more than 4,000 companies offer benefits to domestic partners. (16) P.L. 108-07 , consistent with the provision included in the District's FY2002 Appropriations Act, includes a general provision that allows the use of District fundsto administer the program during FY2003. In passing the District of Columbia Appropriations Act for FY2003, Congress included additional funds and authority to address issues related to special educationand public charter schools. Special Education. The District's special education program has long been characterized as ineffective and inefficient. The system has been plagued by problems in transporting students to specialeducation facilities and in the timely evaluation of students who may have specialneeds. Delays in the period between the time a student is referred and assessedincreases the number of students placed in private educational institutions, whichadds to the cost of special education. Concern about the cost of these delaysprompted Congress to include a provision in the District of Columbia AppropriationsAct for FY1999 that extends the time period between referral and assessment of astudent with special education needs, as defined by the Individuals with DisabilitiesEducation Act (IDEA) (17) or the RehabilitationEducation Act, (18) from 50 days to 120days. (19) P.L. 108-7 does not include the 120-dayspecial education evaluation andplacement time period included in previous appropriations acts. In addition, the 1999 Appropriations Act for the District of Columbia limited the amount of compensation payable to attorneys representing disabled students whoprevailed in an action brought against the District of Columbia Public Schools(DCPS ) under the IDEA. Subsequent Appropriations Acts for FY2000 and FY2001,also limited the amount of funds payable to attorneys successfully representingstudents seeking special education services. The FY1999 Act limited attorneys' feesto an hourly rate of $50 and a case ceiling of $1,300; the FY2000 limit was $60 perhour and a case ceiling of $1,560; and the FY2001 rate was $125 per hour with a caseceiling of $2,500. The District's FY2002 Appropriations Act lifted the ceiling, in part, in response to the argument that the ceiling placed a hardship on households with limitedfinancial resources. District officials countered that the payment of attorney's feesdiverted significant funds from the provision of special education services, but wereunable to quantify the amount. As a consequence the FY2002 Appropriationsdirected the superintendent of the DCPS to provide an itemized list of attorney's feesawarded plaintiffs who had prevailed in cases brought under the IDEA. (20) The Actalso directed the General Accounting Office to report to the House and SenateAppropriations Committees on attorneys' fees awarded to prevailing plaintiffsseeking remedy under the IDEA in excess of the payment ceiling established in theAppropriations Acts for FY1999, FY2000, and FY2001. (21) Copies of the GAOreports cited above may be obtained at the GAO website. (22) Section 144 of the District of Columbia Appropriations Act for FY2003, limits to $4,000, the amount of appropriated funds that may be used to pay attorneys feesfor actions brought against the DCPS under the IDEA. Section 145 of the Actrequires attorneys in special education cases brought under the IDEA to disclose allfinancial, corporate, legal, or other interest or relationships with any special educationdiagnostic services or schools to which the attorney may have referred any client. Charter Schools. Faced with declining performance of the city's public schools, Congress passed legislationallowing for the creation of public charter schools. The District of Columbia SchoolReform Act of 1995 granted to the District of Columbia Board of Education, and anewly created District of Columbia Public Charter School Board authority toestablish charter schools. These two entities act independently in granting charterschools, but combined the two boards can charter no more than 20 schools per year.Charter schools can be established in one of three ways: private or existing publicschools may convert to charter schools, or a charter school may be created as a newstartup. These schools are independent of the public school system, but like theirpublic school counterparts, they receive funds based on a uniform per pupil fundingformula. The purpose of these independent public charter schools is to offer viablealternatives to students and parents. Currently, there are 39 public charter schoolsoperating in the District serving 14% of the school population. P.L. 108-7 , includes several provisions in support of the public charter school movement in the District of Columbia. The Act appropriates $17 million for charterschool activities including $8 million for a credit enhancement revolving fund, and$5 million for a facilities improvement fund. In addition the Act establishes theOffice of Public Charter School Financing and Support and amends the District ofColumbia School Reform Act of 1995 to establish the Charter School Fund. The Actalso includes a provision directing the General Accounting Office to provide adetailed analysis of the District's and national efforts to establish adequate charterschools facilities. These provisions demonstrate Congress's continued support forthe District's charter school movement. They are intended to address a major issueconfronting charter schools in the city - finding, financing, and renovating adequatefacilities. | On February 20, 2003, President Bush signed the Consolidated Appropriations Act for FY2003, P.L. 108-7 (formerly H. J. Res. 2). Division C of the act appropriates $512 million in federal fundsfor the District of Columbia. for fiscal year 2003. On February 13, 2003, the House and the Senateapproved the conference report ( H.Rept. 108-10 ) accompanying H. J. Res. 2. The Senate approvedan earlier version of H.J.Res. 2 , on January 23, 2003, that would have allowed theDistrict of Columbia to spend $5.8 billion in locally raised funds while Congress completed actionon the proposed $517 million in federal contributions to the District's FY2003 budget. The 107thCongress failed to complete action on the District's FY2003 Appropriations Act before it adjourned. As a consequence, Congress passed eight continuing budget resolutions freezing District ofColumbia and several other FY2003 appropriations bills at their FY2002 level until a budgetcompromise could be reached. during the 108th Congress. On October 2, 2002, several days after the submission of a revised FY2003 budget by District officials, the House Appropriations Committee reported the District of Columbia Appropriations Actfor FY2003, H.R. 5521 . In response to a congressionally imposed October 1, 2002deadline, District of Columbia officials completed action on a revised budget for FY2003 onSeptember 27, 2002. Passage of an amended FY2003 budget by District officials was aimed at addressing a $323 million budget shortfall identified by the city's chief financial officer. On July 26, 2002, the Senate Appropriations Committee reported S. 2809 , the District of Columbia Appropriations Act for FY2003. The Senate and House bills included $517million in special federal payments to the District of Columbia, which was significantly less than the$592 million requested by the District. The House and Senate bills included special federalpayments of $17 million for the District's college access program and $15 million for security andemergency preparedness activities associated with the city's status as the national capital. TheSenate bill included $15 million for capital infrastructure development while the House bill included$24 million, which was less than the $96 million requested by the District. The House and Senate bills, as reported during the 107th Congress, would have continued to allow the District to use its local funds to administer a domestic partners health insurance actapproved by the city in 1992. Prior to the passage of the P.L. 107-96 , the District of ColumbiaAppropriations Act for FY2002, Congress prohibited the implementation of the Health Care BenefitsExpansion Act. The Act allows unmarried couples to register as domestic partners and extendshealth care benefits of city employees to unrelated individuals registered as domestic partners. P.L.108-7 , includes a provision included in the House bill prohibiting the use of local and federal fundingof a needle exchange program. The Senate bill would have allowed the use of District funds for aneedle exchange in an effort to reduce the spread of HIV/AIDS. In addition, the final act includeda provision found in both House and Senate bills prohibiting the use of District or federal funds toprepare a medical marijuana ballot initiative and the use of federal or District funds for abortionservices except in instance of rape or incest. This report will be updated as warranted. Key Policy Staff Division abbreviations: G&F = Government and Finance Division; DSP = Domestic Social Policy Division |
Congress is currently debating climate legislation which could affect the U.S. agriculture and forestry sectors. In June 2009, the House passed H.R. 2454 , the American Clean Energy and Security Act of 2009. In November 2009, the Senate Committee on Environment and Public Works completed markup of S. 1733 , the Clean Energy Jobs and American Power Act, by approving a "Manager's Amendment" as a substitute, and ordered S. 1733 reported. Both the House-passed and the Senate-reported bills would establish cap-and-trade systems to regulate greenhouse gas (GHG) emissions, as well as address energy efficiency, renewable energy, and other energy topics. Both bills would require major reductions in GHG emissions from entities comprising roughly 85% of current U.S. GHG emissions. Covered sectors would include electricity production, natural gas distribution, petroleum refining, and specific industrial sectors. These and related bills and issues are currently being debated in Congress. For more detailed information see CRS Report R40896, Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733 . Numerous studies have attempted to estimate the economic effects of potential climate legislation currently being considered by Congress. These studies have examined both the economy-wide effects, as well as the effects to specific sectors, such as the U.S. agriculture and forestry sectors. Some of these studies have also examined the potential market and industry effects from the proposed climate legislation, including possible resource shifts such as land use conversions and related crop production changes. Some studies further examine the potential economy-wide market effects, such as possible changes to retail food prices and supplies. This first section of this report describes results from some of the studies and discusses limitations and uncertainties associated with the economic models and their results. The second and third sections examine two particular concerns raised by the modeling results, involving (1) lands converted from agriculture to forestry, and (2) potential unequal opportunities and costs of carbon markets in various sectors of the agricultural community. The final section provides some conclusions. The leading House and Senate climate proposals would not require GHG emission reductions in the agriculture and forestry sectors. However, provisions in these bills could potentially raise farm costs for energy, fertilizers, and other production inputs, while also providing opportunities for additional farm income. These potential effects have been estimated by various governmental agencies, including the U.S. Department of Agriculture (USDA) and the U.S. Environmental Protection Agency (EPA), as well as by several universities and farm industry groups. Many of these studies examine the possibility that higher costs may be alleviated by possible farm revenue increases from other provisions of the bills. Primarily, higher costs might be countered by possible revenues for farmers who participate in carbon offset programs. Costs might also be balanced by tradable allowances that could be provided at no cost to certain agricultural industries, such as fertilizer manufacturers. In addition, the renewable energy provisions in these bills could potentially expand the market for farm-based biofuels, biomass residues, dedicated energy crops, and other renewable energy production. Both bills also provide incentives for international forestry and related land-based activities. This section describes these analyses in some detail and puts their results in perspective by discussing limitations and uncertainties inherent in all models, as well as constraints specific to the EPA and USDA studies. The principal reports on the economic effects for the U.S. agriculture and forestry sectors were conducted by EPA and USDA: EPA studies: The United States Environmental Protection Agency's Analysis of S. 1733 in the 111th Congress, the Clean Energy Jobs and American Power Act of 2009, October 2009; and The United States Environmental Protection Agency's Analysis of H.R. 2454 in the 111th Congress, the American Clean Energy and Security Act of 2009 , June 2009. USDA studies: The Impacts of the American Clean Energy and Security Act of 2009 o n U.S. Agriculture , December 18, 2009; and A Preliminary Analysis of the Effects of H.R. 2454 on U.S. Agriculture, USDA , July 22, 2009 . The core modeling work underlying these analyses relies on a version of a longstanding economic and market model, called the Forest and Agriculture Sector Optimization Model (FASOM) with Greenhouse Gases (FASOMGHG). An overview of this model is provided in the text box below. Both studies took a comprehensive approach to assess the potential costs and economic effects of the legislative proposals. EPA conducted its review of the potential economic effects of the energy and climate legislation throughout the U.S. economy, including the agriculture and forestry sectors. USDA also conducted analyses of the effects to agricultural producers from expected higher production and input costs under the legislation, expanding on some of the simulation results generated by EPA and further disaggregating some of the estimated effects to the farming sector. In addition to the USDA and EPA analyses, several other groups, including universities, non-governmental organizations, industry groups, and other advocacy groups also have published studies and estimates. Many have focused specifically on the economic effects on the agricultural and forestry sectors. A list of these studies is provided in Appendix A . These economic studies show a wide range of possible effects, often with conflicting conclusions. The EPA and USDA studies generally concluded that the overall economic costs of the proposed climate legislation to farmers and landowners would be "modest" and that "agriculture will benefit from energy and climate legislation if it includes a robust carbon offset program and other helpful provisions." Indeed, both the USDA and EPA studies indicate that the U.S. agricultural sectors—in aggregate—would experience net economic gains , since farm revenues generated by participating in carbon offset programs would more than counter the potentially higher production costs resulting from higher energy and energy-based input costs. The USDA analysis further considered the possibility that increases in farm production costs would be mitigated by freely distributed tradable allowances (akin to currency) to U.S. fertilizer manufacturers under the legislative proposals' allowances for "energy-intensive and trade-exposed" industries. Both EPA and USDA projected economic gains from the possible resource shifts in changing agricultural markets, including land use conversions and related crop production and market changes. In particular, the results showing substantial possible conversion of cropland to forestland under a carbon offset program have stirred some controversy in the agricultural community. (This is discussed further under "Potential Land Conversion," below.) Almost all of the studies predict that energy costs would rise under a GHG cap-and-trade system, though the estimated magnitudes vary widely. Several studies also examine the potential harm to the U.S. agriculture sectors from climate change, absent policy changes designed to mitigate such effects, as part of efforts to evaluate the possible economy-wide benefits of climate change legislation. (See Appendix B . ) The general economic conclusions of the potential for net agricultural sector gains have been supported by some additional economic studies. Various studies conclude that, despite higher energy and farm-level input costs, the expected gains to the U.S. farming sector from a cap-and-trade system will result in net benefits to the entire sector. Among the predicted gains are expected higher commodity prices, due to modest consumer response and potential short crop supplies, and alternative sources of farm revenue from increasing bioenergy demand and offset income opportunities. New markets for carbon offsets via afforestation and bioenergy crops would increasingly compete for available land, raising farmland values. Also, producers shifting land out of crop production to participate in biofuels or carbon offset markets, thus raising crop prices, would likely present additional production opportunities to farmers that might not be willing or able to participate in the emerging biofuels or carbon offset markets. These benefits would generally accrue to all U.S. crop and animal producers. Nonetheless, some are worried about the possible implications for crop production, food prices, and trade. In response to concerns, USDA has indicated that it would re-examine its model, modeling assumptions, and results regarding cropland conversion. Concerns also have been raised about the possibility that any potential benefits that might accrue to farmers in a carbon offset program may not be evenly distributed and might disproportionately favor larger-sized farming operations or farmers in certain regions. These issues, along with some additional analysis results, are discussed further throughout this report. Economic models cannot reliably predict the future. If cap-and-trade legislation eventually allows substantial use of offsets for compliance (as recent proposals would do), its potential economic impacts are diverse and debatable. The quantity and type of domestic offsets that might be available and used in a cap-and-trade system are subject to considerable uncertainty. It is difficult to estimate the supply of offsets, mainly because the supply is determined by many variables, most of which are fraught with uncertainty. These include: Mitigation potential. Mitigation potential estimates are the raw data, without economic and implementation limitations, that are inputs into models estimating offset use in a cap-and-trade program. For example, recent FASOM estimates contain considerable uncertainty. Policy choices. The design and implementation of the cap-and-trade system would be critical to offset supply. Particularly relevant design choices include: which sources are covered; which types of offset projects are allowed; whether or not offset use is limited; and the degree to which set-aside allowances are allotted to activities that may otherwise qualify as offsets. Policymakers' treatment of international offsets also would have a substantial effect on domestic offset development. Technological development . The development and market penetration of low- and/or zero-carbon technologies in both covered and non-covered sectors would likely have substantial effects. These technologies could lower the costs of the cap-and-trade program, making fewer (in covered sectors) or more (in non-covered sectors) offset projects cost effective. Carbon market price. The market price of carbon emissions reductions would determine the supply and type of offsets that would be economically competitive in a cap-and-trade system. As the price increases, more (and different types of) projects would become cost effective. Future carbon prices are difficult to predict, as they depend on numerous variables, including offset treatment (i.e., the policy choices described above). Other factors. Non-market factors, such as social acceptance, may influence offset use. In addition, information dissemination would likely be an issue, because some of the offset opportunities exist at smaller operations, such as family farms. This uncertainty of offset supply is especially relevant in analyses of cap-and-trade proposals, because offsets play an integral role in determining the overall cost of the cap-and-trade program. Indeed, multiple economic analyses of H.R. 2454 have shown that assumptions regarding offset availability and use significantly impact program cost. For example, as shown in CRS Report R40809, Climate Change: Costs and Benefits of the Cap-and-Trade Provisions of H.R. 2454 , sensitivity analyses from various economic models of H.R. 2454 indicate that prohibiting international offset projects could raise the carbon price by 65% to 180%; another analysis that prohibited all offset projects (domestic and international) found a price increase of 250%. Offset uncertainty also raises questions regarding estimates of potential benefits for the agriculture and forestry sectors under a cap-and-trade program. The quantity and type of offsets eligible for development would affect the degree to which landowners will be able to recoup financial losses associated with cap-related costs. Various factors lead to uncertainty in economic modeling results. Three particular factors are important in understanding this uncertainty: general limitations of simulation models; uncertainty over the future carbon regulatory regime; and non-economic factors. These factors are discussed below. Simulation models are useful analytic tools to assess possible effects of policy changes. However, differences in methodological approaches and underlying assumptions and data lead to a wide range of reported economic effects across the studies. Thus, the results and generalizations derived from economic studies based on simulation models require some qualification. A general caveat about any simulation model is that it is necessarily limited in the extent to which it is able to reflect all real-world interactions precisely and to predict future conditions accurately. Simulation models are theoretical constructs designed to represent a system or group of functionally interrelated elements forming a complex whole. At best, simulation models provide a simplified framework to illustrate highly complex spatial and temporal dynamics, interrelationships, and processes. They depend highly on available data and, inevitably, on the simplifying assumptions necessary to depict the underlying relationships and processes of complex systems. This complexity can be attributed to a number of factors that are difficult to quantify, including resource limitations, environmental and geographical constraints, site-specific conditions, individual and cooperative decision processes, institutional and legal requirements, and general uncertainty and variability. Consequently models often rely on simplistic assumptions, such as perfect market competition (e.g., assuming theoretical supply and demand conditions) or optimum behavioral outcomes (e.g., assuming that all farmers and landowners are profit maximizers, and follow required protocols to manage their operations to maximize on-site carbon sequestration). Moreover, it is difficult to compare the results across various studies, given differences in modeling approach and methodology, scope (geographic region, commodity sector activities, assumptions about adoption of certain mitigation strategies, etc.), and other underlying assumptions. Simulation models are also limited in their ability to reflect future conditions. Congress is still debating the design for a cap-and-trade program. If Congress does enact legislation, how it specifies the program's underlying requirements and protocols for any participating sector will substantially affect the availability and cost of offsets as well as the direct economic impacts. Likewise, there is uncertainty regarding how the regulatory agencies would implement and oversee a carbon offset program and how sequestration from agricultural and forestry systems would be priced in the marketplace. This is a general shortcoming of most economic models. Indeed, in previous reports USDA readily acknowledged the potential for "upward bias" in its reported estimates, because the models were limited in the treatments of permanence, carbon-stock equilibrium, and leakage. Regulatory requirements would likely be relatively complex and need to address various methodological, measurement, verification, monitoring, and programmatic issues, as well as additionality, permanence, and leakage issues associated with agriculture and forestry offsets. Various design and implementation elements could affect offset supply in several ways, from the overall structure of the cap and of program scope (e.g., which sources are covered) to specific logistical details (e.g., monitoring and measuring protocols). The supply of offsets would also be beset by similar issues of competition for resources and land, and questions about how to treat biofuels, among other constraints. These factors would be subject to their own regulatory protocols and implementation practices, adding another layer of uncertainty. Simulation models are limited also in their necessary several simplifying assumptions of the motivations of economic agents and underlying conditions in economic markets, even though such assumptions might not apply in all cases. Most economic models are developed assuming that markets are perfectly competitive and all producers (consumers) are profit-maximizing (cost minimizing). See also the discussion in the text box below. Some behavioral and/or institutional economists point out that economic decision-making processes are not always so straightforward and that some choices are not based solely on profit maximization. They contend that additional social, psychological, or emotional factors are necessary to understand actions, rather than simple assumptions of economic behavior. Myriad non-economic reasons also explain why farmers regularly remain in business despite financial hardship. These include factors such as lifestyle choice, pride in owning a business, inter-generational transfer of farm, farm operations also serving as homes, and off-farm income supplementing family income. Standard economic models, such as those developed by EPA and USDA, cannot capture such nuances in the U.S. farming sectors. In addition, other aspects of U.S. agricultural production could limit participation in an emerging carbon offset program. These include concerns about the inherent risks of participating in a new market compared to the certainty of maintaining existing government payments under U.S. farm support programs, as well as other concerns related to perceptions that inequities exist among producers and that imperfect market conditions prevail. These types of considerations further raise questions about whether some of the simplifying assumptions in most economic models accurately characterize conditions in the U.S. farming sectors. Both the USDA and EPA models have projected the conversion of substantial U.S. agricultural land to tree plantings in response to expected favorable conditions in future carbon offset markets However, many in the U.S. agricultural community are concerned that this could take millions of agricultural acres out of production, removing farmers and employees from the business of food production and raising food prices to consumers. Others question whether such scenarios will actually materialize. Farmers may be unwilling to participate in a regulatory program that could involve significant administrative and other transaction costs, as well as for other reasons. Considering the general uncertainty about the possible outcomes of a regulatory process, following the still-uncertain passage of climate legislation in Congress, it is not possible to confidently predict or quantify the extent to which available U.S. cropland might be converted to woodlands. Following is a discussion of the potential for land conversion in the U.S. agricultural sectors. This includes information suggesting that U.S. cropland would be converted to woodlands, as farmers' respond to expected favorable market conditions and prices under a future carbon offset market. Other considerations might possibly temper such a response by U.S. farmers and result in possibly lower land conversion rates than predicted in various models. The EPA and USDA economic analyses project that, under the types of carbon offset programs proposed in the House and Senate climate bills—which would likely involve sequestration efforts as well as other GHG mitigation activities—farmer and landowner participation could result in U.S. agricultural land being converted to forest production, particularly at higher market prices for carbon. At certain rising price levels, the FASOM model projects that a total of 60 to 65 million agricultural acres could be converted to woodlands by 2050, including 35 to 50 million acres of cropland. (See Table 1 .) Compared to current estimates of total cropland acres (about 406 million acres in 2007), this would mean that cropland acres could drop by more than 11% below current levels. Projections beyond 2050 indicate continued conversion. These results have caused some concern about the possible implications for crop production, food prices, and international trade. Specifically, some speculate that cropland conversions of this magnitude could reduce crop production and, in turn, raise food prices. Opportunities for export might also be reduced, given expected reduced overall food supplies. To put this projected decrease into perspective, however, it is worth noting that cropland acres decreased by 28 million acres—more than 6%—in the five years between the two most recent Census of Agriculture periods (2002 and 2007). Under the USDA-administered voluntary land retirement program, the Conservation Reserve Program (CRP), a total of 31 million acres are enrolled nationally. As shown in Table 1 , the assumed carbon price (or emission allowance price) in the simulation model greatly influences the extent to which these models predict the conversion of croplands to woodlands. Under a modeling scenario where the carbon price begins in 2010 and remains constant at $15 per MT CO 2 -Eq. (metric tons of CO 2 -equivalent), the predicted land conversion grows markedly at the onset of the new market, but then remains more or less constant over the modeling period (shown for 2020-2050). However, under a scenario where the base carbon price starts in 2010 at $15 per MT CO 2 -Eq. and rises at 5% per year, land conversion would nearly triple from 2020-2050. Note also that EPA and USDA used different price paths to generate their land conversion estimates. As Figure 1 illustrates, EPA's price path was higher, starting at $15 per MT CO 2 -Eq. (2004 dollars) and reaching $106 per MT CO 2 -Eq. by 2050. USDA's price path assumed a price of $13 (2005 dollars) per MT CO 2 -Eq., rising to $70 per MT CO 2 -Eq. in 2050. These assumed prices do not account for possible program discounts, unintentional reversals, possible error margins related to measurement and sequestration potential, or discounting due to other types of transaction costs. Nevertheless, these results illustrate the importance of the underlying assumptions about the market carbon price in influencing the modeling results within the agricultural and forestry offset market. The USDA analysis further refers to other studies that examined alternative assumptions, including lower estimates for future market prices. These studies show that at price levels of less than $10 per MT CO 2 -Eq., offsets would be generated mostly by changes in agricultural production practices, rather than by afforestation. Accordingly, given the opportunity costs of land used in crop production, conversion of pasture land and cropland to forestland is mostly viable at higher price levels. With increasing prices in the GHG cap-and-trade market, EPA's economic model projects U.S. farmers responding to such favorable market conditions and willingly participating in offset opportunities. Motivated by the possibility of additional farm-level profits and revenues from sources other than the more traditional food, fiber, and fuel markets, it seems likely that farmers would convert their land holdings. Accordingly, participation in carbon offset market would merely be a response to an alternative financial venture available to farmers and landowners, who are simply responding to favorable market incentives. In other words, at some carbon price, the return on investment on afforestation and other offset activities is greater than that for conventional crop mixes, and the model reflects these market changes through projected higher afforestation and land-use changes that could lower total farmed acres. These results are consistent with simplifying assumptions built into most economic models, including that used by EPA to evaluate the proposed climate legislation. (For additional background on these assumptions and related topics, see discussion in the text box titled "Economic Model Assumptions versus Other "Real World" Considerations.") However, farmers and landowners may not behave in a purely economically rational, profit-maximizing manner. As discussed previously, farmers face many non-economic incentives that may influence their behavior. Converting cropland to forestland could meet social and/or cultural hurdles. For example, fourth-generation grain farmers may not wish to participate in an emerging carbon offset market, regardless of the perceived market incentives; they might be motivated by other social factors not related strictly to profits, such as transferring the farm to their children. In addition, while crop production is subject to natural hazards (insects, diseases, severe storms, etc.), the longer-term commitment for forests exacerbates the risk from natural hazards and adds at least one hazard—wildfire— not typically faced in crop production. On the other hand, some risks might be ameliorated, as forests are less susceptible to catastrophic failures from short-term drought or individual storms. Nonetheless, considering these additional risks and the time commitment involved, some landowners may decide to continue with their current operations. Moreover, a future carbon market would be inherently uncertain, as the implementation details of the program are unknown and would follow future EPA and/or USDA rulemaking processes. Once the program is established, the requirements would become more predictable, but the initial startup would involve adjustment and transition among farmers and landowners. During this transition, landowners might not be readily willing to risk such uncertainty; they might also be skeptical of participating in a market that might be strictly regulated by governmental authorities. EPA's and USDA's models cannot account for these factors. Another consideration is the potential learning-curve of education and experience. Although some farmers and landowners may be more familiar with agroforestry activities and land set-aside programs, some are not. Converting cropland to forestland substantially alters the day-to-day, on-the-ground practices of the landowner, and requires a different set of tools and equipment. Such changes, combined with the longer-term commitment for forests, could meet resistance from landowners. Further, technical assistance and educational outreach may be required in areas where forestry is not commonly practiced. Studies evaluating the socioeconomic impacts of land use changes (primarily agricultural to urban) have found communal pressures against conversion, due to the cooperative nature of production agricultural activities, such as equipment sharing, land renting, custom work, and irrigation system development. Dramatic land-use changes would potentially eliminate or reduce these benefits for traditional cropland owners. Conversely, farmers may continue to benefit from the traditional information sharing and formal and informal business relations that currently exist among neighboring farms. Multiple landowners converting to forestry may create a network of support that could expand afforestation in some areas. In addition, farmers could also benefit from the additional environmental services that forests can provide (e.g., clean water and wildlife habitat for hunting). Participating in and complying with the new carbon market would not be costless to farmers. The EPA and USDA economic analyses of agricultural and forest land activities do not fully account for certain costs that would likely be associated with participating in a carbon market program. Among these are transaction costs required to develop offset projects and possible foregone revenue from agriculture and farm support programs associated with crop production. The failure of the model to account for these types of costs is problematic. The definition of transaction costs can vary widely, but in general transaction costs would likely include (1) administrative costs, such as project registration or document preparation (e.g., project petitions) needed for compliance; and (2) measuring, monitoring, and verifying costs. Transaction costs would likely involve upfront, one-time costs to get the project up and running as well as annual or periodic costs to assure the project is performing as intended. Because of general uncertainty about the possible carbon market structure, as well as information and data limitations, the FASOM model does not include transaction costs associated with the regulatory regime that would cover offset development. Moreover, given the initial uncertainty of participating in such an emerging market, there will likely be a period of uncertainty and information limitations, as well as certain administrative or regulatory barriers to participating in this market. (See, for example, the discussion in "Land Tenure," below.) Other studies that try to account for transaction costs note that these can often be key factors in driving the results. The FASOM model also does not adjust for government support programs and subsidy payments to farmers, in part, because of the inherent complexity of incorporating such information into an economic model and also because of information and data limitations. However, farm support payments can make up a substantial share of overall annual farm income for some operations and are an important part of the business decision-making process for some farmers. U.S. farm programs are governed by laws and regulations periodically reviewed and updated by Congress in omnibus "farm bill" legislation. Since the 2002 farm bill, USDA reports that farm payments have totaled, on average, about $15 billion per year; government payments are estimated at $12.5 billion in 2009. About 40% of farms receive government payments. In 2007, farm payments averaged nearly $9,800 for those farms receiving government payments, accounting for about 5% of gross cash income and about 22% of net cash income. The exclusion of such a potentially significant component of a farm's financial accounting, and basing economic decision-making only on commodity price and market conditions, does not accurately portray the behavior of many farming operations. Whether or how participation in a new carbon offset program would affect a farm's continued participation in farm commodity support programs remains unclear. The biological variability that exists across different regions presents a challenge when estimating land use changes. The FASOM model's ability to account for site-specific baseline conditions is limited, because the model's biological differentiation is specified only for 10 production regions (regions are shown in Figure 2 ). Specifying conditions at the regional level is a reasonable approach to account for underlying conditions, but does not provide a full accounting of the scope of biologic diversity and differences across the United States and within regions and microclimates. This limitation adds uncertainty to the land use change projections. The FASOM model presumes forestry offsets through afforestation of softwood (e.g., pine) plantations in each agricultural region. However, most temperate forests contain a variety of tree species, which vary in size, form, growth, and rate of carbon sequestration. One study of U.S. forests reported carbon storage in existing tree stands ranging from 40 MT CO 2 -Eq. of carbon per acre in longleaf-slash pine forests of the Southeast to 377 MT CO 2 -Eq. per acre in hemlock-Sitka spruce forests of the Pacific Northwest. Even within each U.S. region, there was substantial variation, with carbon storage in the most carbon-intensive ecosystems double or triple the storage in the least carbon-intensive ecosystems. Studies that have examined afforestation and reforestation for carbon sequestration have shown a similarly broad range of possibilities. The EPA study estimated 2.2 to 9.5 MT CO 2 -Eq. per acre per year sequestered in afforestation (planting trees on previous cropland or pasture)—an average of 5.85 MT CO 2 -Eq., plus-or-minus 62%—and 1.1 to 7.7 MT CO 2 -Eq. sequestered per acre per year in reforestation (planting trees on areas recently cleared of trees)—an average of 4.4 MT CO 2 -Eq., plus-or-minus 75%. The USDA study estimated 2.7 to 7.7 MT CO 2 -Eq. sequestered per acre per year in afforestation—an average of 5.2 MT CO 2 -Eq., plus-or-minus 48%. The FASOM model also essentially presumes a linear rate of carbon sequestration from tree planting in each region, based on managed softwood forests relevant for that region. Such an assumption would likely lead to imprecise estimates of the conversion acreage. While the least productive (or currently unused) land for crops would likely be the first converted, it might (or might not) be the least productive for forest carbon. Also, different lands within a region undoubtedly vary significantly in forest carbon productivity. Thus, the conversion is not likely to be evenly distributed geographically or temporally within each region. To date, the FASOM model results have not been reported by region, disaggregating land use changes and the effects of agricultural offset supplies. However, USDA's analysis expands upon EPA's model simulations to disaggregate the national data to provide regional breakouts of potential land use changes and farm revenue gains from offsets. USDA's regional analysis projects that the majority of offset supply from afforestation of croplands and pasturelands would occur in the Corn Belt region and Lake States regions ( Figure 2 ). For further discussion about USDA's regional analysis results, see the section of this report titled " Regional Differences ." It is unclear whether the capacity exists to afforest 1 million to 1.5 million acres annually. Historically, two federal programs provided assistance in establishing forests on private lands—the Forestry Incentives Program (FIP) and the Stewardship Incentives Program (SIP). In 1994 (the last published report), FIP accomplishments included 188,017 acres of tree planting; the 2003 SIP accomplishments (the last published report) included 3,144 acres of tree planting. The last report on tree planting on all (public and private) lands in the United States (1997) showed 2.6 million acres planted in 1997. The peak in tree planting—nearly 3.4 million acres—occurred in 1988. This was partly due to tree planting under the Conservation Reserve Program (CRP), the largest federal tree planting program for private land in U.S. history, with 2.2 million acres of trees on the more than 30 million CRP acres under contract. Though high prices for forest carbon offsets may well be much greater incentives for tree planting than the CRP or other programs, planting an additional million acres (or more) of private forest annually would still be a significant increase in tree planting in the United States. Legal or social constraints associated with land tenure could affect the likelihood of land conversion. USDA researchers have noted that the potential complexity of future land leasing and land retirement agreements under an emerging carbon offset program would likely present certain challenges and act as a deterrent to participation. Such agreements and contractual negotiations might also present certain barriers to exiting this market, given that there would likely be contractual timeframes that would need to be complied with in order to ensure the overall validity of the carbon emission reduction program. Thus, the mix of farmland ownership and leasing in the United States might constrain efforts to shift land uses, despite a willingness by farmers to participate in an emerging carbon market program. The EPA or USDA models, as designed, cannot reflect such effects. Some farm groups have expressed concerns that extended contract periods (between 5 and 30 years) could create a barrier to farmer participation in a carbon offset program. They argue that because many farmers rent at least some of the land they farm, they might not be in a position to enter into multi-year contracts under a carbon offset program. Although the exact contract period for various offset projects would be determined through rulemaking after the laws are enacted, Congress has provided some stipulations in the House-passed bill ( H.R. 2454 ): contract periods would be limited to 5-10 years (for various agricultural projects) and 20 years (for forestry projects). Some environmental groups are continuing to push for extended crediting periods for certain offset projects because of concerns about permanence issues as well as the overall credibility of carbon emission reduction goals. A recent USDA report also acknowledges that farmers who own the land may be in a better position to generate offsets than those who rent their land. The report builds off previous studies showing that farmers that rent land may be more reluctant to make long-term conservation investment. The report states that farmers that rent land might be unable to obtain a long-term land lease and therefore have less flexibility to enter into the types of long-term investments and/or farming practice commitments that would be required in a carbon offset market. Moreover, "the complexity of the associated lease agreements and negotiation challenges will continue to act as a deterrent" to their participation in the carbon market, compared to landowners. Concerns among farm groups about land tenure issues raise important programmatic and policy considerations. Renting land is commonplace in the U.S. farming sector. USDA identifies three groups related to farm tenure: full owners, who own all the land they operate; part owners, who own at least 1% of the land they operate, but also rent land; and tenants, who own less than 1% of the land they farm and who rent the rest. The most recent available USDA survey of land ownership characteristics in the United States farming sector (1997 data) reported that less than 30% of all farmed acres are owned by their operators. Carbon offset markets could alter the incentives for landowners to lease their lands. Currently, landowners lease land to farmers, because often few other marketable opportunities for the land exist. High and rising carbon prices under a cap-and-trade, however, would create additional competition for land and raise land values. On one hand, offsets could provide additional financial incentives for farmers, which could lead to additional farm income. On the other hand, higher land values might entice current farmer-landowners to sell their land or abandon its current use for the more lucrative alternative in afforestation. For example, absentee-landowners might be induced to consider terminating their leases with farmers, both affecting the livelihood of the farmer and taking land out of production for up to 20-30 years. Existing USDA land retirement programs provide insights into the possible effects of removing cropland from agricultural production. The CRP, authorized in 1985, is a voluntary land retirement program intended to encourage landowners to establish long-term, resource-conserving covers on eligible farmland. Under the program, landowners enroll in contracts for 10-15 years and receive annual rental payments as well as cost-share assistance (of up to 50% of the cost) for approved conservation practices. When the program was originally established, authorized enrollment allowed for up to 45 million acres; this limit was reduced in subsequent legislation. The authorization allowed for the removal of over 10% of the nation's cropland at that time. Current CRP enrollment is at 31 million acres, or about half of EPA's and USDA's projected land conversion estimates of 60 million to 65 million acres for 2050. In the 1980s, while CRP reduced the principal crop acreage, average annual yields continued to climb. This observation may be explained by the types of land that typically participate in CRP. Lands retired under CRP are largely associated with marginal or idle lands and generally are not considered to be taking productive cropland out of production. Similarly, incentives encouraging afforestation under a carbon offset program are likely to first take less productive and idled lands, as is reflected in EPA's and USDA's models. Which lands are taken out of production for afforestation will largely depend on the opportunity cost of the land. As long as crop production remains more profitable than participation in the carbon market, productive lands would likely remain in crop production. At higher offset prices, however, the tradeoffs between returns and profits in the two markets would become more competitive, and afforestation could eventually outweigh opportunities from growing crops. CRP rules require landowners to offer farmers who rent their land the opportunity to participate in CRP contracts and receive payments under the program. Similar requirements under a carbon offset program might help address land tenure issues, in particular the willingness of the lessee to participate in the program. CRP rules also limit enrollment within a county to no more than 25% of its total acres to prevent significant disruptions to local input industries, such as the manufacturers and sellers of seed, chemicals, and farm equipment. Other provisions might be considered to ensure that contractual obligations are met. As an example, under USDA's Environmental Qualities Incentives Program (EQIP), farmers who lease land are required to show proof of control of the land for the duration of the contract period. These types of requirements might also be required for farm and forestry carbon offset projects, either through statutory provisions or through rulemaking. Existing programs provide an indication of the potential willingness of farmers to participate in multi-year contracts. Under CRP, participants enroll in contracts for 10 to 15 years. EQIP contracts range from 1 to 10 years in length. Participation in each of these programs continues to increase despite these types of obstacles. However, a study by USDA shows that farmers who own 80% or more of the land they farm are more likely to enroll in CRP and account for the bulk (about two-thirds) of all CRP enrolled acres. While CRP does have a provision that requires landowners to offer tenants the opportunity to participate in CRP and receive payments, the USDA study also found that few farmers that mostly lease land (defined as those who own less than 60% of the land they farm) tend to focus more on crop production and are reluctant to retire land. In most cases, leaseholders are more likely to lease productive lands, if intended for growing marketable crops. The inclusion of forestry and other land-based offsets with a carbon reduction program has remained controversial since the Kyoto Protocol negotiations during the 1990s. As a result, the development of a carbon offset program with credible and certifiable forestry practices and protocols could slow implementation and adoption of afforestation and other related forestry offset projects. This has been the case within the Clean Development Mechanism (CDM), which was developed as part of the Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC). CDM is a project-based mechanism that permits Annex I countries under the Kyoto Protocol to earn credits for use in achieving their emission targets. It is the only mechanism that allows developed countries (e.g., European Union nations) to earn credits for actions in developing countries (e.g., India or China). The CDM is the largest compliance offset market in the world. Both the trading volume and market value of the CDM have grown substantially in recent years. The only land-use change offset projects allowed in the CDM are afforestation (planting trees where none were previously growing) and reforestation (replanting trees on recently cleared forest sites). Although the forestry sector was initially expected to play a significant role in the CDM, forestry-based projects have not played a large role to date. Indeed, no forestry-related offset credits have been issued through the CDM (as of February 1, 2010); and of the 2,029 registered projects (i.e., in development), only 13 are forestry-related. A report by the Intergovernmental Panel on Climate Change (IPCC) stated that although the forestry sector can make a "very significant contribution to a low-cost mitigation portfolio ... this opportunity is being lost in the current institutional context and lack of political will to implement and has resulted in only a small portion of this potential being realized at present." However, the primary compliance market that uses the CDM—the European Union's Emission Trading System (EU-ETS)—is relatively new, and the EU-ETS carbon prices may not have reached sufficient levels to stimulate forestry projects. Some in the U.S. farming community have expressed concern that only certain landowners and agricultural producers might be able to participate in the carbon offset market. They suggest that only larger landowners and farming operations would benefit from a carbon program, and this may result in further industry consolidation in the farming sectors, exacerbating difficult business conditions for smaller, traditional farmers. Others are concerned that if only certain crop producers in some regions benefit from participating in the new carbon offset market, this could result in inequities across all crop producers, benefitting some while not benefitting others. The FASOM simulation model cannot depict differences in farm size, nor can it fully differentiate results by operation type. Evidence and speculation are mixed on whether larger landowners and farming operations will benefit more than smaller-sized operations. Some evidence suggests that larger landowners and farming operations may have greater opportunities to participate in carbon markets, because of their economies of scale and their likely lower transactions costs compared to smaller landowners and farmers. Alternatively, smaller-sized operations might have greater opportunities to participate in carbon offset projects, because they are more likely to own their land and generally tend to be more operationally diverse, and because given the expected continued role of designated middlemen in generating and marketing carbon offsets. In general, businesses that operate more efficiently and are more productive than their competitors receive greater rewards in the marketplace. Economies of scale refer to the ability of a business (farm) to reduce its cost per additional unit of output (or its average unit costs) by increasing total production. This can be the result of improved productivity (e.g., through more specialization among workers), increased operational efficiency (e.g., equipment operating a larger percent of the time), or spreading fixed costs over greater total production. Economies of size, specialization, and relative market power also play a role, allowing some larger-sized operations to lower their overall production or input costs. Evidence in the agricultural sector suggests that these market forces have led to farm consolidation (fewer small farms). See the text box below for more information. Accordingly, larger-sized operations could benefit from economies of scale in carbon offset markets; having more land to work with might provide greater opportunities to participate in carbon projects while maintaining basic agricultural operations. Thus, larger-sized operations might potentially have access to greater benefits than smaller-sized operations. The impact of transactions costs on small farms/landowners versus large farms/landowners is largely unknown. Under a federal cap-and-trade program, offset transaction costs would probably disproportionately affect small-scale offset projects, because some of the costs of creating and obtaining project approval are essentially fixed (i.e., not affected by the size of the project). A related and important consideration is how the transaction costs would affect the break-even prices for offset projects—would the magnitude of transaction costs make only the largest farm operations and land plots economically viable for offset projects? Transaction costs would likely present a disproportionate challenge to smaller-scale offset projects, because of economies of scale: as more and/or larger projects generate more offset credits, the transaction costs (as a percentage of MT CO 2 -Eq. reduced or sequestered) generally decrease. Research assessing existing offset projects has demonstrated that measurement costs account for a larger percentage of total costs for smaller projects than for large-area projects. Observations from the Chicago Climate Exchange (CCX) confirmed these findings: verification costs vary by an order of magnitude between small ($1/MT) and large ($0.10/MT) agricultural soil sequestration projects. Although this disparity would seem to favor larger projects, smaller projects may still be economically viable, depending on the magnitude of the transactions costs relative to the estimated offset revenue and depending on the nature of the project. Evidence indicates that the cost calculation would vary substantially under different offset protocols (e.g., the CCX, the Voluntary Carbon Standard, or the 1605(b) requirements). Studies have shown that different offset protocols produce a wide spectrum of break-even prices (the carbon price needed to make a project economically viable); for example, a 2009 study found that the break-even prices for a 246-acre (100-hectare) afforestation project ranged from $10 per MT to approximately $50 per MT. Different protocols affect not only the transaction costs, but the number of offset credits that would be generated, an integral figure in a break-even price assessment. A 2008 study estimated the offset credits that a hypothetical afforestation project would generate under several offset protocols, finding that the offsets generated over a 60-year period under different protocols would range from 118 million MT CO 2 -Eq. to 300 million MT CO 2 -Eq. In addition, different types of offset projects could have radically different transaction costs. For example, agricultural soil sequestration projects would likely require annual monitoring, possibly at several sites, depending on the size of the project. In contrast, afforestation might need only periodic monitoring, perhaps every 5 years, to assure that carbon sequestration is occurring. In addition, afforestation carbon is above ground and can be estimated rather simply, with measurements of tree height and diameter. Soil carbon would likely require soil samples be taken and analyzed, with the number of samples depending on the heterogeneity of the soils on the site. While economies of scale often drive farm consolidation, smaller producers might be more responsive to non-economic incentives. In particular, many small producers emphasize organic products, sustainability, and other "green" aspects of agricultural production that may be of less concern to larger, consolidated operations. As a result, the smaller operators might well be interested in participating in carbon sequestration efforts and programs despite the potentially higher transaction costs for small operators. This innate interest might be more significant in determining participation than the economic incentives, especially in the early stages of implementation. USDA's 2007 Census of Agriculture reports that the number of U.S. farms increased (net) by more than 76,000 farms compared to the 2002 census, breaking with historical trends showing a steady decline on the total number of farming operations. Compared to all farms nationwide, these new farms tend to have more diversified production, fewer acres, lower sales, and younger operators who also work off-farm. Smaller operations fitting this demographic could find additional benefits by participating in a carbon offset program. Increased diversification through forestry combined with the non-economic considerations mentioned above—the "green" aspects of sequestration—could provide sufficient incentives for smaller producers. The role of additional outreach, education, and technical assistance could also have a greater impact on small-scale projects with smaller operators. A lack of personal experience and local support for afforestation might be seen as too significant a risk, despite favorable economic incentives. The knowledge and skills required to convert cropland to forestland would likely be greater than that required merely to retire the land, such as under the CRP or other related USDA programs, and would likely require additional extension services and technical resources to entice producers to absorb this extra risk. Neither this risk nor the possible adjustments that outreach and technical assistance could have on participation can be accounted for within economic models. A recent USDA study projects that the largest share of sequestration potential is on larger-sized farms. Half of this potential is reportedly concentrated on farms located in the Northern Plains and Rocky Mountain regions. (See the discussion in "Regional Differences," below.) In contrast, as discussed in "Land Tenure: Ownership versus Leased Land" in a previous section of this report, farmers that own the land are more likely to enter into multi-year contracts and thus would appear more likely to participate in carbon markets. As noted above, small family farms own 60% of the agricultural acres in the United States. Furthermore, small family farms have been more likely to enter into CRP contracts, accounting for nearly 82% of CRP and Wetland Reserve Program acreage. Thus, small family farm operators might be more likely to create carbon offset projects than larger farm operators and especially than leased land operators. As discussed above, small-scale projects may be cost prohibitive at certain carbon prices, but if similar projects could be pooled together and sold as a larger unit (i.e., aggregated), participation from small-scale projects may increase. Aggregators often serve as middle-men, linking landowners with the offset markets. Offset project aggregators have played a key role in developing offsets, particularly agricultural sector offsets in the CCX, and many of the offsets sold on the CCX are developed via aggregators. The U.S. Department of Energy's National Energy Technology Laboratory described the role of aggregators in the CCX as follows: From inception, Chicago Climate Exchange has found the inclusion of aggregators to be an extremely effective model in developing participation in the carbon market from the agricultural sector. The need for aggregators has increased entrepreneurial activity in the carbon markets. In some cases, established membership organizations and cooperatives have created new departments in order to offer this additional category of service to their members. Other times, new companies have been created to aggregate projects, with the primary mission one of marketing these "environmental services". This increase in competition is a benefit to both the market in general, and project/land owners specifically. In a federal cap-and-trade system, aggregators would likely continue to play a role by offering participation opportunities to small landowners. However, the level of aggregation/small-scale participation may depend, in part, on the offset protocols established in legislation or through subsequent rulemakings. For example, a protocol with more rigorous sampling and verification requirements would discourage aggregation. Neither the size nor the value of the voluntary offset market is known, because no registry or tracking system follows exchanges in the voluntary market. Therefore, comprehensive data regarding the participants in the voluntary carbon market are limited. However, the Chicago Climate Exchange (CCX), which accounted for more than half of the estimated global voluntary carbon market in 2008, provided CRS with estimates for soil sequestration projects. According to the CCX, approximately 65% percent of the 6,000 farms enrolled in the CCX conservation tillage program had less than 450 acres and could thus be considered small farms. In addition, Point Carbon, a private company that tracks and analyzes carbon markets, provided data for domestic forestry projects. Point Carbon data include 86 forestry projects that have been developed since 1999. Figure 3 shows a breakdown of these projects by size. The size categories indicate the MT CO 2 emissions mitigated per year. For example, 6% of the projects each mitigate less than 100 MT per year; 24% of the projects each mitigate between 100 and 999 MT per year. Whether these data are a useful indication of offset projects that would result under a federal cap-and-trade program is an open question. The protocols used to develop the projects cited above may well differ from the protocols established in a federal system. Moreover, offsets created in the voluntary market may have originated for non-economic reasons, such as personal desires or public relations. Further, studies indicate that the economic incentives (i.e., the carbon price) in a compliance market would likely be much higher than in the voluntary market. These factors make a comparison between voluntary offset data and predictions for compliance offsets problematic. Although the EPA and USDA analyses (as well as other studies) found that the agricultural sector as a whole would experience net gains under a cap-and-trade program with offset opportunities, the benefits and costs imposed by the program would likely vary across regions. The EPA analysis did not disaggregate land use changes and the effects of agricultural offset supplies by region. The USDA analysis, however—expanding upon EPA's FASOM model simulations—disaggregated the national data to provide regional breakouts of potential land use changes and farm revenue gains from offsets. USDA's regional analysis projects the majority of offset supply to come from afforestation of croplands and pasturelands. The results indicate that farmers and landowners in the Corn Belt region—comprising Iowa, Missouri, Illinois, Indiana, and Ohio—would be the largest suppliers of agriculture- and forestry-based carbon offsets under a cap-and-trade program. The Lake States—comprised of Michigan, Minnesota, and Wisconsin—would also be a large offset supplier. As shown in Figure 2 , these regions would experience an increase in afforestation primarily through the conversion of cropland. This reduction of cropland by afforestation within these regions is expected to be concentrated over time. In 2015, for example, USDA projects that about 55% of the additional afforestation will occur in the Corn Belt and Lake States. By 2050, these two regions would account for almost 65% of additional afforestation. Most agree that certain regions of the country are geographically better equipped to grow trees. While other regions could be aided by irrigation and fertilizers, the additional expense and technical feasibility could prevent such efforts from being sustainable over time. The land use shifts shown by USDA's analysis highlight some of these feasibility assumptions, though the analysis does not discuss them in detail. For example, USDA's analysis does not project substantial land shifts in California (shown as the Pacific Southwest in Figure 2 ). Presumably this is because that state's production of higher value crops, such as fruits and vegetables, could out-compete the carbon market for land use. Other areas such as the Great Plains show less afforestation and more land remaining in cropland production. This is possibly related to that region's limited ability to grow trees. Other areas, such as the Southwest, show pastureland moving to cropland rather than afforestation (shown as an increase in cropland in Figure 2 ). As the Corn Belt and Lake States regions are projected to be the largest suppliers of offsets, USDA's analysis also projects these regions will have the highest annual gross revenue from offsets ( Table 2 ). Other areas showing high annual gross revenue from offsets in the Northeast, South Central, and Rocky Mountain states also show revenue gains from afforestation. USDA's analysis shows some areas, such as the Pacific Northwest, Southwest, and Pacific Southwest regions, receiving little annual gross revenue from offsets ( Table 2 ). These regions are projected to provide fewer carbon offsets. This does not necessarily indicate a reduction in overall gross revenue in these regions. Although some regions are projected to gain from participating in a carbon market, potentially higher commodity prices from reduced supply could benefit regions remaining in cropland. If an increase in afforestation occurred, as the USDA model projects, regions remaining in crop production could see higher prices and increased demand for their crops. Some studies argue that this overall effect could benefit all regions not just those participating in a carbon market. When assessing climate change legislation such as a cap-and-trade program, it is difficult for economic models to forecast costs and associated impacts several decades into the future, much less beyond. Assumptions such as regulatory requirements become more fragile as time goes forward, and unforeseen events (such as technological breakthroughs) and unpredictable behavior similarly threaten the basic structure of the model. Hence, long-term projections are at best speculative and should be viewed with attentive skepticism. The finer and more detailed the estimate (e.g., land use changes in specific regions), the greater the skepticism should be. The economic impact estimates of H.R. 2454 offered by EPA and USDA are not unique in this regard. Although both EPA and USDA concluded that the overall costs of the GHG cap-and-trade program established by H.R. 2454 would be "modest"—indeed finding that carbon offsets revenue could yield net economic gains for the U.S. agricultural sectors—these conclusions are rife with uncertainty. However, the uncertainty does not necessarily suggest that the economic impacts would turn out to be dramatically different than predicted, simply that they are unknowable. Other models support the EPA and USDA conclusions of agriculture sector-wide benefits. Many stakeholders are concerned that smaller-sized operations and some regions might not be able to participate, and thus share in these benefits. The details of such participation rates are discussed below. However, even if their participation rates are low, they might still benefit from land conversions and carbon offsets by larger operations. With some land shifting out of crop production, commodity prices are likely to rise, which benefits all farmers. Similarly, alternative sources of farm revenue raise land values, thus benefitting all landowners, even if they do not or cannot participate in carbon offset markets. Many variables complicate the economic analyses and related estimates. In particular, the projections of land-use changes are debatable, considering the following factors: Offset Prices—Prices are the key driver of EPA simulation results regarding land conversion rates. Assumed high and rising prices substantially influence modeling results, showing increasing land conversion and afforestation. At constant or less sharply increasing prices, projected land conversion rates are much lower. Farmer Response—EPA and USDA analyses cannot estimate the effects of various non-economic and social norms within the farming sectors. This could influence actual program participation and land conversion, likely overstating the modeling results. Missing Costs—EPA and USDA analyses do not account for all likely farm-level costs, such as transaction costs associated with the future regulatory regime and possible foregone revenue from farm support programs associated with commodity crop production if farmers chose to participate in a carbon market. If these costs were taken into account, land conversion rates would likely be lower. Regional and Biological Variability—EPA and USDA analyses are not able to fully account for precise site-specific baseline conditions, and biological differentiation is specified only at the regional level. It is unclear how this could influence the results of the modeling analyses. Capacity Constraints—EPA and USDA analyses may not reflect actual physical capacity constraints and limitations to support substantial afforestation efforts that will also ensure that carbon sequestration potential meets the full set of requirements in the carbon reduction program. This could overstate the modeling results. Land Tenure—EPA and USDA analyses do not reflect possible legal and contractual constraints that might affect participation in the carbon market, given differences in the U.S. crop sectors between farmland ownership and leasing in the United States. As landowners would likely be in a better position to participate in a carbon market program than renters, this could overstate the modeling results. Some are concerned that the cap-and-trade offset market would disproportionately favor larger producers or certain crop producers. The FASOM simulation model cannot depict differences in farm size in their models. The evidence and speculation on the possibly inequitable distribution of benefits is mixed. On one hand, market forces and trends within the farming sectors suggest that larger operations would likely benefit more relative to smaller farms because of their economies of scale. Also the relative ability of smaller-sized operations to be able to cover various transaction costs of participating in the new carbon market (but not captured in the simulation model) is also unknown, but may favor larger-sized operations. On the other hand, smaller-sized operations might also benefit from the developing carbon markets. Smaller-sized operations are commonly more diversified, and many are more responsive to non-economic influences than larger-sized operations. In addition, smaller-sized farms are more likely to be owner-operated, rather than leased, which may make a shift in operations to carbon offset projects more feasible. Smaller-sized operators have shown a marked willingness to participate in conservation-payment programs, such as CRP. Finally, aggregators have emerged to develop projects for the voluntary carbon markets, and seem likely to continue and even expand their role in assisting smaller-sized farming operations to participate in carbon markets. Modeling efforts are not able to differentiate by type of operation or region. USDA expanded upon EPA's model simulations to disaggregate the land conversion data to the regional level. This analysis shows that most carbon offset supplies, and the largest offset benefits, will originate in the Corn Belt and Lake States, with lesser benefits in the Northeast, South Central, and Rocky Mountain states. It is unclear whether these results would differ under alternative assumptions. These results also do not mean that other regions receive no benefits. The Southwest, for example, shows an increase in cropland, while most other regions are showing conversions of cropland to forestland; the likely explanation is that higher crop values, and higher land values generally, due to the carbon offset program increase farm revenues sufficiently to expand crop production in areas where crop production currently cannot cover operating costs. Appendix A. Selected Studies of Potential Economic Impacts of Carbon Offset Programs EPA, Analysis of S. 1733 in the 111th Congress, the Clean Energy Jobs and American Power Act of 2009 , October 2009; and Analysis of H.R. 2454 in the 111th Congress, the American Clean Energy and Security Act of 2009 , June 2009, http://www.epa.gov/climatechange/economics/ economicanalyses.html. USDA, The Impacts of the American Clean Energy and Security Act of 2009 on U.S. Agriculture , December 18, 2009, http://www.usda.gov/oce/newsroom/archives/releases/ 2009files/ImpactsofHR%202454.pdf; and A Preliminary Analysis of the Effects of H.R. 2454 on U.S. Agriculture , July 22, 2009, http://www.usda.gov/oce/newsroom/archives/ . Congressional Budget Office (CBO), "The Estimated Costs to Households From the Cap-and-Trade Provisions of H.R. 2454," June 19, 2009, http://www.cbo.gov/ftpdocs/103xx/doc10327/06-19-CapAndTradeCosts.pdf . Agricultural Carbon Market Working Group , "The Value of a Carbon Offset Market for Agriculture," http://www.farmland.org/programs/environment/workshops/documents/ TCGWhitePaper_ValueofOffsets_Final.pdf. 25x ' 25 Carbon Work Group, "Summary of Recent Cost Impact Data, American Clean Energy Security Act of 2009, H.R. 2454," August 2009, http://www.25x25.org/storage/25x25/documents/ Carbon_Subcommittee/aces_cost_summary_final_08-15-09.pdf. Kansas State University (Golden, B. et al.), "A Comparison of Select Cost-Benefit Studies on the Impacts of H.R. 2454 on the Agriculture Sector of the Economy," December 8, 2009, http://www.farmland.org/documents/A-Comparison-of-Select-Cost-Benefit-Studies-HR2454-Impacts-On-Agriculture-Sector.pdf . Duke University's Nicolas Institute for Environmental Policy Solutions (Baker, J.S. et al.), "The Effects of Low-Carbon Policies on Net Farm Income," WP 09-04, September 2009, http://www.nicholas.duke.edu/institute/ ni.wp.09.04.pdf; and http://www.nicholas.duke.edu/agmeeting/Potential_Economic_Effects.pdf . Food and Agriculture Policy Research Institute (FAPRI), "The Effect of Higher Energy Prices from H.R. 2454 on Missouri Crop Production Costs," FAPRI-MU Report #05-09, July 2009, http://www.fapri.missouri.edu/outreach/ publications/2009/FAPRI_MU_Report_05_09.pdf. Texas A&M University's Agricultural and Food Policy Center (AFPC), "Economic Implications of the EPA Analysis of the CAP and Trade Provisions of H.R. 2454 for U.S. Representative Farms," AFPC Research Paper 09-2, August 2009, http://www.afpc.tamu.edu/pubs/2/526/rr%2009-2%20paper%20-%20for%20web.pdf . Iowa State University , Center for Agricultural and Rural Development ( CARD), Bruce Babcock, "Costs and Benefits to Agriculture from Climate Change Policy," Summer 2009, http://www.card.iastate.edu/iowa_ag_review/ . Iowa State University , CARD, Tristan Brown et al., "Market Impact of Domestic Offset Programs," Working Paper 10-WP 502, January 2010, http://www.econ.iastate.edu/research/webpapers/paper_13154.pdf . University of Tennessee (de la Torre Ugarte, D. et al.), "Analysis of the Implications of Climate Change and Energy Legislation to the Agricultural Sector," Department of Agricultural Economics, Institute of Agriculture, November 2009, http://www.25x25.org/storage/25x25/documents/ut_climate_energy_report_25x25_november.pdf . University of Arkansas (Nalley, Lanier, et al. ) , "How a Cap-and-Trade Policy of Green House Gases Could Alter the Face of Agriculture in the South: A Spatial and Production Level Analysis, Department of Agricultural Economics and Agribusiness," http://purl.umn.edu/55717 . Informa Economics , "Potential Impacts of Cap and Trade Policy on U.S. Corn, Soybean, and Wheat Producers," prepared for the National Corn Growers Association (NCGA), December 2009, http://www.fb.org/newsroom/fbn/2009/FBN_07-06-09.pdf . American Farm Bureau Federation (AFBF), "'Flawed' Cap-and-Trade Bill Goes to Senate," FB News , July 6, 2009 Vol. 88 No. 13, http://www.fb.org/newsroom/fbn/2009/FBN_07-06-09.pdf . Fertilizer Institute (commissioned study), "Climate Change, Effects of Cap and Trade Legislation on U.S. Agriculture," Doane Advisory Services, http://tfi.org/issues/climate change.cfm. Brookings Institution, "Consequences of Cap and Trade," June 2009, http://www.brookings.edu/~/media/Files/events/2009/0608_climate_change_economy/20090608_climate_change_economy.pdf . CRA International, "Impact on the Economy of the American Clean Energy and Security Act of 2009," May 2009, http://www.crai.com/uploadedFiles/Publications/impact-on-the-economy-of-the-american-clean-energy-and-security-act-of-2009.pdf . Appendix B. Selected Studies of Potential Economic Impacts of Unmitigated Climate Change USDA , The Effects of Climate Change on U.S. Ecosystems , December 2009, http://www.usda.gov/img/content/EffectsofClimateChangeonUSEcosystem.pdf . USDA , The E ffects of C limate C hange on A griculture, L and R esources, W ater R esources, and B iodiversity in the United States , May 2008, http://www.climatescience.gov/Library/sap/sap4-3/final-report/default.htm . Massachusetts Institute of Technology, "Agriculture: The Potential Consequences of Climate Variability and Change for the United States," June 2002, Joint Program on the Science and Policy of Global Change. Institute for Policy Integrity, "The Other Side of the Coin: The Economic Benefits of Climate Legislation," Policy Brief 4, September 2009, http://www.policyintegrity.org/documents/OtherSideoftheCoin.pdf . J. Bloomfield and T. Francesco, "Agriculture: The Potential Impacts of Global Warming on U.S. Agriculture," First National Assessment of the Potential Consequences of Climate Variability and Change , 2000, http://www.climatehotmap.org/impacts/agriculture.html . Environmental Working Group, Crying Wolf: Climate Change Will Cost Farmers Far More Than a Climate Bill , October 2009, http://www.ewg.org/agmag/2009/10/climate-change-will-cost-farmers-far-more-than-a-climate-bill/ . | Numerous studies have attempted to estimate the economic effects of potential climate legislation currently being considered by Congress. These studies have examined both the economy-wide effects, as well as the effects to specific sectors. Two principal reports on the economic effects to the U.S. agriculture and forestry sectors were conducted by the U.S. Environmental Protection Agency (EPA) and the U.S. Department of Agriculture (USDA). As described by USDA, these studies generally concluded that the overall economic costs to the agricultural community of the proposed legislation would be modest. Both studies further suggested that farm revenues from carbon offsets could result in net economic gains for the U.S. agricultural sectors.Concerns have been raised regarding the results of the EPA and USDA analyses, as well as the potential effects of a carbon offset market established by a cap-and-trade system. Many in the U.S. farming community have expressed concern that these analyses estimate that 60 to 65 million acres of U.S. agricultural land could be converted to woodlands by 2050. This conversion would be the result of farmers and landowners choosing to participate in the emerging carbon markets through additional tree-planting, in response to expected high carbon prices. Some believe this could take land out of crop production, removing farmers from the business of food production, and raising food prices to consumers. In addition, some in the farming community have expressed concern that only certain landowners and agricultural producers might benefit in the carbon offset market. Some worry that only larger landowners and farmers might benefit from a carbon offset program, which could result in further industry consolidation in the farming sectors, exacerbating difficult business conditions for smaller, traditional farmers. Others worry that only certain crop producers will benefit, resulting in inequities across all crop producers. Given the general uncertainty about the possible outcomes of a likely regulatory process, following the still uncertain passage of climate legislation in Congress, it is not possible to definitively predict or provide a quantitative assessment of the potential implications or participation rates within a future carbon offset program. Regarding available economic modeling projections of land-use changes, many variables and factors complicate the analyses and projections of cropland conversion rates should be regarded with caution. Among the types of factors are: assumptions in the models of high and rising carbon prices that substantially influence the modeling results; missing farm-level costs, such as transaction costs associated with the future regulatory regime and possible foregone revenue from farm support programs; regional and biological variability that might not be precisely reflected in the model; possible physical capacity constraints and limitations to support substantial afforestation efforts; and possible legal and contractual constraints that might affect participation in the carbon market, given differences in the U.S. crop sectors between farmland ownership and leasing in the United States. The available economic models are even more limited in their ability to predict land-use changes or other potential changes under a carbon offset market, differentiating among producers and production areas. Anecdotally, the evidence about whether or not some operations and production regions might benefit more than others is mixed. Some evidence suggests that larger landowners and farming operations may have greater opportunities to participate in carbon markets, because of their economies of scale and their likely lower transactions costs compared to smaller landowners and farmers. Alternatively, smaller-sized operations might have greater opportunities to participate in carbon offset projects, because they are more likely to own their land and generally tend to be more operationally diverse, and the expected continued role of designated middlemen in generating and marketing carbon offsets. |
Insurance is one of three primary sectors of the financial services industry. Unlike the other two, banks and securities, insurance is primarily regulated at the state, rather than federal, level. The primacy of state regulation dates back to 1868 when the Supreme Court found that insurance did not constitute interstate commerce, and thus did not fall under the powers granted the federal government in the Constitution. In 1944, however, the Court cast doubt on this finding. Preferring to leave the state regulatory system intact in the aftermath of this decision, Congress passed the McCarran-Ferguson Act of 1945, which reaffirmed the states as principal regulators of insurance. Over the years since 1945, congressional interest in the possibility of repealing or amending McCarran-Ferguson and reclaiming authority over insurance regulation has waxed and waned. In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) preempting state laws governing many health benefit plans offered by employers, thus essentially federalizing much of the regulation of health insurance. In 1980, Congress curtailed the authority of the Federal Trade Commission (FTC) to investigate the insurance industry, reducing a small avenue of federal oversight on insurance. In the early 1990s, a bill to repeal the limited antitrust exemption granted insurers in McCarran-Ferguson, and thus expand federal oversight of insurance, was reported out of committee in the House, but never reached the House floor. In 1999, Congress passed the Gramm-Leach-Bliley Act (GLBA), which specifically reaffirmed the states as the functional regulators of insurance. GLBA may have statutorily reaffirmed the primacy of state regulation of insurance, but it also unleashed market forces that were already encouraging a greater federal role. GLBA removed legal barriers between securities firms, banks, and insurers, which, along with improved technology, have been an important factor in creating more direct competition among the three groups. Many financial products have converged, so that products with similar economic outcomes may be available from different financial services firms with dramatically different regulators. Insurers face 50 different state regulators and state laws, many of which differ on some particulars of insurance regulation. This has led to industry complaints of overlapping, and sometimes contradictory, regulatory edicts driving up the cost of compliance and increasing the time necessary to bring new products to market. These complaints existed prior to GLBA, but the insurance industry generally resisted federalization of insurance regulation at the time. Facing a new world of competition, however, the industry split, with larger insurers tending to favor some form of federal regulation, and smaller insurers tending to favor a continuation of the state regulatory system. Life insurers tend to more directly compete with banks and securities firms, so they have tended to favor some form of federal charter more than property/casualty insurers. Some members of Congress have responded to the changing environment in the financial services industry with a variety of legislation. In the 108 th Congress, Senator Ernest Hollings introduced S. 1373 to create a mandatory federal charter for insurance. In the 108 th and 109 th Congresses, Representative Richard Baker drafted, but never introduced, the SMART Act that would have left the states the primary regulators, but harmonized the system through various federal preemptions. The most consistent response has been the introduction of legislation calling for an Optional Federal Charter (OFC) for insurance. OFC legislation was first introduced in the 107 th Congress, with bills being introduced in the 109 th and 110 th Congresses as well. Specifics of OFC legislation can vary widely, but the common thread is the creation of a dual regulatory system, inspired by the current banking regulatory system. OFC bills generally would create a federal insurance regulator that would operate concurrently with the present state system. Insurers would be able to choose whether to take out a federal charter, which would exempt them from most state insurance regulations, or to continue under a state charter and the 50 state system of insurance regulation. Given the greater uniformity of life insurance products and the greater competition faced by life insurers, some have suggested the possibility of OFC legislation that would apply only to life insurers, but no such bills have been introduced. The recent financial crisis affected the debate over federal chartering for insurers in a variety of ways. Some aspects of the crisis gave additional arguments for federal chartering, whereas other aspects have given additional arguments against federal chartering. One specific concern that many have advanced in the crisis has been the negative aspects of allowing financial institutions to choose their regulators. The broad federal charter bill in the 111 th Congress, H.R. 1880 , addressed this by adding some mandatory aspects to a framework similar to the previous OFC bills. During the December 2, 2009, House Financial Services Committee markup of H.R. 2609 , a bill to create a Federal Office of Insurance, two amendments were offered to create federal licenses and regulation of specific lines of insurance. Representative Dennis Moore offered an amendment (no. 3) that would have created an optional federal license for reinsurers, while Representatives Ed Royce and Melissa Bean offered an amendment (no. 7) that would have created an optional federal license for financial guarantee insurers. Both were withdrawn before votes were taken on the amendments. H.R. 2609 was incorporated into H.R. 4173 , which was ultimately enacted as the Dodd-Frank Act and included some insurance provisions, but did not include a federal charter for insurance. Representative Moore introduced his amendment creating a federal license for reinsurers as a standalone bill, H.R. 6529 , on December 16, 2010. Many different arguments have been advanced for and against a dual regulatory system for insurance. While taking no position in this debate, many of these arguments are listed below. In addition to the principal argument that the regulation of insurance companies needs to be overhauled at the federal level to enable insurers to become more competitive with other federally regulated financial institutions in the post-GLBA environment, other arguments advanced for dual chartering have included the following: The recent financial crisis has shown that some insurers can present systemic risk and therefore should be regulated by a regulator with a broader outlook. A federal insurance regulator could be a knowledgeable voice and an insurance advocate in Washington, DC. (The Dodd-Frank Act addressed this to some degree through the creation of a "Federal Insurance Office," though this office has no regulatory powers.) The Comptroller of the Currency has successfully promoted the expansion of bank products through preemption of state laws, providing a model for the insurance sector. The increase of "speed to market" for product approval so insurers will not be at a disadvantage in product creation and delivery. The creation of a regulatory environment more accommodating of growth and innovation as a result of competition between federal and state regulators. The ability to achieve national treatment, so that a single charter would allow insurers to do business in all states and avoid higher costs of state regulation due to the need to comply with up to 50 state regulators. Potential difficulty insurers face in international trade without a regulator at the national level. Greater supply of insurance and lower cost to consumers as insurance companies are forced to compete on a national scale. The arguments of those who oppose federal regulation of insurance companies, preferring that the state insurance regulatory system be maintained, have included the following: State regulated insurers have performed relatively well through the financial crisis, underscoring the quality of state regulation. State insurance regulators have a better understanding of local markets and conditions that would a federal regulator. State regulation is more flexible and adaptable to local conditions. The diversity of state regulation reduces the impact of any poor regulation and promotes innovation and good regulation. There are strong incentives, such as those provided by direct election, for state regulators to do the job effectively at the state level. The risk that the new federal bureaucracy would end up being redundant and costly. Fiscal damage to the states should state premium taxes be reduced by a federal system. The fragmentation of the overall insurance regulatory system that could result from dual chartering and state/federal oversight. The possibility of a "race to the bottom" as state and federal regulators compete to give insurers more favorable treatment and thus secure greater oversight authority and budget. In the abstract, the federal chartering question could be simply about the "who" of regulation. Should it be the federal government, the states, or some combination of the two? In practice, however, federal chartering legislation has had much to say about the "how" of regulation. Should the government continue the same fine degree of industry oversight that states have practiced in the past? Aside from Senator Hollings' bill in the 108 th Congress, the federal chartering bills that have been introduced to this point have tended to answer the latter question negatively—the federal regulator to be created would exercise less regulatory oversight than would most state regulators. This deregulatory aspect of past bills has been source of controversy in addition to the introduction of federal regulation itself. Representatives Melissa Bean and Edward Royce introduced H.R. 1880 in the House on April 2, 2009. The bill was referred to the House Financial Services Committee, House Judiciary Committee, and House Energy and Commerce Committee. No hearings or markups were held on this bill. H.R. 1880 would have created a federal chartering and regulatory apparatus for the insurance industry, including insurers, insurance agencies, and independent insurance producers. The Office of National Insurance (ONI) and a National Insurance Commissioner (NIC) would have been established in the Department of the Treasury, but with significant independence; the Secretary of the Treasury would have been forbidden from interfering in specific matters before the commissioner; the ONI's budget would have been funded by fees and assessments on insurers; and the commissioner would have been appointed by the President, and confirmed by the Senate for a five-year term. These terms are similar to those of other financial regulators, such as the Office of the Comptroller of the Currency. The federal regulatory system in H.R. 1880 would have applied to property/casualty and life insurance and reinsurance, with the exception of title insurance. Federally licensed insurance producers were specifically allowed to sell surplus lines insurance. Holders of a national charter or license would have been exempt from most state insurance laws, including "any form of licensing, examination, reporting, regulation, or supervision by a State relating to the insurance operations of such insurer." Thus, nationally licensed insurers, agencies, and producers would have been able to operate in the entire United States without fulfilling the requirements of the 50 states' insurance laws. This exemption, however, did not extend to state premium tax laws, so national insurers would have continued to pay these taxes. The bill would have affected state taxes with regard to surplus lines insurance, forbidding states that are not the home state of the insured from collecting these taxes. In terms of the substance of regulation, the most significant specific change in H.R. 1880 compared with the way most states currently regulate insurance involves regulation of insurance rates and forms. Currently every state has some measure of rate and form regulation. In some states, insurers must get specific prior approval for changes to rates and forms, whereas in others insurers may have some freedom to change rates and forms with the possibility that the state insurance commissioner could disallow the change after the fact. This bill, however, would have specifically disallowed the NIC from regulating insurance rates. With regard to form regulation, the commissioner would have had the power to set general form requirements and insurers would have been required to file insurance forms with the commissioner along with a certification that the forms met the established requirements. H.R. 1880 would have specifically addressed the issue of systemic risk brought to the fore in the recent financial crisis in two ways. It would have required that a financial regulator other than the ONI be designated a systemic risk regulator for insurance with power over both national insurers and state insurers. This regulator would have had broad oversight powers, including the ability, in consultation with the NIC, to require an insurer be federally chartered. H.R. 1880 would also have created a "Coordinating National Council for Financial Regulators" made up of the heads of the various federal financial regulators along with the Secretary of the Treasury. This council would have been responsible for monitoring the financial system for systemic risk with the specific power to determine when the systemic risk regulator could issue a rule or direct order covering an insurer that presented systemic risk. H.R. 1880 shared many aspects with previous optional federal chartering bills, including legislation introduced by Representatives Bean and Royce. Under H.R. 1880 , many insurers would have had the option to choose whether to operate under a federal or state system. The system to be put in place by the bill, however, has two specific non-optional aspects: (1) The NIC had the specific authority to deny an application from a national insurer to convert to a state charter; and (2) the systemic risk regulator had the specific authority to require an insurer to become federally chartered. Representative Dennis Moore introduced H.R. 6529 on December 16, 2010. It was referred to the House Committee on Financial Services but no hearings or markups were held on the bill. H.R. 6529 would have created a federal license for reinsurers. The licensing and regulatory authority would rest with the Federal Insurance Office, which was created under the Dodd-Frank Act, which would have the authority to determine that state laws were inconsistent with federal law and thus preempted. Senators John Sununu and Tim Johnson introduced S. 40 on May 24, 2007 and Representatives Melissa Bean and Edward Royce introduced H.R. 3200 on July 26, 2007. The bills were referred to the relevant committees (Senate Banking, Housing, and Urban Affairs, House Financial Services, and House Judiciary), but neither was the specific subject of hearings or markups. Two general hearings on insurance regulatory reform, however, were held by the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises in October 2007, and the possibility of an optional federal charter was a major topic of discussion in the subcommittee. S. 40 and H.R. 3200 were very similar, but not identical bills. Both would have created the option of a federal charter for the insurance industry, including insurers, insurance agencies, and independent insurance producers. The bills would have created a federal regulatory and supervisory apparatus, including an Office of National Insurance and a National Insurance Commissioner. This federal regulator would generally have been overseen by the Secretary of the Treasury, but the secretary would have been forbidden from interfering in specific matters before the commissioner. The budget for the office would have been paid for by fees and assessments on insurers. The commissioner would have been appointed by the President, and confirmed by the Senate for a five-year term. Holders of a national license would have been exempt from most state insurance laws. Thus, nationally licensed insurers, agencies, and producers would have been able to operate in the entire United States without fulfilling the requirements of the 50 states' insurance laws. Some significant aspects of the bills included the following: The federal system would have applied to property/casualty and life insurance, except for title insurance and including surplus lines insurance. Rate regulation would not have been applicable to national insurers. Form regulation, the ability of the regulator to control what will and will not be included in an insurance policy, would have been reduced substantially compared with most states. Fees covering the cost of the system would have been assessed on those operating under the federal system. National insurers would have continued to pay state premium taxes, so there should be no loss of premium tax revenue to the states. National insurers would have continued to be subject to state laws requiring participation in residual market entities, but only if rates charged by the residual market entity covers all costs incurred, and only if there were no rate and form requirements concurrent with participation. Reform of the state regulation of surplus lines insurance—only the state in which the insured resides or does business would be allowed to tax surplus lines insurance. National insurance producers would have been allowed to sell surplus lines insurance. Would have applied federal antitrust laws to national insurers, except to the extent that state laws continue to apply to them. Differences between S. 40 and H.R. 3200 are relatively minor, including the following: H.R. 3200 would have specifically allowed non-U.S. reinsurers to file financial data in accordance with International Financial Reporting Standards. H.R. 3200 would have limited jurisdiction over non-U.S. reinsurers to federal courts, rather than including state and local courts. H.R. 3200 would have broadened slightly and clarify antifraud language. Beyond the general aspects inherent in the OFC concept, such as the dual, competing regulatory structures and uniform regulation across the country, the most striking specific aspect of S. 40 and H.R. 3200 was the lessening of the rate and form regulation under these bills as compared to the current system. Currently every state has some measure of rate and form regulation. In some states, insurers must get specific prior approval for changes to rates and forms, while in others insurers may have some freedom to change rates and forms with the possibility that the state insurance commissioner could disallow the change after the fact. S. 40 and H.R. 3200 specifically disallowed rate and form regulation for national property/casualty insurers. Such insurers would have been required only to maintain copies of the policy forms that they use. National life insurers would have been subject to general standards and a requirement to file forms with the commissioner before these forms would have been used. Senators John Sununu and Tim Johnson introduced S. 2509 on April 5, 2006. The House companion, H.R. 6225 was introduced on October 18, 2006. Neither bill saw direct committee action, although S. 2509 was repeatedly discussed at a hearing on "Perspectives in Insurance Regulation," held by the Senate Banking, Housing, and Urban Affairs Committee on July 18, 2006. These bills were very similar to the bills of the same name introduced in the 110 th Congress and discussed above. Differences between the bills in the two Congresses included the following: The 2006 bills did not address surplus lines insurance. The 2007 bills added language requiring national insurer compliance with anti-money laundering laws. The 2007 bills specifically exclude national insurers from offering title insurance. The 2007 bills included new guaranty fund language, changing the focus from a qualified state, to a qualified association or fund. If a state's guaranty fund is not qualified, then the national insurers operating in that state must join the national guaranty fund to be established by the NIC. On July 8, 2003, Senator Ernest Hollings introduced S. 1373 , "A bill to authorize and direct the Secretary of Commerce, through an independent commission within the Department of Commerce, to protect consumers by regulating the interstate sale of insurance, and for other purposes." The bill was referred to the Senate Commerce, Science, and Transportation Committee, where it was discussed in a general hearing on insurance regulation but was not acted upon further. Senator Hollings retired following the 108 th Congress. S. 1373 would have created a mandatory federal charter for interstate property/casualty and life insurers, leaving only single state insurers to be regulated by the state where they were domiciled and operated. It thus would have preempted most current state regulation of insurance. Significant aspects of the bill included the following: Creation of a federal commission within the Department of Commerce to regulate the interstate business of property/casualty and life insurance. Grant of full regulatory powers to the commission, including licensure, rate and form approval, regulation of solvency, and regulation of market conduct. Repeal of the antitrust exemptions in the McCarran-Ferguson Act. Creation of a federal guaranty fund. H.R. 3766 was introduced on February 14, 2002, by Representative John LaFalce. It would have created an optional federal charter for "national insurers," but not for insurance agencies, brokers, or agents. It would have created a new federal agency within the Treasury Department, known as the Office of National Insurers and headed by a director, rather than a commissioner. Other significant aspects of H.R. 3766 included the following: The federal charter would have provided for a national insurer to underwrite both life insurance and property/casualty insurance. The director would have had general regulatory authority over national insurers, including solvency oversight and policy forms, but rate regulation would have been left with state insurance regulators. Even though the legislation had no provision for the licensing of insurance producers, the director would have had the authority to enforce unfair and deceptive practices rules against state-licensed producers with respect to the sale of insurance products issued by national insurers, and all states would have been subject to federal minimum standards. National insurers would have been encouraged to invest in the communities in which they sell policies. National insurers would have been required to file reports containing community sales data for use by federal regulators in combating insurance redlining. Further, national insurers would have been prohibited from refusing to insure, or limiting coverage on a property, based solely on its geographic location. This proposal was reportedly introduced late in 2001 by Senator Charles Schumer, but was never assigned a number, nor referred to either the Senate Commerce Committee or the Senate Banking, Housing, and Urban Affairs Committee. A draft of this proposal provided that the chartering, supervision, and regulation of National Insurance Companies and National Insurance Agencies be administered by the federal government in a newly created federal agency within the Treasury Department. The proposed agency, the Office of the National Insurance Commissioner, would have been headed by the NIC, appointed for a five-year term by the President and subject to Senate confirmation. National insurers and agents would have been exempt from most state insurance law. Significant aspects of the bill included the following: application to all lines of insurance, including life, health, and property/casualty; imposition of fees as necessary to cover the expenses of the federal apparatus; and requirement that NICs participate in "qualified" state insurance guaranty associations and establishment of a federal backup guaranty association to cover "non-qualifying" states. The broad powers granted to the NIC were not to include the authority to regulate rates or policy forms. Nor would the Schumer proposal have exempted federally chartered NICs from antitrust laws, except for purposes of preparing policy forms and participating in state residual market programs such as assigned risk pools in automobile insurance. The federal license would have specified the line or lines of insurance a NIC could underwrite, and no single NIC could be licensed to underwrite both life/health insurance and property/casualty insurance, although an affiliated group of insurance companies (state and/or federally chartered) could have included separate companies writing those different lines of insurance. | Insurance is one of three primary sectors of the financial services industry. Unlike the other two, banks and securities, insurance is primarily regulated at the state, rather than federal, level. The primacy of state regulation dates back to 1868 when the Supreme Court found in Paul v. Virginia (75 U.S. (8 Wall.) 168 (1868)) that insurance did not constitute interstate commerce, and thus did not fall under the powers granted the federal government in the Constitution. In 1944, however, the Court cast doubt on this finding in United States v. South-Eastern Underwriters Association (322 U.S. 533 (1944)). Preferring to leave the state regulatory system intact in the aftermath of this decision, Congress passed the McCarran-Ferguson Act of 1945 (P.L. 79-15, 59 Stat. 33), which reaffirmed the states as principal regulators of insurance. Over the years since 1945, congressional interest in the possibility of repealing McCarran-Ferguson and reclaiming authority over insurance regulation has waxed and waned. Particularly since the Gramm-Leach-Bliley Act of 1999 (P.L. 106-102, 113 Stat. 1338), the financial services industry has seen increased competition among U.S. banks, insurers, and securities firms and on a global scale. Some have complained that the state regulatory system puts insurers at a competitive disadvantage. Whereas the insurance industry had previously been united in preferring the state system, it has now splintered, with larger insurers tending to argue for a federal system and smaller insurers tending to favor the state system. Some members of Congress have responded with different proposals ranging from a complete federalization of the interstate insurance industry, to leaving the state system intact with limited federal standards and preemptions. A common proposal in the past has been for an Optional Federal Charter (OFC) for the insurance industry. This idea borrows the idea of a dual regulatory system from the banking system. Both the states and the federal government would offer a chartering system for insurers, with the insurers having the choice between the two. OFC legislation was offered in the 107th, 109th, and 110th Congresses. Proponents of OFC legislation typically have cited the efficiencies that could be gained from a uniform system, along with the ability of a federal regulator to better address the complexities of the current insurance market and ongoing financial crisis as well as the need for a single federal voice for the insurance industry in international negotiations. Opponents of OFC legislation have been typically concerned with the inability of a federal regulator to take into account local conditions, the lack of consumer service that could result from a nonlocal administrator in Washington, DC, and the overall deregulation contained in some of the OFC proposals. The recent financial crisis gave greater urgency to calls for federal oversight of insurance and has changed the tenor of the debate. The National Insurance Consumer Protection Act of 2009 (H.R. 1880) was introduced in the 111th Congress by two previous sponsors of OFC legislation. This bill differed significantly from previous OFC bills as it included the creation of a new systemic risk regulator with the power to mandate the adoption of a federal charter by some insurers. The broad Dodd-Frank Act (P.L. 111-203) that was enacted to reform the financial system included some insurance aspects, but did not include a federal charter for insurance. Such legislation has not been introduced in the 112th Congress. This report offers a brief analysis of the forces prompting federal chartering legislation, followed by a discussion of the arguments for and against a federal charter, and summaries of previous legislation. It will be updated as legislative events warrant. |
This report provides an overview of major issues facing veterans' health care during the 110 th Congress. The report's primary focus is on veterans and not military retirees . While any person who has served in the armed forces of the United States is regarded as a veteran, a military retiree is someone who has generally completed a full active duty military career (almost always at least 20 years of service), or who is disabled in the line of military duty and meets certain length of service and extent of disability criteria, and who is eligible for retired pay and a broad range of nonmonetary benefits from the Department of Defense (DOD) after retirement. A veteran is someone who has served in the armed forces (in most, but not all, cases for a few years in early adulthood), but may not have either sufficient service or disability to be entitled to post-service retired pay and nonmonetary benefits from DOD. Generally, all military retirees are veterans, but not all veterans are military retirees. For the purposes of veterans' benefits, a veteran is defined as a person who served in the active military, naval, or air service, and who was discharged or released under conditions other than dishonorable. Currently, there are two health care systems that care for servicemembers and veterans. The Defense Health Program (DHP) in the DOD provides for worldwide medical and dental services to active duty military personnel, and other eligible beneficiaries. Once they are discharged from their respective service branches, servicemembers become eligible for care and treatment provided by the Department of Veterans Affairs (VA). Prior to discussing major health care issues, this report provides a brief overview of the VA, the Veterans Health Administration (VHA) within the VA which oversees the largest integrated health care system in the country, and the veteran population it serves. To provide context to the issues discussed in the second part of this report, a basic overview of eligibility for health care under the veterans health care system is presented. Beginning with the early colonial settlements of America, the nation has provided benefits in varying degrees to those who have worn the uniform and suffered physical disabilities in service to the nation. For instance, in 1718, the colony of Rhode Island enacted legislation that provided benefits not only to every officer, soldier or sailor who served in the colony's armed services, but also to the wives, children, parents, and other relations who had been dependent upon a slain servicemember. "The physically disabled were to have their wound carefully tended and healed at the colony's expense, while at the same time an annual pension was provided to him out of the general treasury sufficient for the maintenance of himself and family, or other dependent relatives." While pension and disability benefits provided to veterans were gradually increased and in some cases decreased since the early colonial period, hospital and medical care for veterans on a level similar to the care provided today was not available until World War I. The VA health care system has evolved and expanded since World War I. Congress has enlarged the scope of the VA's health care mission, and has enacted legislation requiring the establishment of new programs and services. Through numerous laws, some narrowly focused, and others more comprehensive, Congress has also extended to additional categories of veterans eligibility for the many levels of care the VA now provides. No longer a health care system focused only on service-connected veterans, the VA has become a "safety net" for the many lower-income veterans who have come to depend upon it. Furthermore, with the fragmented private-sector health care system, the lack of universal access to health care services, and the growing number of people joining the ranks of the uninsured, many veterans—even some with private health insurance—have chosen to receive care through the VA. The history of the present-day VA can be traced back to July 21, 1930, when President Hoover issued Executive Order 5398, creating an independent federal agency known as the Veterans Administration by consolidating many separate veterans' programs. On October 25, 1988, President Reagan signed legislation ( P.L. 100-527 ) creating a new federal cabinet-level Department of Veterans Affairs to replace the Veterans Administration, effective March 15, 1989. VA carries out its veterans' programs nationwide through three administrations and the Board of Veterans Appeals (BVA). The Veterans Health Administration (VHA) is responsible for veterans' health care programs. The Veterans Benefits Administration (VBA) is responsible for compensation, pension, vocational rehabilitation, education assistance, home loan guaranty and insurance among other things. The National Cemetery Administration's (NCA) responsibilities include maintaining 120 national cemeteries in 39 states and Puerto Rico. The Board of Veterans Appeals (BVA) renders final decisions on appeals on veteran benefits claims. VHA operates the nation's largest integrated direct health care delivery system. VA's health care system is organized into 21 geographically defined Veterans Integrated Service Networks (VISNs) (see Figure 1 ). While policies and guidelines are developed at VA headquarters and applied throughout the VA health care system, management authority for basic decision making and budgetary responsibilities are delegated to the VISNs. Congressionally appropriated medical care funds are allocated to the VISNs based on the Veterans Equitable Resource Allocation (VERA) system, which generally bases funding on patient workload. Prior to the implementation of the VERA system, resources were allocated to facilities primarily on the basis of their historical expenditures. Unlike Medicare, which administers medical care through the private sector, the VA provides care directly to veterans. In FY2007, VHA operated 155 medical centers, 135 nursing homes, 717 ambulatory care and community-based outpatient clinics (CBOCs), 45 residential rehabilitation treatment programs, and 209 Vet Centers (generally these are community-based, non-medical facilities that offer counseling services). VHA also pays for care provided to veterans by independent providers and practitioners on a fee basis under certain circumstances. Inpatient and outpatient care is provided in the private sector to eligible dependents of veterans under the Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA). In addition, VHA provides grants for construction of state-owned nursing homes and domiciliary facilities, and collaborates with the Department of Defense (DOD) in sharing health care resources and services. Today, VHA has been commended by peer reviewed journals and independent studies as an outstanding health care system whose "performance now surpasses that of other health systems on standardized quality measures." The journal Neurology in its November 2006 issue noted that "The VA has achieved remarkable improvements in patient care and health outcomes, and is a cost-effective and efficient organization. Its enrollees are provided comprehensive coverage ... and the system is especially suited to manage chronic disease." In 2005, Health Care Papers dedicated a complete issue to examining the transformation of VHA, and the lessons that could be learned by other countries struggling to use their healthcare resources appropriately. Furthermore, VA has led private-sector health care in the American Customer Satisfaction Index for both inpatient and outpatient services. The previously discussed achievements are related in part to the VHA's development and use of electronic health records. Since 1985, VHA has had an automated information system with extensive clinical and administrative capabilities which supports ambulatory, inpatient, and long-term care. VistA is the single, integrated health information system used throughout VA in all health care settings. VistA applications are comprised of three types of packages: the clinical package, the administration and financial package, and the infrastructure package. The clinical package includes applications such as the Computerized Patient Record System (CPRS). In addition to CPRS, VistA includes VistA Imaging and Bar-Code Medication Administration. The CPRS is a single integrated system for VA health care providers. All aspects of a patient's medical record are integrated, including active problems, allergies, current medications, laboratory results, vital signs, hospitalizations and outpatient clinic history, alerts of abnormal results, among other things. It is used in about 1,300 VHA facilities around the country. CPRS also incorporates data from scheduling, laboratory, radiology, consults and clinic notes into a single integrated patient record. Remote data view allows clinicians to see health data from any other VA facility where the veteran has received care. Also as a complement to CPRS, VistA includes VistA Imaging. This application provides a multimedia, online patient record that integrates traditional medical chart information with medical images including X-rays, pathology slides, video views, scanned documents, and cardiology exam results, among other images. The Bar Code Medication Administration (BCMA) is an application that validates the administration of medications, including intravenous medications, in real time for inpatients in all VA medical centers. This ensures that the patient receives the correct medication, at the correct dosage and at the right time. BCMA also provides visual alerts. For instance, if the software detects a potential medical error, it alerts the nurse administering the medication. These alerts require the nurse to review and correct the reason for the alert before actually administering the drug to the patient. The overall cost of maintaining the VistA system is $87 per patient annually. In 2006, Harvard University's Kennedy School of Government awarded the VA the Innovations in American Government Award for its electronic health records system. In presenting this award the Kennedy School stated that VistA saves lives and ensures continuity of care even under the most extreme circumstances. Many of the thousands of residents who fled the Gulf Coast because of Hurricane Katrina left behind vital health records. Records for the 40,000 veterans in the area were almost immediately available to clinicians across the country, even though the VA Medical Center in Gulfport, Mississippi, was destroyed and New Orleans VA Medical Center was closed and evacuated. Veterans were able to resume their treatments, refill their prescriptions, and get the care they needed because their medical records were immediately accessible to providers at other VA facilities. At the end of FY2006 the veterans population in the United States was approximately 24 million, and of these 17.8 million were war veterans. According to the VA, the total veteran population is expected to decline to 21.7 million by 2011, and 18.1 million by 2020. VA attributes this decline to the number of veteran deaths exceeding the number of new separations from the military. The largest population of veterans are living in California, followed by Florida and Texas ( Figure 2 ). In FY2005 there were approximately 7.7 million veterans enrolled in the VA health care system ( Figure 3 ). Most VISNs showed enrollments between 26%-30% of the total eligible veteran population in those VISNs; two VISNs (VISN 5 and VISN 11) showed enrollments below 25%. The total number of veterans enrolled in VA's health care system is estimated to increase to almost 8.0 million veterans in FY2008. It should be noted that in any given year not all veterans seek care from VA, either because they are not ill or because they have other sources of care such as private health insurance. In FY2005, VHA provided care to approximately 4.9 million unique patients. The greatest number of patients were in VISNs 4, 8 and 16. Each of these VISNs had more than 265,000 patients ( Figure 4 ). The overall patient population reflects where the total veteran population is the largest. During FY2007, VHA provided health care to about 5.2 million unique veteran patients. These patients generated 64.4 million outpatients visits and almost 800,000 inpatient episodes of care. According to VHA estimates, the number of unique veteran patients is estimated to increase by approximately 109,000 between FY2007 and FY2008. And VA is expected to treat about 5.3 million veteran patients in FY2008. Patients in Priority Groups 1-6 (described below)—those veterans with service-connected conditions, lower incomes, special health care needs, and service in Iraq or Afghanistan—will comprise 75% of the total veteran patient population in FY2008. To understand some of the issues discussed later in this report, it is important to understand eligibility for VA health care, VA's enrollment process, and its enrollment priority groups. Unlike Medicare or Medicaid, VA health care is not an entitlement program. Contrary to numerous claims made concerning "promises" to military personnel and veterans with regard to "free health care for life," not every veteran is automatically entitled to medical care from VA. Prior to eligibility reform in 1996, all veterans were technically eligible for some care, however, the actual provision of care was based on available resources. The Veterans' Health Care Eligibility Reform Act of 1996, P.L. 104-262 , established two eligibility categories and required VHA to manage the provision of hospital care and medical services through an enrollment system based on a system of priorities. P.L. 104-262 authorized VA to provide all needed hospital care and medical services to veterans with service-connected disabilities, former prisoners of war, veterans exposed to toxic substances and environmental hazards such as Agent Orange, veterans whose attributable income and net worth are not greater than an established "means test," and veterans of World War I. These veterans are generally known as "higher priority" or "core" veterans. The other category of veterans are those with no service-connected disabilities and with attributable incomes above an established "means test." P.L. 104-262 also authorized VA to establish a patient enrollment system to manage access to VA health care. As stated in the report language accompanying P.L. 104-262 , [t]he Act would direct the Secretary, in providing for the care of 'core' veterans, to establish and operate a system of annual patient enrollment and require that veterans be enrolled in a manner giving relative degrees of preference in accordance with specified priorities. At the same time, it would vest discretion in the Secretary to determine the manner in which such enrollment system would operate. Furthermore, P.L. 104-262 was clear in its intent that the provision of health care to veterans was dependent upon the available resources. The Committee report accompanying P.L. 104-262 states that the provision of hospital care and medical services would be provided to "the extent and in the amount provided in advance in appropriations Acts for these purposes. Such language is intended to clarify that these services would continue to depend upon discretionary appropriations." As stated previously, P.L. 104-262 required the establishment of a national enrollment system to manage the delivery of inpatient and outpatient medical care. The new eligibility standard was created by Congress to "ensure that medical judgment rather than legal criteria will determine when care will be provided and the level at which care will be furnished." For most veterans, entry into the veterans' health care system begins by completing the application for enrollment. Some veterans are exempt from the enrollment requirement if they meet special eligibility requirements. A veteran may apply for enrollment by completing the Application for Health Benefits (VA Form 10-10EZ) at any time during the year and submitting the form online or in person at any VA medical center or clinic, or mailing or faxing the completed form to the medical center or clinic of the veteran's choosing. See Table 1 for steps in the enrollment process. Once a veteran is enrolled in the VA health care system the veteran remains in the system and does not have to re-apply for enrollment annually. However, those veterans who have been enrolled in Priority Group 5 based on income must submit a new VA Form 10-10EZ annually with updated financial information demonstrating inability to defray the expenses of necessary care. Eligibility for VA health care is primarily based on "veteran's status" resulting from military service. Veteran's status is established by active-duty status in the military, naval, or air service and an honorable discharge or release from active military service. Generally, persons enlisting in one of the armed forces after September 7, 1980, and officers commissioned after October 16, 1981, must have completed two years of active duty or the full period of their initial service obligation to be eligible for VA health care benefits. Servicemembers discharged at any time because of service-connected disabilities are not held to this requirement. Also, reservists that were called to active duty and who completed the term for which they were called, and who were granted an other than dishonorable discharge are exempt from the 24 continuous months of active duty requirement. National Guard members who were called to active duty by federal executive order are also exempt from this two year requirement if: 1) they completed the term for which they were called, and 2) were granted an other than dishonorable discharge. When not activated to full-time federal service, members of the reserve components and National Guard have limited eligibility for VA health care services. Members of the reserve components may be granted service-connection for any injury they incurred or aggravated in the line of duty while attending inactive duty training assemblies, annual training, active duty for training, or while going directly to or returning directly from such duty. Additionally, reserve component servicemembers may be granted service-connection for a heart attack or stoke if such an event occurs during these same periods. The granting of service-connection makes them eligible to receive care from VA for those conditions. National Guard members are not granted service-connection for any injury, heart attack, or stroke that occurs while performing duty ordered by a governor for state emergencies or activities. After veteran's status has been established, VA next places applicants into one of two categories. The first group is composed of veterans with service-connected disabilities or with incomes below an established means test. These veterans are regarded by VA as "high priority" veterans, and they are enrolled in Priority Groups 1-6 (see the Appendix ). Veterans enrolled in Priority Groups 1-6 include: veterans in need of care for a service-connected disability; veterans who have a compensable service-connected condition; veterans whose discharge or release from active military, naval or air service was for a compensable disability that was incurred or aggravated in the line of duty; veterans who are former prisoners of war (POWs); veterans awarded the purple heart; veterans who have been determined by VA to be catastrophically disabled (these are veterans who have a permanent severely disabling injury, disorder, or disease that compromises the ability to carry out the activities of daily living); veterans of World War I; veterans who were exposed to hazardous agents (such as Agent Orange in Vietnam) while on active duty; and veterans who have an annual income and net worth below a VA- established means test threshold. VA also looks at applicants' income and net worth to determine their specific priority category and whether they have to pay copayments for nonservice-connected care. In addition, veterans are asked to provide VA with information on any health insurance coverage they have, including coverage through employment or through a spouse. VA may bill these payers for treatment of conditions that are not a result of injuries or illnesses incurred or aggravated during military service. The second group is composed of veterans who do not fall into one of the first six priority groups. These veterans are primarily those with nonservice-connected medical conditions and with incomes and net worth above the VA established means test threshold. These veterans are enrolled in Priority Group 7 or 8 (see the Appendix ). VHA provides a standard benefits package to all enrolled veterans. Broadly, this includes preventive care services (e.g., immunizations, physical examinations, health care assessments, screening tests); inpatient and outpatient medical care, surgery, and mental health care, including care for substance abuse; prescription drugs, including over-the-counter drugs and medical and surgical supplies; and durable medical equipment and prosthetic and orthotic devices, including eyeglasses and hearing aids. The National Strategy for Combating Terrorism issued in September 2006, stated that the "War on Terror will be a long war." Along with all other facets of the U.S. government, it is likely that the U.S. military will continue to play a leading role in this "long war." Since the terrorist attacks of September 11, 2001, U.S. Armed Forces have been deployed in two major theaters of operation. Operation Enduring Freedom (OEF) in Afghanistan and Operation Iraqi Freedom (OIF) constitute the largest sustained ground combat mission undertaken by the United States since the Vietnam War. Veterans from these conflicts and from previous wars are exerting tremendous stress on the VA health care system. With increased patient workload and rising health care costs, the 110 th Congress is focused on ensuring a "seamless transition" process for veterans moving from active duty into the VA health care system. Compared with previous wars that the nation has fought, because of the advancement in battle field medicine, a larger proportion of soldiers are surviving their injuries. In World War II, 30% of the U.S. servicemembers injured in combat died. In Vietnam, the proportion dropped to 24%. In OEF and OEF operations about 10% of those injured have died. In November 2007, DOD reported that over 30,000 servicemembers have been wounded in action since the beginning of OEF and OEF. With increasing numbers of soldiers returning from Iraq and Afghanistan—both injured and non-injured—Congress and veterans' advocates are very concerned that returning servicemembers may not have a smooth transition from DOD health care to VA health care. The final report of the President's Commission on Care for America's Returning Wounded Warriors acknowledged that handoffs between inpatient and outpatient care and between the two separate DOD and VA health care and disability systems are problematic. It should be noted that injured servicemembers receiving care in VA health care facilities are not considered veterans until they are formally discharged from active duty service . Since the onset of OEF and OIF, more than 1.6 million servicemembers have served in these two theaters of operation, making them potentially eligible for veterans benefits. Since FY2002, 751,273 OEF and OIF veterans have separated (discharged) from active duty. Of this amount, 362,237, or 48%, were active duty troops, while 389,036, or 52%, were separated National Guard and Reserve component members. Approximately 35%, or 263,909, of all separated OEF and OIF veterans since FY2002 have sought care from VA. About 96% of the veterans who sought care have received outpatient care, while 4%, or a little more than 10,000, have been hospitalized at least once in a VHA facility. Figure 5 provides a breakdown of the five major diagnoses among returning OIF and OEF veterans. While diseases of the musculoskeletal system have the highest frequency of diagnosis, mental disorders ranks second among major diagnoses. Mental disorders may include, among other conditions, nondependent abuse of drugs, alcohol dependent syndrome, and PTSD. Figure 6 below provides data on the number of OEF and OIF discharges per fiscal year. The number of new discharges was highest in FY2004, followed by FY2003, whereas FY2006 had the lowest number of discharges. However, note that the numbers in the graph are from FY2002-FY2006 and do not reflect the most recent data presented above, which includes FY2007 3 rd quarter data. Although National Guard and Reserve component members make up 52% of OIF and OEF servicemembers who have separated from active duty, they compose 34% of those who have sought VA health care since FY2002. While active duty OIF and OEF servicemembers make up 48% of those who have separated from service, they make up 36% of those who have received VA care. VA expects to treat 263,345 OEF and OIF veterans in FY2008 ( Table 2 ). This is an increase of 54,037, or 26%, over the number of veterans from these two theaters of operation that VA anticipates will enter the VA health care system in FY2007, and 108,073, or 70%, more than the number VA treated in FY2006. As seen in Table 2 , there is a 223% increase in funding between FY2005 and the projected amount for FY2008. Figure 7 shows the cumulative number of unique OIF and OEF patients that the VA treated between FY2002 and FY2006, with projections for FY2007 and FY2008. In FY2005 and FY2006, VA treated more OIF and OEF veterans than it had budgeted for at the beginning of the fiscal year. In March, VA testified that the number of severely injured or ill active duty servicemembers and veterans that have transitioned from DOD to VHA facilities is over 6,800; of these 342 have been polytrauma patients. VHA defines polytrauma as "injury to the brain in addition to other body parts or systems resulting in physical, cognitive, psychological, or psychosocial impairments and functional disability." As of April 1, there were 571 amputees reported by DOD. Since FY2002,VA's Prosthetic and Sensory Aids Service (PSAS) has provided services and products to over 22,000 OEF and OIF unique veterans. PSAS has served a total of 187 major amputees (those with upper or lower limb amputations) from OEF and OIF, including veterans and active duty servicemembers. In 2003, several injured servicemembers or their parents testified on the obstacles faced during the transition from DOD's health care system to VHA. However, since that time there have been significant improvements in that area as described later in this report. Aside from this day-to-day handoff, coordination and sharing of health information between VA and DOD has been problematic. In 2003, the President's Task Force to Improve Health Care Delivery for Our Nation's Veterans identified several issues with regard to sharing of information between DOD and VA. It stated that "the VA/DOD processes for sharing information about eligible service members do not facilitate quick and accurate enrollment into VA programs." In March 2005, the Government Accountability Office (GAO) testified that VA still does not have systematic access to DOD data about returning servicemembers who may need its services. Again in September 2005, GAO testified that while VA has developed policies and procedures to provide OEF and OIF servicemembers and veterans with timely access to care, the sharing of health information between DOD and VA is limited. In March 2007, GAO testified that despite coordination efforts by DOD and VA, these two Departments were still having problems sharing medical records. Among other things, the recently appointed Task Force on Returning Global War on Terror Heroes identified that "currently, there are no formal interagency agreements between DOD and VA to transfer case management responsibilities across the military services and VA" In its July 2007 report, the President's Commission on Care for America's Returning Wounded Warriors acknowledged that handoffs between the two separate DOD and VA health care and disability systems have been problematic, and recommended the integration of medical and rehabilitation programming across the two Departments. In general, as shown in Figure 8 , when a solider is injured on the battlefield he or she is stabilized in theater by a combat medic/lifesaver and then moved to a battalion aid station. If the servicemember has serious injuries he or she is transferred to a forward surgical team to be stabilized and then moved to a combat support hospital and further stabilized for a period of about two days. If the servicemember needs more specialized care he or she is evacuated from OEF and OIF conflict theaters and brought to Landstuhl Regional Medical Center (LRMC) in Germany for treatment. Most patients arrive at LRMC 24 to 72 hours after injury. In general, servicemembers remain in Germany for a period of about 4 to five days. Length of stay at in-theater medical facilities is determined by the stability of the patient and the availability of medical evacuation aircraft. After further stabilization at LRMC they are evacuated to the United States and arrive at an echelon V Military Treatment Facility (MTF) such as Walter Reed Army Medical Center (WRAMC) in Washington, DC, or the National Naval Medical Center in Bethesda, Maryland. All catastrophic burn patients are flown to the Brooke Army Medical Center (BAMC) at Fort Sam Houston, Texas. BAMC has also established a specialized amputee rehabilitation center. Once a seriously injured servicemember enters a major MTF, DOD can elect to send those with traumatic brain injuries (TBI) and other complex polytrauma cases to one of the four VA Polytrauma Rehabilitation Centers (PRCs) at the following locations: James A. Haley Veterans Affairs Medical Center (VAMC), Tampa, Florida; Minneapolis VAMC, Minneapolis, Minnesota; Veterans Affairs Palo Alto Health Care System, Palo Alto, California; and Hunter Holmes McGuire VAMC, Richmond, Virginia. VA recently announced the decision to locate a fifth Polytrauma Center in San Antonio, Texas. As previously noted, injured servicemembers receiving care in VA health care facilities are not considered veterans until they are formally discharged from active duty service. The PRCs have resources and clinical expertise to provide care for complex patterns of injuries, including TBI, traumatic or partial limb amputation, nerve damage, burns, wounds, fractures, vision and hearing loss, pain, mental health, and readjustment problems. In total there are currently 76 polytrauma clinic teams in the VA. These local teams of providers deliver follow up services in consultation with regional and network specialists. They also assist in management of stable patients through direct care, consultation and the use of tele-rehabilitation technologies, when needed. These PRCs have social work case managers at a ratio of one for every six patients. These case managers help assess the psychosocial needs of each patient and family, match treatment and support services to meet identified needs, coordinate services, and oversee the discharge planning process. Table 3 provides an brief summary of VHA's polytrauma system of care. VA has stationed employees at Army and Navy hospitals to act as VHA/DOD liaisons. These VA/DOD liaisons assist with the transfer of patients as they move from MTFs to VHA hospitals and clinics. In general, once the MTF decides to transfer a patient to a PRC, it refers the patient to a VA/DOD liaison. The VA/DOD liaison then contacts the liaison at the PRC. The PRC completes a medical screening and initiates the transfer process. Medical records are obtained through direct access to WRAMC and Bethesda National Naval Medical Center. However, not all medical records are available electronically. In such cases Nursing Admissions Coordinators in PRCs obtain specific paper records through the VA/DOD liaison personnel stationed at both WRAMC and Bethesda. Video teleconferencing between the MTFs and PRCs provides an opportunity for families to meet the VA interdisciplinary team and facilitate the transition-of-care process. Upon admission to a PRC, members of the rehabilitation team individually evaluate the servicemember within 24 hours. According to the VA, the rehabilitation team generally meets three times weekly to discuss each patient and to continually adjust the therapeutic plan of care. "Each patient undergoes three to six hours of therapy each day based on their individual functional and cognitive needs." By July 2007, VA plans to develop 4 Residential Transitional Rehabilitation Programs co-located with the Level I PRCs. The stated goal of these programs is to improve the veterans' physical, cognitive, communicative, behavioral, psychological and social functioning under necessary supervision, and to return these patients to active duty, work, school or independent living in the community. In July 2007, the Dole-Shalala Commission proposed the appointment of recovery coordinators to manage individualized recovery plans that would be used to guide the servicemembers' care. The Dole-Shalala Commission further recommended that these recovery coordinators possibly come from the U.S. Public Health Service, and be highly skilled and have considerable authority to be able to access resources necessary to implement the recovery plans. As reported recently by GAO, the Army and the Senior Oversight Committee's workgroup on case management "have initiated efforts to develop case management approaches that are intended to improve the management of servicemembers' recovery process." As of October 2007, VA, DOD, and the Department of Health and Human Services (HHS) have signed a memorandum of understanding to define the role of the Public Health Service in the Recovery Coordinator program. In addition, two members of the Public Health Service Commissioned Corps have been detailed from HHS to VA and are presently working with VA and DOD to establish the Recovery Coordinator (RC) program. The RC would be designated by DOD and VA as the individual with delegated authority for oversight/coordination of the clinical and non-clinical care identified in the Individualized Recovery Plan (IRP) for every eligible severely injured/ill servicemember/veteran from initial admission to the MTF. The RC would (1) ensure the development, implementation, and oversight of the IRP and (2) ensure that the servicemembers/veterans and their families have access to all clinical and non-clinical case management services, including medical care, rehabilitation, education- and employment-related programs, and disability benefits. According to the VA, the RC positions would be located at the following locations: Walter Reed Army Medical Center in Washington, DC; Bethesda Naval Medical Center in Bethesda, MD; Brooke Army Medical Center in San Antonio, TX; and Balboa Naval Medical Center in San Diego, CA. VA has stated that it has taken numerous steps to ease the transition of seriously injured servicemembers between DOD and VA medical facilities. VA has conducted several thousand briefings to servicemembers and their families about VA benefits and services, and about where to obtain VA health care services. VA also sends "thank-you" letters together with information brochures to each OEF and OIF veteran identified by DOD as having separated from active duty. These letters provide information on health care and other VA benefits, toll-free numbers for obtaining information, and appropriate VA websites for accessing additional information. Letters and educational "tool kits"explaining VA services and benefits are also sent to each of the National Guard Adjutants General and the Reserve Chiefs. VA has stated that it has developed an outreach, education, and awareness program for the National Guard and Reserve. To ensure coordinated transition services and benefits, a Memorandum of Agreement (MOA) was signed with the National Guard in May 2005. VA is also in the process of developing MOAs with both the United States Army Reserve and the United States Marine Corps. According to VA these new partnerships will increase awareness of, and access to, VA services and benefits during the demobilization process and as service personnel return to their local communities. The VA- DOD Joint Executive Committee (JEC) was established by the National Defense Authorization Act for 2004 ( P.L. 108-136 ). The JEC is required to report annually to Congress with recommendations for improving coordination and sharing between the two departments. As part of preparing the recommendations, P.L. 108-136 requires the JEC to: (1) review all polices, procedures, and practices related to the coordination and sharing of resources between the departments; (2) identify changes to the policies, procedures, and practices that would benefit the coordination and sharing of resources between the agencies with the goal of improving the delivery of benefits and services; (3) identify further opportunities for coordination and collaboration between the departments that would not affect the quality of care, range of services, or priorities for benefits; (4) review each department's plans for acquiring additional resources such as facilities, equipment, and technology to determine the effect on future opportunities for coordination and sharing of resources; and (5) review the implementation of activities designed to promote coordination and resource sharing between the departments. By statute, the JEC has at least two subordinate committees (for health and benefits), but may have other subordinate committees, or working groups, as deemed necessary by the Deputy Secretary of Veterans Affairs and the Under Secretary of Defense. In April 2004, VA signed a Memorandum of Understanding (MOU) with DOD to provide health care and rehabilitation services to servicemembers who sustain spinal cord injury, TBI, or visual impairment. The MOU established referral procedures for transferring active duty inpatient servicemembers from DOD medical facilities to VA medical facilities. On January 3, 2005, VA established the National Veterans Affairs Office of Seamless Transition to ensure that there is no interruption of care as a servicemember moves from being a DOD patient to a VA patient, that whatever kinds of treatment are being delivered in the MTF are continued, and that treatment plans are shared. The office is composed of representatives from VHA, VBA, as well as an active duty Marine Corps officer from Marine4Life, a representative from the Army Wounded Warrior (AW2) program, and representatives from the National Guard and Reserve Components. The office also facilitates priority access to care by enrolling patients in the VA system before they leave an MTF. Major activities of this office undertaken in 2006, are summarized below: Placed additional VA/DOD Liaisons at the Naval Medical Center in San Diego, California, and Womack Army Medical Center at Ft. Bragg, North Carolina. Placed a VA certified Rehabilitation Registered Nurse at the WRAMC to assess and provide regular updates to the Polytrauma Rehabilitation Centers on the medical condition of the patients, educate families and prepare the active duty servicemember for transition to the rehabilitation phase of recovery. Established an OIF/OEF Polytrauma Call Center to assist seriously injured veterans. The Call Center is operational 24 hours a day, 7 days a week to answer and/or refer clinical, administrative, and benefit inquiries from OIF/OEF polytrauma patients and their families. Trained 54 National Guard Transition Assistance Advisors (TAAs). TAAs would serve as the statewide point of contact and coordinator, to provide advice to Guard members, their families and all other reserves as to VA benefits and services, and to assist in resolving problems with VA healthcare, benefits, and TRICARE. Implemented a seamless transition performance measure for FY2007. Under this performance measure severely injured OEF and OIF servicemembers who are transferred by VA/DOD Liaisons at the military treatment facilities must be assigned a VA medical center case manager prior to the transfer. This VA case manager must contact the service member/veteran within 7 calendar days of notification of the transfer. The Department has emphasized that it has enhanced its outreach efforts through the Vet Center program. This program was originally established by Congress in 1979 to meet the readjustment needs of veterans returning from the Vietnam War. From their inception, Vet Centers were designed to be community-based, non-medical facilities that offered easy access to care for Vietnam veterans who were experiencing difficulty in resuming a normal civilian life. Today, VHA's Vet Center program consists of 209 community-based centers located across the country, and in Puerto Rico, the Virgin Islands, and Guam. On February 7, 2007, the Department announced that it will be establishing 23 new centers in communities across the nation during 2007 and 2008. The Vet Center program is primarily funded through the Medical Services appropriation (personnel costs), with additional funds provided from the Medical Facilities (leasing costs), Information Technology, and Medical Administration accounts. Vet Center funding is designated as specific purpose funding within the overall medical care appropriation. Funds are allocated at the direction of the Readjustment Counseling program office. Each Vet Center is managed by a Team Leader who reports to one of the seven Readjustment Counseling Service (RCS) Regional Managers. The Chief Readjustment Counseling Officer at the VA Central Office is responsible for direct line supervision, through the seven RCS Regional Managers, of all Vet Center clinical and administrative operations. The Chief Readjustment Counseling Officer reports directly to the Under Secretary for Health. Site selection for the new Vet Centers is based on demographic data from the U.S. Census Bureau and the DOD Defense Manpower Data Center. Initial input is provided by the seven RCS Regional Offices. Finally, recommendations and supporting data are evaluated by the Chief Readjustment Counseling Officer and the Office of the Under Secretary for Health. The final decision is made by the Under Secretary for Health. Vet Centers utilize permanently leased space and are usually staffed by one or two counselors who provide full-time services to area veterans on a regular basis. Vet Centers also remain open after normal business hours or on weekends to accommodate veterans traveling in from greater distances. Vet Centers have hired and trained 100 new outreach workers from among the ranks of recently separated OIF and OEF veterans. In May 2007, VHA announced that it plans to recruit an additional 100 staff positions to the Vet Center program in FY2008 and another 100 staff positions for FY2009. Vet Center outreach is primarily for the purpose of providing information that will facilitate a seamless transition and the early provision of VA services to newly returning veterans and their family members upon separation from the military. These positions are being located on or near active military out-processing stations, as well as National Guard and Reserve facilities. New veteran hires are providing briefing services to transitioning servicemen and women regarding military-related readjustment needs, as well as the complete spectrum of VA services and benefits available to them and their family members. VA also has stated that it expects to add staff to 61 existing facilities to augment the services these centers provide. All combat veterans are eligible for Vet Center readjustment counseling services. From FY2003 through the end of the third quarter of FY2007, the Vet Center program has provided services to 183,530 veterans and clinical services to 58,504 veterans. The Vet Center program also provides bereavement counseling services to family members of those servicemembers killed while on active. From FY2003 through the end of the third quarter of FY2007, such services have been provided to more than 1,570 family members. In addition, the Vet Centers provide counseling to veterans who have experienced sexual trauma while on active duty. As discussed previously, a key component of the seamless transition of patients from DOD to the VA is the exchange of medical information between the two Departments. Since the late 1990s, VA and DOD have been working toward an interoperable medical record. Before OEF and OIF, VA and DOD had been focusing on unidirectional exchange of information from DOD to VA, which would have helped VA understand the care provided to veterans while they were in the military. In June 2005, a memorandum of understanding (MOU) was signed between DOD and VA for the purposes of defining data sharing between the two departments. This MOU provides the necessary governance for the sharing of protected health information and other individually identifiable information. Later, the two Departments decided to implement a bi-directional exchange of medical information (Bidirectional Health Information Exchange—BHIE) to include information on patients' allergies, lab and radiology results, and pharmacy data. Both Departments have deployed the BHIE interface. This new interface allows VA providers to access information from all DOD health care facilities, and allows providers at all military treatment facilities to access BHIE directly from DOD's electronic medical record system. To facilitate the transfer of servicemembers from DOD treatment facilities to VA Polytrauma Rehabilitation Centers, scans of patients' radiology and medical records are now being transferred to the VA's integrated imaging system. At present, the Clinical Health Data Repository interface is being tested in several DOD and VA locations. This interface would support the exchange of data elements in real time rather than transmitting batches of data at regular intervals. Figure 9 shows the current and planned health information exchanges between the two Departments. The full timeline and critical milestones supporting the exchange of medical information between the VA and the DOD are depicted in Figure 10 . The VTA was activated on Monday, April 23, 2007. VTA would provide access to medical records in real time on wounded soldiers evacuated from Afghanistan and Iraq. Prior to this only VA's four polytrauma centers were able to access this information. The VA liaisons at the DOD MTFs and the point of contacts at the VA medical centers would now be able to use VTA to track the referral of patients from the DOD MTFs such as Walter Reed Army Medical Center to VA medical centers. According to VA, clinicians would continue to access clinical data on OEF and OIF servicemembers being treated in their facilities through DOD's Joint Patient Tracking Application (JPTA) or through VTA. The VA has stated that by the end of 2007, it expects that data in VTA will be available to providers through VistA. This VistA interface would assure that VA providers get VTA data in a format with which they are familiar and would reduce the training burden on the providers in the field. Veterans who have served or are now serving in Iraq and Afghanistan may, following separation from active duty, enroll in the VA health care system and, for a two-year period following the date of their separation, receive VA health care without copayment requirements for conditions that are or may be related to their combat service. Following this initial two-year period, they may continue their enrollment in the VA health care system but may become subject to any applicable copayment requirements. For information on legislation to expand eligibility, see section on " Veterans Health Care Legislation " below. On February 18, 2007, the Washington Post reported the first in a series of articles describing problems with outpatient medical care and other services provided at the Walter Reed Army Medical Center (a DOD facility in Washington, DC) to injured servicemembers returning from combat theaters in support of OEF and OIF. In response to these the President appointed several task forces and study panels to report on ways to improve services to returning servicemembers and reduce bureaucratic delays. On April 19, 2007, the interagency task force chaired by VA Secretary Nicholson issued a report providing 25 recommendations to improve delivery of federal services to returning military men and women. A summary of the health care recommendations is given below: Develop a system of co-management and case management for returning servicemembers to facilitate ease of transfer from DOD care to VA care. Screen all OEF and OIF veterans seen in VA health care facilities for mild to moderate TBI. Assist the VA enrollment process by modifying the VA 10-10EZ form for returning servicemembers, enhance the on-line benefits package to self-identify OEF and OIF servicemembers, and expand the use of DOD military service information to establish eligibility for health care benefits. Require VA to provide full support at Post-Deployment Health Reassessments for Guard and Reserve members to enroll eligible members and schedule appointments. Standardize VA Liaison agreements across all military treatment facilities. Expand VA access to DOD records to coordinate improved transfer of a servicemember's medical care through patient "hand-off." Enhance the Computerized Patient Record System (CPRS) to more specifically track OEF and OIF servicemembers. Develop a Veterans Tracking Application (VTA) and identifiers to improve monitoring of returning servicemembers (the VTA was activated in April 2007). Create an "Embedded Fragment" surveillance center to monitor returning servicemembers who have possibly retained fragments of materials (shrapnel etc.) in order to provide early medical intervention. Enhance capacity for OEF and OIF servicemembers to receive dental care in the private sector as VA continues to improve their capacity for dental services at their facilities. Expand collaboration between VA and the Department of Health and Human Services to improve access to returning servicemembers in remote or rural areas. Expand coordination on IT interoperability with the goal to adopt standardized data sharing between the VA and Indian Health Service (IHS) health care partners. PTSD is the most prevalent mental disorder among returning OEF and OIF servicemembers and has drawn the most attention. Congress has held hearings about mental health care services provided by VA to these returning servicemembers. Demand for mental health services, including treatment for PTSD, is likely to grow not only from new soldiers returning from active combat, but also among veterans experiencing increased levels of anxiety and mental stress during wartime. As of June, 30 2007, VHA facilities have examined a total of 56,246 OEF and OIF veterans for potential PTSD. This includes inpatient, outpatient, and Vet Center visits. Of these veterans, 48,559 have received a possible diagnosis of PTSD. The hallmark characteristics of PTSD include flashbacks, nightmares, intrusive recollections or re-experiencing of the traumatic event, avoidance, numbing, and hyperarousal. When such symptoms last under a month, they are typically associated with acute stress disorder, not PTSD. In order for a diagnosis of PTSD, symptoms have to persist for at least a month and cause significant impairment in important areas of daily life. PTSD is known to have high rates of comorbidity with other anxiety disorders, major depressive disorder and substance abuse. Some studies indicate that more than 80% of people with PTSD also experience a major depressive or other psychiatric disorder. Studies investigating rates of comorbidity for PTSD and lifetime prevalence of alcohol abuse have indicated rates from 68% of individuals with PTSD to as high as 82%. Within the VA, programming for mental health is driven by the Mental Health Strategic Plan (MHSP). The goal of MHSP is to anticipate need and fill in the gaps of current mental health programs based on the CARES model (Capital Asset Realignment for Enhanced Services, discussed later in the report) and recommendations from the President's New Freedom Commission on Mental Health. The VA delivers mental health services in a variety of clinical settings and specialized programs. Specifically, VA provides PTSD services in medical facilities, community settings, and Vet Centers. The VA medical centers include a network of more than 100 specialized programs for veterans suffering from PTSD. Outpatient PTSD programs offer three types of clinics where veterans meet with mental health professionals and PTSD specialists. PTSD Day Hospital Programs provide a "therapeutic community" offering social, recreational and vocational activities in addition to counseling throughout the week. Inpatient programs provide PTSD treatment in hospital units with 24-hour psychiatric and nursing care. Beginning in 2005, VHA created Returning Veterans Education and Clinical Teams in medical centers to help, educate, evaluate, and treat returning veterans with mental health and psychosocial issues. These programs collaborate with other VAMC PTSD, substance abuse and mental health programs, and with polytrauma, TBI and primary care services, as well as with Vet Centers. By the close of FY2007 VA anticipates that it would have 90 of these programs operational throughout the country. Among the more than 22,600 U.S. soldiers wounded in the conflicts in Iraq, Afghanistan, and other locations as of November 4, 2006, blasts from Improvised Explosive Devices (IEDs) have been by far the most common cause of injury, and 59% of blast-exposed patients at Walter Reed have been found to have a TBI. On April 14, 2007, the VA began screening veterans who had seen service in Iraq or Afghanistan since the beginning of October 2001 for symptoms that may be associated with TBI. Of the 61,285 veterans that VA has screened for TBI to date, 11,804 (19.26%) screened positive for TBI symptoms. At present, VA clinicians are further evaluating these 11,804 to determine whether they have actually suffered a TBI or whether the symptoms they exhibit are due to other causes, such as PTSD or other combat-related stress. A representative sample of 127 recently completed evaluations indicated that 41 veterans received a definitive diagnosis of TBI, suggesting that about one-third (32.28%) of the veterans who screen positive have actually suffered a traumatic brain injury. TBI is the result of a severe or moderate force to the head, where physical portions of the brain are damaged and functioning is impaired. Common problems after TBI include headache, decreased memory, slow mental processing, poor attention, inability to tolerate sound, sleep disturbance, and irritability. Closely related to cognitive impairment are emotional issues such as PTSD, depression, and anxiety disorders. These psychological issues often interact with the physical injury to decrease patients' overall health status and adherence to medical regimens. Those who experience TBI may behave impulsively because of damage that removes many of the brain's checks on the regulation of behavior. Without the limits provided by these higher brain functions, these individuals may overreact to seemingly innocent or neutral stimuli. The outcome of TBI is particularly relevant for understanding PTSD because the amnesia that often occurs with TBI challenges the role of traumatic recollections in the etiology of PTSD. Studies have shown that in the absence of factual recall, individuals have delusions or reconstruct memories of trauma. These individuals may retain the delusional memories better than the factual events. Hence, traumatic recall does not have to be accurate or factual to be part of PTSD. The four VA polytrauma centers in Minneapolis, Palo Alto, Richmond, and Tampa provide care to those with TBI. These facilities were designated as polytrauma centers because of their experience in medical and rehabilitative care for patients with TBI and other traumatic conditions, as well as their collaborative status with the national Defense and Veterans Brain Injury Centers (these are facilities that coordinate treatment and research for traumatic brain injuries affecting active-duty military, and veterans). Veterans' advocates say that the unpredictable timing, if not uncertain funding amounts inherent in the yearly discretionary appropriations process, is a major management problem for the VA. Furthermore, veterans' groups have stated that Congress's failure to enact appropriations bills by the beginning of the fiscal year adds further strain on the VA health care system, by postponing the hiring of new medical staff, foregoing medical facility maintenance and repairs, and thereby compromising on the quality of health care provided to veterans. Therefore, national veterans' organizations have been calling for "assured funding" for veterans' health care. This has also been called "mandatory funding" by other veterans' advocates. This discussion will use mandatory funding to refer to these policy proposals. To understand mandatory funding proposals, it is essential to understand how VA programs are funded presently. Under current law, VA programs are funded through both mandatory and discretionary spending authorities. The following programs are among mandatory spending programs: cash benefit programs, that is, compensation and pensions (and benefits for eligible survivors); readjustment benefits (education and training, special assistance for disabled veterans); home loan guarantees; and veterans' insurance and indemnities. Each of these programs is an appropriated entitlement that is funded through annual appropriations. With any entitlement program, because of the underlying law, the government is required to provide eligible recipients with the benefits to which they are entitled, whatever the cost. Congress is obliged to appropriate the money necessary to fund the obligation. If the amount Congress provides in the annual appropriations act is not enough, it is obliged to make up the difference in a supplemental appropriation. Like other entitlement programs, spending automatically increases or decreases over time as the number of recipients eligible for benefits varies. Certain of these VA entitlement benefits are indexed for inflation; the benefit amount will increase automatically based on the measured increase in the cost-of-living adjustment. The remaining VA programs, primarily health care, medical facility construction, medical research, and VA administration, are funded through annual discretionary appropriations. Each year, Congress takes up the matter of providing budget authority for discretionary programs. As such, the amount of funds VHA can spend on discretionary programs is determined by the amount of its appropriation. Generally, the mandatory funding proposals that have been suggested by veterans' advocates are based on a formula that takes into account the number of enrolled and nonenrolled veterans eligible for VA medical care, and the rate of medical care inflation. Proponents believe that mandatory funding will eliminate the year-to-year uncertainty about funding levels and close the gap between funding and demand for veterans' health care. Opponents believe that with these proposals spending for VHA will increase significantly as enrollment in the VA health care system soars; in most of the proposed funding formulas, automatic funding increases are primarily based on enrollment figures. Furthermore, critics believe that a static funding formula cannot adequately take into consideration the changing needs of veterans, which could affect the funding level necessary to provide a different mix of services, and that Congress is better able to evaluate the funding needs through the current annual appropriation process. For instance, not all enrolled veterans use the VA health care system in a given year. Should the number of users grow in one year and the number of enrollees remain stagnant, no additional funding would be available for the additional patients with increased utilization of health care services. During a hearing in the 109 th Congress, Chairman Buyer of the House Veterans' Affairs Committee stated that "[a]ccording to the Congressional Budget Office [CBO], mandatory funding would cost nearly half-a-trillion dollars over ten years. That would be a costly experiment. In contrast, the strong discretionary budgets of the past decade have proven responsive to change" However, CBO stated that "although the bill would primarily affect funding for health care services provided by VHA, it also would result in some savings in direct spending for other government programs, primarily Medicare and Medicaid." As highlighted by some budget analysts, changing veterans' medical care into a mandatory budget authority may not solve the issue of closing the gap between funding and demand for veterans' health care. Congress can place caps on spending for mandatory programs through budget reconciliation language, which would limit spending on veterans' health programs. Since Congress can act to change the formula or cap the spending amounts, the issue of uncertainty in funding amounts may not be resolved either. In recent testimony before the House Veterans Affairs Committee, Henry J. Aaron of the Brookings Institution stated that "converting the VHA to mandatory funding would not entirely insulate it from budgetary pressures. Congress could cut the per person funding amount or exclude certain groups of veterans from the formula used for computing annual funding." The Veterans Health Care Full Funding Act ( H.R. 1041 ), Mandatory Funding for Veterans Act of 2007 ( H.R. 1382 ), Assured Funding for Veterans Health Care Act ( H.R. 2514 ) have been introduced in the 110 th Congress. H.R. 1041 would require appropriations for VA health care to be funded based on recommendations proposed by an independent Veterans Health Care Funding Review Board. H.R. 1382 and H.R. 2514 would require the Secretary of the Treasury to make mandatory appropriations for VA health care based on a formula. Veterans' advocates want the suspension of Priority Group 8 veterans from enrolling in VA's health care system lifted, since they believe that all veterans must be able to receive care from VA. As discussed earlier, the Veterans Health Care Eligibility Reform Act of 1996 ( P.L. 104-262 ) included language that stipulated that medical care to veterans will be furnished to the extent appropriations were made available by Congress on an annual basis. Based on this statutory authority, the Secretary of Veterans Affairs announced on January 17, 2003, that VA would temporarily suspend enrolling Priority Group 8 veterans. Those who were in VA's health care system prior to January 17, 2003, were not to be affected by this suspension. VA claims that, despite its funding increases, it cannot provide all enrolled veterans with timely access to medical services because of the tremendous increase in the number of veterans seeking care from VA. Table 4 provides data from FY2003 through August 2006 on the number of Priority Group 8 veterans who applied for enrollment and were unable to enroll, and provides cumulative estimates from FY2006 thru FY2008. As seen in Table 4 , the VA estimates that if the suspension on enrollment were to be lifted in FY2008, almost 1.6 million Priority Group 8 veterans would be eligible to enroll in the VA health care system. The number of Priority Group 8 veterans already enrolled in VA's health care system is expected to decline from 1.27 million in FY2005 to 1.22 million in FY2006; this is mostly due to projected death rates for these veterans and the continued suspension of new enrollments. In 2004, VA estimated that resumption of enrollment for Priority Group 8 veterans would require an additional $519 million over the FY2005 requested VHA budget, and an estimated $2.3 billion in FY2012. The Senate Veterans Affairs Committee estimates that $1.113 billion would be needed to restore access for Priority Group 8 veterans. According to the Committee this number is based on VA's own estimates of what it would cost to reopen the system to Priority Group 8 veterans. Congress has shown a keen interest in providing access to VHA care for Priority Group 8 veterans, and legislation has been introduced to lift the suspension ( H.R. 463 , and a companion measure S. 1147 ). Provisions from S. 1147 have been incorporated into S. 1233 (see section on " Health Care Legislation Reported in the Senate " below). As part of VA's comprehensive medical care benefits package, VA provides all veterans who are enrolled for VA care with appropriate prescription medications, at the nominal charge of $8 for a 30-day supply per prescription. In general, the copayments are waived if the prescription is for a service-connected condition, if the veteran is severely disabled or indigent, or if the veteran was a former Prisoner of War (POW). VA dispenses medications, however, only to those veterans who are enrolled for, and who actually receive VA-provided care. Generally, VA does not provide medications to veterans unless those medications are prescribed by a physician who is employed by or under contract with VA. However, there are two exceptions to this general requirement. VHA is required to provide medications, upon the order of any licensed physician, to: 1) veterans receiving additional disability compensation under Chapter 11 of Title 38 of the United States Code (U.S.C.), as a result of being permanently housebound or in need of regular aid and attendance due to a service-connected condition, or veterans who were previous recipients of such compensation and in need of regular aid and attendance; and 2) veterans receiving nonservice-connected pensions under Chapter 15 of Title 38 U.S.C. as a result of being permanently and totally disabled from a nonservice-connected disability, and who are permanently housebound or in need of regular aid and attendance. To address the growing waiting lists for primary care and specialty care appointments and to reduce the waiting times for a first appointment, VA implemented a program in September 2003 to provide access to VA prescription drugs for veterans experiencing long waits for their initial primary care appointment. This temporary program was known as the Transitional Pharmacy Benefit (TPB). Under this program, VA pharmacies and VA's Consolidated Mail Outpatient Pharmacies (CMOPs) were authorized to fill prescriptions written by non-VA (private) physicians until a VA physician could examine the veteran and determine an appropriate course of treatment. The TPB included most, but not all, of the drugs listed on the VA National Formulary (VANF). To be eligible for the program, veterans had to be enrolled in the VA health care system prior to July 25, 2003, and had to have requested their initial primary care appointment prior to July 25, 2003. To qualify for this program, veterans also must have been waiting more than 30 days for the initial primary care appointment as of September 22, 2003. Although VA anticipated that around 200,000 veterans would be eligible to participate in the program, about 41,000 veterans were ultimately deemed eligible to enroll; of those veterans, about 8,300 veterans participated. VA attributes low participation to the fact that many veterans had already received VA services by the start of the program. According to the VA, the TPB program incurred administrative costs associated with contacting private physicians to suggest formulary alternatives, as many of them had prescribed medications that were not on VA's formulary. VA has discontinued this pilot program. There was considerable interest in the 108 th and 109 th Congresses in providing a prescription-only health care benefit for veterans. While several bills were introduced, none of them was enacted into law. VA holds a substantial inventory of real property and facilities throughout the country. A majority of these buildings and property support VHA's mission. Much of VA's medical infrastructure was built decades ago when its focus was inpatient care. In the past several years VA has been shifting from a hospital-based system and, today, more than 80% of the treatment VA provides is on an outpatient basis through Community Based Outpatient Clinics (CBOCs). In 1999, GAO projected that one in four medical care dollars was spent on maintaining and operating VA's buildings and land. It estimated that VA has over 5 million square feet of vacant space which can cost as much as $35 million a year to maintain. In October 2000, VA established the CARES program with the goal of evaluating the projected health care needs of veterans over the next 20 years, and of realigning VA's infrastructure to better meet those needs. In August 2003, VA's Under Secretary for Health issued a preliminary Draft National CARES Plan (DNCP). The DNCP, among other things, recommended that seven VA health care facilities be closed and duplicative clinical and administrative services delivered at over 30 other VHA facilities be eliminated. The sites slated to be closed were in: Canandaigua, New York; Pittsburgh, Pennsylvania (Highland Drive Division); Lexington, Kentucky (Leestown Division); Cleveland, Ohio (Brecksville Unit); Gulfport, Mississippi; Waco, Texas; and Livermore, California. Patients currently provided services at these VHA facilities would be provided care at other nearby sites. The DNCP recommended that new major medical facilities be built in Las Vegas, Nevada, and in East Central Florida. Furthermore, the DNCP recommended significant infrastructure upgrades at numerous sites, including at or near locations where VA proposed to close facilities. In addition, the draft plan called for the establishment of 48 new high-priority CBOCs. Following the release of the DNCP, the VA Secretary appointed a 16-member independent commission to study the draft plan. The commission was composed of individuals from a wide variety of backgrounds outside of the federal government. The CARES Commission developed and applied six factors in the review of each proposal in the DNCP: (1) impact on veterans' access to health care; (2) impact on health care quality; (3) veteran and stakeholder views; (4) economic impact on the community; (5) impact on VA missions and goals; and (6) cost to the government. The commission conducted 38 public hearings and 81 site visits throughout 2003, and submitted its recommendations to the Secretary in February 2004. After reviewing the recommendations, the Secretary announced the final details of the CARES plan in May 2004 (Secretary's CARES Decision). Table 5 provides a time-line of major activities under the CARES process. The final plan included consolidating the following facilities: (1) Highland Drive campus in Pennsylvania with University Drive and Heinz campuses in Pennsylvania; (2) Brecksville campus in Ohio with Wade Park campus in Cleveland, Ohio; and (3) Gulfport campus with Biloxi campus in Mississippi. The following facilities were to be partially realigned: (1) Knoxville campus in Iowa; (2) Canandaigua campus in New York; (3) Dublin campus in Georgia; (4) Livermore campus in California; (5) Montrose campus in New York; (6) Butler campus in Pennsylvania; (7) Saginaw campus in Michigan; (8) Ft. Wayne campus in Indiana; and (9) Kerrville campus in Texas. The final plan also called for building new hospitals in Orlando and Las Vegas; adding 156 new CBOCs, four new spinal cord injury centers, and two blind rehabilitation centers; and expanding mental health outpatient services nationwide. By opening health care access to more veterans, VA expects to increase the percentage of enrolled veterans from 28% of the veterans' population today, to 30% in 2012 and 33% in 2022. This percentage increase can be attributed in part to a projected decline in the overall veteran population. Nationally, the number of veteran enrollees is projected to increase 6% by 2012 and decrease 5% by 2022 from the number of veteran enrollees reported in 2001. VA asserts that the CARES plan will reduce the cost of maintaining vacant space over the period 2006 to 2022 from an estimated $3.4 billion to $750 million and allow VA to redirect those funds to patient care. Critics of the CARES plan contend that closures are being considered without assessing what kind of facilities will be needed for long-term care and mental health care in the future. For instance, at the time of the release of the DNCP, projections for outpatient and acute psychiatric inpatient care contained data inconsistencies on future needs. VA asserted that it would improve its forecasting models to ensure that projections adequately reflect future need. Also, some believe that the CARES plan does not focus enough on future nursing home needs, and would leave VA short of beds in a few decades. In this view, VA would not have any choice but to privatize some parts of the health care system. Moreover, some veterans' groups believe that CARES is only about closing "surplus" hospitals and do not believe that CARES will result in the building of new and modern facilities. Finally, the closure of some VA medical facilities raised serious concern among some Members of Congress who felt that they had little input into the CARES process. The Veterans Health Programs Improvement Act of 2004 ( P.L. 108-422 ), signed into law on November 30, 2004, required VA to notify Congress of the impact of actions that may result in a facility closure, consolidation, or administrative reorganization. The law also prohibits such actions from occurring until 60 days following the notification. The Secretary's CARES Decision identified implementation issues that required further study, including additional stakeholder input at selected sites. On September 29, 2004, the Secretary of VA established an Advisory Committee for CARES Business Plan Studies. The committee and its subcommittees generally consist of representatives from veterans' service organizations, governmental agencies, health care providers, planning agencies, and community organizations with a direct interest in the CARES process. This committee is to consult with stakeholders during implementation of the Secretary's CARES Decision. The committee is to ensure that the full range of stakeholder interests and concerns are assembled, publicly articulated, accurately documented, and considered in the development of site-level business plans. In January 2005, VA awarded a contract to PricewaterhouseCoopers to complete studies at 18 sites throughout the country during a 13-month period, as required by the Secretary's CARES Decision. Local Advisory Panels (LAPs) gathered views of stakeholders regarding the range of potential options provided by the contractor and made recommendations to the Secretary. In 2006 VA announced the Secretary's decision for some of the 18 sites. For some sites decisions have not yet been announced. VA has begun implementing some of the projects under the CARES decisions. Specifically, as of February 2007, VA was in the process of implementing 32 of more than 100 major capital projects that were identified in the CARES process. Given below in Table 6 is a summary of the final decisions announced thus far. In general, the beneficiary travel program reimburses certain veterans for the cost of travel to VA medical facilities when seeking health care. P.L. 76-432, passed by Congress on March 14, 1940, mandated VA to pay either the actual travel expenses, or an allowance based upon the mileage traveled by any veteran traveling to and from a VA facility or other place for the purpose of examination, treatment, or care. P.L. 85-857, signed into law on September 2, 1958, authorized VA to pay necessary travel expenses to any veteran traveling to or from a VA facility or other place in connection with vocational rehabilitation counseling or for the purpose of examination, treatment, or care. However, this law changed VA's travel reimbursement into a discretionary authority by stating that VA "may pay" expenses of travel. Due to rapidly increasing costs of the beneficiary travel program, on March 12, 1987, VA published final regulations that sharply curtailed eligibility for the beneficiary travel program. Under these regulations beneficiary travel payments to eligible veterans were paid when specialized modes of transportation, such as ambulance or wheelchair van, were medically required. In addition, payment was authorized for travel in conjunction with compensation and pension examinations, as well as travel beyond a 100-mile radius from the nearest VA medical care facility. It also authorized the VA to provide transportation costs, when necessary, to transfer any veteran from one health care facility (either a VA or contract care facility) to another in order to continue care paid for by the VA. The following transportation costs were not authorized under these regulations: Cost of travel by privately owned vehicle in any amount in excess of the cost of such travel by public transportation unless public transportation was not reasonably accessible or was medically inadvisable. Cost of travel in excess of the actual expense incurred by any person as certified by that person in writing. Cost of routine travel in conjunction with admission for domiciliary care, or travel for family members of veterans receiving mental health services from the VA except for such travel performed beyond a 100-mile radius from the nearest VA medical care facility. Travel expenses of all other veterans were not authorized unless the veterans were able to present clear and convincing evidence to show the inability to pay the cost of transportation; or except when medically-indicated ambulance transportation was claimed and an administrative determination was made regarding the veteran's ability to bear the cost of such transportation. The Veterans' Benefits and Services Act of 1988 ( P.L. 100-322 , section 108), in large part restored VA travel reimbursement benefits. It required that if VA provides any beneficiary travel reimbursement under Section 111 of Title 38 U.S.C. in any given fiscal year, then payments must be provided in that year in the case of travel for health care services for all the categories of beneficiaries specified in the statute. In order to limit the overall cost of this program, the law imposed a $3 one-way deductible applicable to all travel, except for veterans otherwise eligible for beneficiary travel reimbursement who are traveling by special modes of transportation such as ambulance, air ambulance, wheelchair van, or to receive a compensation and pension examination. In order to limit the overall impact on veterans whose clinical needs dictate frequent travel for VA medical care, an $18-per-calendar-month cap on the deductible was imposed for those veterans who are pre-approved as needing to travel on a frequent basis. At present, eligible veterans are reimbursed at the rate of 11 cents a mile for routine visits and 17 cents a mile for compensation and pension exams. Although the deductible rates are set in statute, the mileage rates are left to the discretion of the Secretary. Table 7 provides details on veterans who are currently eligible to receive travel benefits. With the rise in gasoline prices Congress has shown interest in changing the method of determining the mileage reimbursement rate and/or eliminating the current deductible amount. S. 1233 , as reported in the Senate, includes a provision that would require the VA to reimburse qualifying veterans at the particular rate authorized by the Administrator of General Services, for federal government employees traveling on official business. The House passed this measure on March 21, 2007, and the Senate passed the House measure with an amendment on September 27. The bill was signed into law on November 5, 2007. P.L. 110-110 , would, among other things, require the VA to establish a comprehensive program for suicide prevention among veterans. In carrying out this comprehensive program, the VA must designate a suicide prevention counselor at each VA medical facility. Each counselor is required to work with local emergency rooms, police departments, mental health organizations, and veterans service organizations to engage in outreach to veterans. The Act also requires the VA to provide for research on best practices for suicide prevention among veterans. P.L. 110-110 requires the Secretary to provide for outreach and education for veterans and the families of veterans, with special emphasis on providing information to veterans of OIF and OEF and the families of such veterans. The Act requires VA to provide for the availability of 24-hour mental health care for veterans and to establish a 24-hour hotline for veterans to call if needed. (In July 2007, the VA established a national suicide prevention hotline for veterans. The toll-free number, 1-800-273-TALK [8255], is staffed by mental health professionals 24 hours a day, 7 days a week). The House passed this bill on May 23, 2007. H.R. 612 as amended, would extend the eligibility period from two years to five years following discharge or release for veterans who served in combat during or after the Persian Gulf War, to receive hospital care, medical services, or nursing home care provided by the VA, without having to prove that their condition is attributable to such service. H.R. 612 also provides for an additional three years of eligibility for veterans discharged more than five years before the enactment of this Act who have not enrolled. The House passed H.R. 1470 on May 23, 2007. The measure would require that chiropractic services be made available in not fewer than 75 VAMCs by the end of December 2009, and at all health care centers by the end of 2011. The House passed this measure on May 23, 2007. H.R. 2199 , as amended, would require mandatory screening of veterans for traumatic brain injury (TBI). It would also require the VA to establish a comprehensive program of care for post-acute traumatic brain injury rehabilitation. H.R. 2199 , as amended, would require the VA to establish TBI transition offices at each Department polytrauma network site to coordinate health care and services to veterans who suffer from moderate to severe traumatic brain injuries. Furthermore, the measure, as passed by the House, would require the VA to establish a registry of those who served in Operation Enduring Freedom or Operation Iraqi Freedom (OEF or OIF) who exhibit symptoms associated with TBI. H.R. 2199 also includes two provisions to improve the quality of care provided to rural veterans. It would create an advisory committee on rural veterans and establish a pilot program to provide readjustment counseling, related mental health services, and benefits outreach, through mobile Vet Centers. This measure was passed by the House on July 30, 2007. Among other things, this bill contains a provision that would require the VA to establish a Vision Education Scholarship Program under the Health Professional Education Assistance Program. Those who receive a scholarship award would be required to work for three years in a VA health care facility. H.R. 1315 also mandates the Secretary to provide financial assistance to students enrolled in a program of study leading to a degree or certificate in blind rehabilitation in a U.S. state or territory, provided they agree with applicable requirements. The purpose of this scholarship is to increase the supply of qualified blind rehabilitation specialists for the VA. This bill was passed on July 30, 2007. Among other things, H.R. 2874 would allow VA to establish a grant program for nonprofit entities to conduct workshops to assist in the therapeutic readjustment and rehabilitation of OEF and OIF veterans. The amount of the grants would be limited to $100,000 for each calendar year, and there would be $2 million authorized each fiscal year to carry out the program. The grant program would terminate on September 30, 2011. It would also require the VA to establish a grant program for rural veterans service organizations, state veterans' service agencies, and nonprofits to provide innovative transportation options to veterans in remote rural areas to travel to VA medical facilities. Grant amounts would be limited to $50,000, and the bill authorizes $3 million for each fiscal year from 2008 to 2012 to carry out the program. H.R. 2874 would permanently authorize VA's authority to provide higher priority health care to veterans who participated in Project Shipboard Hazard and Defense (SHAD), Project 112, or related land-based tests. Under current law, VA is authorized to provide higher priority health care to these veterans with any illness, without those veterans needing an adjudicated service-connected disability to establish their priority for care. This special treatment authority will expire on December 31, 2007. This measure would also extend through September 30, 2009, VA's authority to require certain nonservice-connected veterans to pay a $10 per diem copayment when they receive VA hospital care, and extend through October 1, 2009, VA's authority to bill a service-connected patient's third-party insurance carrier for the cost of care VA provides the veteran for any nonservice-connected condition. H.R. 2874 would also require VA to provide readjustment counseling and mental health services for OEF and OIF veterans. Such services would include contracting with community mental health centers in areas not adequately served by VA and contracting with nonprofit mental health organizations to train OEF and OIF veterans in outreach and peer support. It also directs VA to conduct training programs for clinicians that have contracts with VA to provide such services. It would also require the VA to ensure that VA domiciliary programs are adequate in capacity and safety to meet the needs of women veterans. Furthermore, H.R. 2874 would reduce the time that a homeless veteran would have to wait to receive dental treatment from 60 days to 30 days. Under current law, VA can provide dental services to eligible homeless veterans as long as they have been receiving care for a period of 60 consecutive days in a domiciliary, therapeutic residence, community residential care coordinated by VA, or a setting for which the VA provides funds for a grant and per diem provider. H.R. 2623 was passed by the House on July 30. This bill would exempt all hospice care provided through VA from copayment requirements. Under current law, a veteran receiving hospice care in a nursing home is exempt from any applicable copayments. However, if the hospice care is provided in any other setting, such as in an acute-care hospital or at home, the veteran may be subject to an inpatient or outpatient primary care copayment. By exempting all hospice care provided by the VA regardless of the setting, H.R. 2623 would align the VA health care system with the Medicare program, which does not impose copayments for hospice care regardless of the setting. S. 1233 , as amended, was ordered to be reported by the Senate Veterans' Affairs Committee on June 27, 2007. This bill includes several provisions related to enhancing veterans health care. As reported, S. 1233 would require VA to develop individual rehabilitation and community reintegration plans for veterans and servicemembers with TBI who are being treated in the VA health care system. The plan would identify a case manager to oversee its long-term implementation and would specify dates for review of the plan. The bill would also authorize the VA to use non-VA facilities for the implementation of rehabilitation and community reintegration plans for traumatic brain injury under certain specified circumstances. S. 1233 , as reported, would require VA to develop and implement a research, education, and clinical care program on severe TBI. It also would authorize a five-year pilot program on assisted living services for veterans with traumatic brain injury and would require the VA to provide age-appropriate nursing home care for veterans who suffer from severe TBI The Veterans Programs Enhancement Act ( P.L. 105-368 ) authorized priority eligibility for health care for a period of two years following discharge or release from active duty to any veteran who served in a combat theater of operations. S. 1233 would extend the period from two to five years. According to the committee report ( S.Rept. 110-147 ), this extension is necessary to ensure that veterans returning from combat receive health care during their transition from military service to civilian life and to address health care issues such as PTSD, which may take years to manifest. S. 1233 would require VA to establish a Hospital Quality Report Card Initiative to inform veterans and their families of the quality and performance of VA hospitals. According to S.Rept. 110-147 , "the initiative is intended to help veterans and their families to make informed health care choices." S. 1233 , as reported in the Senate, would require the VA to annually—by August 1—to publish a notice in the Federal Register of which categories of veterans are eligible to be enrolled in VA health care in the upcoming fiscal year. Furthermore, in any year in which the VA proposes to stop enrollment, the VA Secretary would be required to provide to the House and Senate VA Committees an estimate of the cost of enrolling all eligible veterans. After the notice is published, the VA would be required to wait 45 days before implementing any change in enrollment. According to the committee report, "this notice-and-wait requirement would provide Congress with an opportunity to oversee the enrollment of veterans in the Veterans Health Administration, and to respond to any proposed limitation on enrollment." Furthermore, it is the view of the committee that when resources are provided by Congress to enable the VA to keep pace with demand for services, the VA health care system should be open to all veterans who seek care. S. 1233 would require the VA to establish a grant program to provide transportation options to veterans in rural areas. Under this grant program, VA would provide grants for rural veterans' service organizations and community-based organizations to provide transportation to veterans in remote rural areas. For each of FY2008 through FY2012, $6 million would be authorized to be appropriated for this grant program. The grants would be awarded to state veterans' service agencies, veterans service organizations, and qualified community transportation organizations. Among other things, S. 1233 would require VA to establish demonstration projects on alternatives for expanding care for veterans in rural areas. Under the committee-reported measure, two demonstration projects would be required to be carried out in geographically dispersed areas. It would require VA to partner with the Department of Health and Human Services (HHS) and the Indian Health Service (IHS) to expand care for Native American veterans. Furthermore, S. 1233 would exempt veterans in Priority Group 4 (veterans who have been determined by the VA to be catastrophically disabled) from paying copayments for nonservice-connected hospital care or nursing home care. Under current law, these veterans are required to pay copayments for all nonservice-connected care they receive from the VA. S. 1233 , as reported in the Senate, would increase reimbursement rates for travel to VA medical facilities. At present, eligible veterans are reimbursed at the rate of 11 cents a mile for routine visits and 17 cents a mile for compensation and pension exams. Under S 1233, the VA would reimburse qualifying veterans at the particular rate authorized for government employees under section 5707(b) of Title 5 U.S.C. On November 14, 2007, the Senate Veterans' Affairs Committee ordered the following bills reported without amendment: S. 2004 (to amend Title 38 U.S.C. to establish epilepsy centers of excellence in the Veterans Health Administration of the Department of Veterans Affairs), S. 2142 (the Veterans Emergency Care Fairness Act of 2007), S. 2160 (The Veterans Pain Care Act of 2007), and S. 2162 (Mental Health Improvements Act of 2007). The committee has not released the Committee Print versions of these bills. | The Department of Veterans Affairs (VA) provides services and benefits to veterans who meet certain eligibility criteria. VA carries out its programs nationwide through three administrations and the Board of Veterans Appeals (BVA). The Veterans Health Administration (VHA) is responsible for veterans' health care programs. The Veterans Benefits Administration (VBA) is responsible for providing compensation, pensions, and education assistance, among other things. The National Cemetery Administration's (NCA) responsibilities include maintaining national veterans cemeteries. VHA operates the nation's largest integrated health care system. Unlike most other federal health programs, VHA is a direct service provider rather than a health insurer or payer for health care. VA health care services are generally available to all honorably discharged veterans of the U.S. Armed Forces who are enrolled in VA's health care system. VA has a priority enrollment system that places veterans in priority groups based on various criteria. Under the priority system, VA decides each year whether its appropriations are adequate to serve all enrolled veterans. If not, VA could stop enrolling those in the lowest-priority groups. Since the terrorist attacks of September 11, 2001, U.S. Armed Forces have been deployed in two major theaters of operation. Operation Enduring Freedom (OEF) in Afghanistan and Operation Iraqi Freedom (OIF) constitute the largest sustained ground combat mission undertaken by the United States since the Vietnam War. Veterans from these conflicts and from previous wars are exerting tremendous stress on the VA health care system. With increased patient workload and rising health care costs, the 110th Congress is focused on such issues as how to contain costs and at the same time maintain high-quality health care services to veterans who need them. Among other things, Congress may address the best method of funding for veterans' health care, while continuing to focus on ensuring a "seamless transition" process for servicemembers moving from the military health system into the VA health care system, improving mental health care services for veterans with Post Traumatic Stress Disorder (PTSD), and improving rehabilitation and mental health services for those with Traumatic Brain Injuries (TBI). In recent years, VA has made an effort to realign its capital assets, primarily its buildings, to better serve veterans' needs. VA established the Capital Asset Realignment for Enhanced Services (CARES) initiative to identify how well the geographic distribution of VA health care resources matches the projected needs of veterans. Given the tremendous interest in the implementation of the CARES initiative in the previous Congress, the 110th Congress will likely continue to monitor the CARES implementation. H.R. 327 was enacted into law (P.L. 110-110) on November 5. The House has passed several measures to improve and expand health care services to veterans: H.R. 327, H.R. 612, H.R. 1315, H.R. 1470, H.R. 2199, H.R. 2623, and H.R. 2874. The Senate VA Committee has reported the following measures: S. 1233, S. 2004, S. 2142, S. 2160, and S. 2162. This report will be updated as legislative activities warrant. |
The responsibility for populating top positions in the executive and judicial branches of government is one the Senate and the President share. The President nominates an individual, the Senate may confirm him, and the President would then present him with a signed commission. The Constitution divided the responsibility for choosing the most senior leaders who run the federal government. Article II, Section 2 says that the President shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law; but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments. Sharing the process for appointing and confirming nominations can pose challenges to the President and the Senate, and it has sometimes been the focus of significant tension between the branches. Currently, hundreds of people go through the appointment and confirmation process each year. The pace of the appointment and confirmation processes has been the subject of a series of reports and proposals, with many critics charging that the vetting by the executive branch is excessive or that the confirmation process by the Senate is too long and difficult, which discourages people from seeking government service. During the 112 th Congress, a bipartisan group of Senators crafted two measures they contend will make the appointment process easier and quicker. Both measures were adopted. P.L. 112-166 , the Presidential Appointment Efficiency and Streamlining Act of 2011, removed the requirement for Senate confirmation for appointees to 163 positions, empowering the President alone to appoint the official. Originally introduced into the Senate in March 2011 as S. 679 , the Senate passed an amended version of the bill by a vote of 79-20 on June 29, 2011. The House of Representatives passed the Senate's version of the bill under suspension of the rules on July 31, 2012. President Barack Obama signed the bill into law on August 10, 2012. Parts of the act took effect immediately, and other parts took effect on October 9, 2012, 60 days after its enactment. S.Res. 116 , a resolution "to provide for expedited Senate consideration of certain nominations subject to advice and consent," established a potentially faster Senate confirmation process for a second group of nominees. On June 29, 2011, the Senate agreed to an amended version of S.Res. 116 , by a vote of 89-8. The provisions of S.Res. 116 are now a standing order of the Senate and took effect for nominations received after August 28, 2011. This report provides a brief background on advice and consent issues, an overview of the appointment process in both the executive and legislative branches, and a brief discussion of recent concerns about the system. Next, the report explores the events in the 112 th Congress leading up to the introduction and passage of P.L. 112-166 and S.Res. 116 , and it concludes with an analysis of the two measures. This report does not discuss the nomination and confirmation of federal judges, which are not covered by the two measures introduced. While the Constitution includes the Senate in the confirmation process, it does not spell out how the chamber should fulfill its stated role of providing advice and consent to a nomination. The extent of legislative and executive control of the process has in many respects remained undetermined, and there has been debate since the earliest days of the country over how the Senate has chosen to exercise its responsibilities. Some have asserted that the Senate should have a co-equal role with the President in the process. The Senate's responsibility for confirming presidential nominees, although fixed firmly in the Constitution, remains unsettled in its application. The Senate was not meant to be a passive participant. Delegates to the Philadelphia convention believed that the Senate would be knowledgeable about nominees and capable of voting wisely. Yet, for the most part, it has acted cautiously, uncertain of the scope of its own constitutional power. The source of this uncertainty is not the Constitution. Nowhere in that document, or in its history, is there an obligation on the part of the Senate to approve a nomination. On the contrary, the burden should be on the President to select and submit a nominee with acceptable credentials. Others have said that the Senate should allow the President greater leeway in his choices for office than is currently the case. For example, law professor John C. Eastman told the Senate Rules Committee on June 5, 2003, that ... the appointment power is located in Article II of the Constitution, which defines the powers of the President, not in Article I, which defines the powers of the legislature. As the Supreme Court itself has noted, by vesting appointment power in Article II, the framers of our Constitution intended to place primary responsibility for appointments in the President. The "advice and consent" role for the Senate, then, was to be narrowly construed. The practice of the Senate, however, has not systematically reflected either of these perspectives. Historically, the nomination and confirmation of presidential appointments has been regulated not by strict, formal rules, but rather by informal customs that can change (and have changed) over the years, as the relative balance of power between the President and the Senate ebbs and flows. It is these customs which form the process, according to appointments expert Michael J. Gerhardt. These informal arrangements—those not clearly required or clearly prohibited by the Constitution—have come to define the dynamic in the federal appointments process. The informal arrangements through which the system operates—including senatorial courtesy; logrolling; individual holds, "blue slips;" consultation between presidents, members of Congress, and other interested parties, including judges; interest group lobbying; strategic leaking by administrations, senators and interest groups; manipulation of the press; the media's effort to influence the news; and nominees' campaigning—are the sum and substance of the federal appointments process. Studying these arrangements provides even greater illumination than studying Supreme Court decisions or the Constitution itself of how the different branches of the federal government interact on matters of mutual concern. Under these informal customs, individual Senators have, historically, been deeply involved in the nomination and confirmation process. The procedures and traditions that have developed have tended to protect the autonomy of individual Senators to choose how to fulfill the advice and consent role, rather than to dictate the process for all Senators. It is this combination—unwritten Senate traditions and the protection of each Senator's rights—that has led critics to call for changes in the legislative branch's process. "[T]he Senate's confirmation process is entirely consistent with all of its other norms, traditions and rules. Concern for the rights and prerogatives of individual senators gives rise to numerous opportunities for obstruction and delay," argued political scientists Nolan McCarty and Rose Razaghian. On the other hand, as congressional scholar Sarah Binder noted, "Most presidential nominees emerge from the Senate confirmation process and are eventually confirmed." In the 111 th Congress, for example, the President submitted 964 nominations to executive branch positions, and 843 of those were eventually confirmed for an 87% success rate. The 112 th Congress has made some changes to the appointments process, which will be discussed throughout the remainder of this report. This was not the first time in recent years that the appointments process has been addressed. Changes to the appointments process during presidential transitions were included in the Intelligence Reform and Terrorism Prevention Act of 2004, for example. Those changes, following recommendations from the 9/11 Commission, were intended to expedite the presidential appointments process during presidential transitions. It is unclear whether these changes were successful in achieving that goal. The appointment process begins with the President (or the President-Elect). Initial selection and preliminary vetting is done by the White House Office of Presidential Personnel (OPP). OPP is located within the White House, which allows the President to be personally engaged in personnel decisions and in the selection of nominees. Members of Congress and interest groups sometimes may recommend candidates for specific advice and consent (PAS) positions to the President. They may offer their suggestions by letter, for example, or by contact with a White House liaison. The White House is under no obligation to follow such recommendations. Once a nominee has been selected, other executive branch entities become involved in the vetting process. The Office of Counsel to the President oversees the clearance of nominees, which often includes further investigations performed 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. During the selection and vetting process, the candidate 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." If the background investigation reveals a conflict of interest, OGE and the agency ethics official may work with the candidate to mitigate the conflict. The selection and initial vetting process concludes after the Office of Counsel to the President has cleared the candidate. Once the candidate is cleared, the President submits the nomination to the Senate. Rule XXXI of the Senate's standing rules sets out the basics of the confirmation process in the Senate (though it is critical to note that almost any requirement of Rule XXXI can be and frequently is set aside or altered by a unanimous consent agreement among all Senators). The following discussion of the Senate's process does not include the provisions of S.Res. 116 , as passed by the Senate on June 29, 89-8. The details of the resolution are discussed later in the report, in the subsection " Privileged Nominations, S.Res. 116 ." After the Senate receives the President's nomination, the nomination is referred to a standing committee based on the committee's jurisdiction. The committee may hold a hearing on the nomination (though this is not required) and also may report a nomination to the full Senate. The decision by a committee to report a nomination is critical: to be considered on the Senate floor, the nomination must have been reported from the committee of jurisdiction or all Senators must agree to its consideration. The Senate's committees perform an important information-gathering function on those nominated to top posts of the government. Each committee typically gathers biographical and financial information on each of the nominations it receives. The executive branch does not routinely provide the information it has gathered on the nominee to the Senate, so committees may have to do their own research. Sometimes, committees also review the results of an FBI investigation on the nominee. Most committees will not act on a nomination until all of this information is obtained; some formalize this by including in their rules a waiting period between the committee's receipt of the nomination and committee action on it. Committees consider nominations at business meetings, also called markups. A majority of the committee must be physically present to report the nomination to the full Senate, and a majority must support the motion to report the nomination. Typically, committees do not write reports on nominations, as they may do with legislation reported from committee. Nominations reported by a committee are placed on the Senate's Executive Calendar , and must lay over one day before the full Senate may act on them. A simple majority vote, a quorum being present, is required to confirm a nomination, but, if there is significant opposition, supporters of a nomination may first need to win a super-majority vote to end debate (60 votes) before the simple majority confirmation vote can take place. The majority leader is responsible for setting the agenda for the Senate, including scheduling debate and votes on nominations. Although the motion to consider a nomination is typically not debatable, the nomination itself is subject to debate. That means Senators who are opposed to a nomination may prevent the Senate from taking a final vote on it by means of extended debate. The only recourse the majority leader has to force an end to the debate on a nomination is to use the cloture process, which would then require the support of 60 Senators to end the debate and vote on the confirmation of the nomination. The vast majority of the Senate's business, however, especially on nominations, is conducted pursuant to a unanimous consent (UC) agreement. A UC agreement establishes the procedural blueprint for consideration of a measure or matter. It must be agreed upon by all Senators to take effect. For example, a UC on a nomination might set a date and time the Senate will begin debate on it and perhaps include a specific time length for the debate, three hours. Such a UC, if agreed to by the Senate, would preclude a Senator from delaying the final vote by extended debate. When a Senator informs his or her party leader that they would object to a unanimous consent agreement to debate and vote on a nomination, this is typically referred to as a "hold." Absent a unanimous consent agreement, the majority leader may decide not to bring up a nomination even though a majority of the Senate may support the nominee, because the Senate would have to spend several days of session to end debate and get to the confirmation vote. Even after a committee reports a nomination, lack of floor action may send the process back to the beginning. Anytime the Senate is in a recess of more than 30 days, all nominations not yet confirmed are to be returned to the President. If the President still desires to fill the jobs with the people he had chosen, he must resubmit the nominations to the Senate, and they all must go through the committee process, even those that the committees had previously reported. At any of the above stages, the Senate may alter how the process works if all Senators agree. For example, some nominations for Cabinet secretaries do not get referred to committee and may be considered by the Senate the same day they are received. Or Senators may agree not to refer a nomination to committee (and perhaps allow its immediate consideration on the floor) or to discharge the nomination from the committee and agree to its immediate confirmation. Frequently, before the annual August recess, the Senate agrees to a unanimous consent agreement that prevents all but a few nominations from returning to the President, despite the requirements discussed above. There is no requirement that either the committee or the Senate act on a nomination they receive. In fact, the most common way a nomination fails to be confirmed is through lack of action: either the committee never takes up the nomination or the Senate fails to consider it, despite committee action. The President's ability to fill advice and consent positions has been a topic of study by many individuals and organizations, especially in recent years. Many of these studies have raised concerns regarding the process. For example, the National Commission on the Public Service, also known as the Volcker Commission, released a report in 2003 in which it discussed "the presidential appointee problem." The report identified a two-part problem: (1) an increase in the number of PAS positions and (2) a general slowing of the appointments process due to greater scrutiny applied during the vetting processes in both the executive and legislative branches. Contemporary presidents face two daunting difficulties in filling the top posts in their administrations: the number of appointments is very large, and the appointments process is very slow… The time required to fill each of these positions has expanded exponentially in recent decades… In part, this results from the more thorough and professional recruitment procedures employed by recent administrations. But most of the elongation of the appointments process is the consequence of a steady accumulation of inquiries, investigations, and reviews aimed at avoiding political embarrassment. These include extensive vetting, lengthy interviews, background checks, examinations of government computer records, completion of questionnaires and forms composed of hundreds of questions, FBI full-field investigations, public financial disclosure, and conflicts of interest analysis. Much of the process is duplicated when a nomination goes to the Senate and is subjected to the confirmation process. Prior to the enactment of the Presidential Appointment Efficiency and Streamlining Act, the number of PAS positions in the executive branch was approximately between 1,200 and 1,400 positions. As discussed later in this report, the enactment of the Presidential Appointment Efficiency and Streamlining Act reduced the total number by 163 positions (for a detailed discussion of the law, see section below entitled " The Presidential Appointment Efficiency and Streamlining Act of 2011 "). According to data from the most recent edition of the Plum Book , as of 2008, the number of executive branch PAS positions had increased by approximately 365 since the outset of the Kennedy Administration. Most of this increase can be attributed to the creation of new departments and agencies with PAS positions over that time period. For example, the Departments of Transportation, Energy, Education, and Homeland Security all have a number of PAS positions; other agencies created during that period with PAS positions include the Environmental Protection Agency, the Federal Election Commission, and the Consumer Product Safety Commission. Additionally, existing agencies saw a gradual increase in the number of PAS positions. A majority of all advice and consent positions are full-time positions, including those within Cabinet departments, independent agencies, and independent regulatory agencies. Part-time advice and consent positions consist mostly of seats on various boards and commissions. The second part of the "appointee problem," as identified by the Volcker Commission, is the extensive nature of the background checks for presidential nominees. As discussed above, there are several executive branch entities involved in the background check process, including the White House, OGE, and the FBI. Any information that is overlooked during a background check and surfaces later can be potentially embarrassing to a President, so it is in the President's interest to have a very thorough vetting process for nominees. As a result, the scrutiny that has been applied to nominees has increased over time, according to a former director of presidential personnel, with candidates often answering similar questions at least two or three times. In addition, as a result of the increase in the number of PAS positions the President has to fill, the selection process has slowed. Thus, before the President even sends a nomination to the Senate, the selection and vetting of that nominee may be time consuming. The background checks for nominees are essentially restarted once the nomination is sent to the Senate, since it appears that the President tends not to share the background information with the Senate. The Ethics in Government Act requires OGE to give an ethics report to the appropriate committee of jurisdiction for each nomination. The ethics report includes one of the standard forms for financial disclosure, as well as an ethics agreement describing potential conflicts of interest. Senate committees often request additional information since there is minimal cross-branch coordination with regard to background information. Particularly during the time of a presidential transition, delays can occur while a new President or President-Elect's team selects its nominees, because new Presidents have the responsibility of filling leadership positions that are vacated at the end of the previous administration. This includes hundreds of positions in Cabinet departments and many positions in other independent agencies, such as the Environmental Protection Agency and the Central Intelligence Agency. A large number of vacancies, especially during a party turnover transition, can lead to a bottleneck in the selection and vetting process. Some studies have identified the appointments process during presidential transitions as particularly problematic. For example, the Obama Administration's transition, according to a 2010 study, started out well-organized and well-financed. After the inauguration, however, issues such as "a shift in personnel directors from the transition to the White House, Senate delays, a decision to stiffen vetting requirements following nominee tax issues and other problems" slowed the President's rate of filling his Administration. Other recent events have also highlighted some characteristics of the duration of the presidential appointments process. The 9/11 Commission identified several Cabinet positions that were still vacant during the first few months of the George W. Bush Administration, suggesting that the President's delayed ability in getting his team together may have compromised some national security policymaking in those first few months of the new Administration. Because of the delayed election results after the election of 2000, the Bush Administration was at a particular disadvantage for filling vacant positions in a timely manner. There may be several consequences of a slow appointments process. For example, a slow appointments process may have a negative effect on the new President's ability to govern. One study suggested that a high number of vacancies at the outset of a new President's Administration can contribute to a lag in agency productivity: "These delays in agency staffing have detrimental consequences. Without political appointees, regulation and enforcement actions have lagged." The same report also suggested that vacancies in Senate-confirmed positions may give a higher level of influence within the President's administration to some presidential advisors who are not subject to advice and consent. Others have suggested that the President may use recess appointments to circumvent the Senate's confirmation process, which has met some criticism from some Members of Congress. The 112 th Congress began in the Senate with a robust debate over changing its rules, and it was this debate that led to the adoption of changes to the appointments process. "What has happened this time is a result of the discussion we had earlier in the year about making the Senate a more effective place to work," said one Senator who was involved. In particular, some Senators, frustrated with the pace of the Senate and the ease with which a minority of Senators can block or stall a bill or nomination, proposed a series of changes designed to make it harder to wage a filibuster. Senators debated placing new limits on floor debate or imposing new restrictions on the ability of any Senator to hold the floor at length. The Senate considered its confirmation process for presidential nominations as a part of this larger debate on its rules and the conduct of its business. As with most other business in the Senate, a determined opposition in the Senate can force the majority to expend time to confirm a nomination, even if there is overwhelming support for the nominee within the Senate. The majority leader may decide that, while the nomination has majority support, he is unwilling to spend perhaps as many as three days of Senate sessions to confirm one nomination. At the end of the debate on its rules, the Senate approved a change designed to prevent Senators from being able to place a "hold" on a nomination (or measure) anonymously ( S.Res. 28 ). Senators also informally agreed to examine the confirmation process. An informal group of Senators, led by of Rules and Administration Committee Chair Senator Charles Schumer, and the committee's ranking Republican Senator Lamar Alexander, met and, after extensive negotiations, came up with two measures, S. 679 and S.Res. 116 , that were designed to take away some of the confirmation burden on the Senate in some cases while speeding up the process in others. Both measures were adopted and are discussed below. This section outlines the objectives and provisions of P.L. 112-166 , the Presidential Appointment Efficiency and Streamlining Act of 2011, and analyzes the law's contents. P.L. 112-166 was signed by President Obama on August 10, 2012. The main objective of the Presidential Appointment Efficiency and Streamlining Act, as identified by its sponsor and co-sponsors when it was introduced, was to make the presidential appointments process more efficient. To accomplish that goal, the law contained two major provisions. The first identified 163 positions and eliminated the requirement for advice and consent of the Senate in the President's appointments to those positions. The second provision required the establishment of a working group to make recommendations to speed up the vetting of nominees. When Congress establishes a federal agency, it designates which positions in that agency (if any) will be subject to advice and consent. For example, in the Homeland Security Act of 2002 that established the Department of Homeland Security, the section of the law that established the position of Secretary read as follows: "There is a Secretary of Homeland Security, appointed by the President, by and with the advice and consent of the Senate." Other statutes creating PAS positions have similar language. To remove the advice and consent requirements for the positions covered by P.L. 112-166 , the legislation amended each section of the U.S. Code that established the 163 positions generally by striking the phrase "by and with advice and consent of the Senate." The President now has the ability to fill these positions without consulting the Senate. P.L. 112-166 converted the positions to "PA" positions, or presidentially appointed positions. The law's supporters have said that the positions listed in the law were not significant enough to necessitate Senate consideration, which is why they were chosen to be included. Many of the positions were assistant secretaries for administration or public affairs and other lower-level policy positions within agencies. Senator Alexander, one of the bill's co-sponsors, said on the Senate floor upon introduction of S. 679 that "these are the ones the Senate does not need to spend time on." Senator Schumer also stated that "all of the positions covered in this proposal tend to be non-controversial and most closely resemble appointments that are currently made without Senate approval." According to these and other floor statements on the bill, "Removing these positions from Senate confirmation will allow a new administration to be set up with more efficiency and speed, thus making government work better for the people." The section of P.L. 112-166 eliminating the advice and consent requirements from the 163 positions took effect 60 days after enactment, on October 9, 2012. Senate consideration of nominations to those positions is no longer required. The President has the sole authority to appoint individuals to those positions. The second major provision of P.L. 112-166 established a working group to study the pre-nomination process. The goal of the working group is to help streamline the selection and vetting processes. The working group is to be primarily composed of government officials representing several agencies that are involved in the vetting process. The chair is to be either the director of the Office of Presidential Personnel or another federal officer designated by the President. The President is also to appoint representatives from government agencies that are involved in the vetting process. The other members are to be appointed by the chair of the working group, and they are to be individuals who have relevant experience with the selection and vetting of nominees. The working group is required to write two reports and to submit them to the President, the Senate Committee on Homeland Security and Governmental Affairs, and the Senate Committee on Rules and Administration. The first report, which is to be submitted within 90 days of the enactment of the law (by November 8, 2012), is to make recommendations for the streamlining of paperwork required for executive branch nominations. The report must include recommendations for instituting a "Smart Form," which would consolidate the information obtained during the vetting process into a centralized form. The form would be accessible to the executive branch entities that are involved in the vetting process and to the Senate, providing information more efficiently and cutting down on duplicative paperwork. The second report from the working group is to examine the background investigations that are currently required of nominees. This section of the law is predicated on the notion that not all nominees require the same level of scrutiny in their background checks. The legislation suggests varying the scope of the background investigation dependent upon the nature of the position for which the individual is under consideration. This second report is required within 270 days of the enactment of P.L. 112-166 (by May 5, 2013). Finally, P.L. 112-166 required the Government Accountability Office (GAO) to conduct a study and submit a report to Congress and the President. The report, which is required to be submitted by February 6, 2013, shall include information on the total number of PA positions in each agency, an evaluation of whether that number is necessary, and an analysis of whether such positions should be eliminated or converted to career positions. Supporters of P.L. 112-166 assert that the law will ease the Senate's workload on processing nominations by removing the advice and consent requirements for 163 positions. The positions are listed in Appendix A . They are mostly assistant secretary positions for administration or public affairs, along with some relatively lower-level policy positions within executive branch agencies. The inclusion of these groups of positions in the bill has simplified the overall attempt at reducing the number of advice and consent positions. Rather than targeting PAS positions within specific agencies or specific committees, the bill's sponsors chose to take a more systematic approach. This approach may have helped to garner more broad support within the Senate, especially from committee chairs whose committees had jurisdiction over these positions. The 163 positions are distributed among 12 Senate committees, meaning that the enactment of P.L. 112-166 will save these committees the time they might have invested in processing nominations and performing background checks of nominees. In addition, the reports required by P.L. 112-166 are expected to lead to a number of recommendations about how to speed up the selection and vetting process of nominees both at the executive branch, pre-nomination stage, as well as during the period of Senate consideration. The working group is to be composed of highly experienced and knowledgeable government officials who could potentially offer strong and useful recommendations on how to improve the process. Some concerns over the legislation have been raised since its introduction. The remainder of this section discusses some of these issues. Some concerns have been raised regarding certain provisions of P.L. 112-166 . One general concern has been whether it is in the Senate's interest to give up its advice and consent for these select positions. During debate on the bill, while proponents of the bill pointed to delay in the Senate and a heavy workload for Senate committees in dealing with nominations, some opponents defended the role of the Senate in oversight of the President and executive branch. Article II, Section 2 of the Constitution grants the President the ability to appoint the principal officers of the United States, as well as some subordinate officers. Officers of the United States are those individuals serving in high-ranking positions that have been established by Congress and "exercising significant authority pursuant to the laws of the United States" (emphasis added). The section above entitled " Background: Advice and Consent " discussed the tension between the President and the Senate over the appointments process. Those who wish to protect the Senate's role in the confirmation process may be concerned that the Senate would be giving up its role for 163 positions. During debate on the bill, some Members expressed hesitation over some of the particular positions included in the bill that would no longer require the Senate's advice and consent, which was evident in the Senate's actions on the bill. Based upon statements made by the bill's supporters, it appears that the list of positions is composed primarily of positions that are seen as lower-level or administrative positions. One major category of positions included in the legislation was certain types of assistant secretaries. The bill's sponsors had said that these positions should not require Senate confirmation, and the President should be able to appoint those individuals immediately upon entering the White House to get the new Administration up and running. As one of the bill's cosponsors stated, "Many of these positions have little or no policy role, such as the Assistant Secretary for Legislative Affairs at the Department of Commerce, or are internal management or administration positions, such as chief financial officers or assistant secretaries for public affairs." The bill as reported removed the advice and consent role for assistant secretaries for public affairs and assistant secretaries for legislative affairs. Ultimately, assistant secretaries for legislative affairs were removed from the bill (as a part of a manager's amendment agreed to by voice vote), while assistant secretaries for public affairs remained in the bill. As with the CFOs, which were also removed from S. 679 , the legislative affairs positions were later added to S.Res. 116 . The other positions included in P.L. 112-166 appear to be positions that the sponsors of the legislation consider to be lower-level policy positions. For example, the law eliminated the advice and consent requirements for the Rural Utilities Service administrator and seven commissioners of the Mississippi River Commission. As approved by the Senate on June 29, S.Res. 116 created a new process for Senate consideration of nominations to 272 positions in Cabinet agencies, certain oversight boards and advisory councils, and independent agencies. These nominations now bypass formal committee consideration unless any single Senator objected to using the expedited process. The nominations originally included in this resolution tend not to be controversial and typically require little individual floor debate for confirmation. They must remain advice and consent positions because of the responsibilities of the boards and councils under the Appointments Clause of the Constitution. The positions added to the resolution during Senate floor debate do not have the same requirement. In addition, many of the boards are structured to have a partisan political balance, and Senator Schumer said that retaining advice and consent over these positions allows the Senate to protect the bipartisan balance. S.Res. 116 was reported by the Senate Rules and Administration Committee on May 12, 2011; the full Senate amended and then agreed to the resolution on June 29, 89-8. The Senate agreed to a manager's amendment that added 39 positions to the list of those covered by the resolution (for the list of covered nominations, please see Appendix B ). These positions had been included in the other nomination process bill ( S. 679 ), and were moved by the Senate to S.Res. 116 to allow Senators to retain some of their control over the positions through the advice and consent process. Among those moved from one measure to the other are agency CFOs and assistant secretaries for legislative affairs. Under the new process, once the Senate receives a nomination to one of those boards or councils from the President, it is placed on the Senate's Executive Calendar , in a new section called "Privileged Nominations." The nomination is not formally referred to committee, but the committee is asked to gather the biographical and financial information used to evaluate the nomination, as indicated by the column labeled "Information Requested." Once the chair of the committee of jurisdiction notifies the Senate's executive clerk in writing that all the information requested had been received, the box labeled "Requested Information Received" is filled in with the date. The nomination will remain on this list for 10 days of session, after which it will move to the existing section called "Nominations" on the Calendar. Presumably, a nomination will not be eligible for floor consideration until it had moved to the "Nominations" section of the Executive Calendar , though the resolution does not specifically state this. At any time after the receipt of a nomination and until it is placed on the "Nominations" section of the calendar, any Senator may request that the nomination be referred to committee, and not be considered using the new process. The nomination would then proceed using the existing confirmation process, beginning with referral to committee. In this way, the new system utilizes the existing practices of the Senate's unanimous consent process, where objection from even one Senator will prevent it from being used. In addition, the Senate added a provision during floor consideration that requires any committee report on legislation that establishes any new position within an existing agency or department or a new agency or department that would be appointed by the President to contain a justification of any such new position. These new procedures went into effect for nominations received 60 days after the Senate agreed to S.Res. 116 , on August 28, 2011. One of the biggest changes to come from adoption of the resolution likely will not be in the Senate's rules but in its expectations: with adoption of S.Res. 116 the Senate essentially agreed that, barring anything unusual, nominees to this group of positions should be confirmed relatively easily. Supporters of the resolution said it would make for quicker, easier confirmation for the 272 positions covered. "This retains the authority of the Senate over these positions, but streamlines the process, lessening the burden on the Senate for routine, non-controversial nominations and providing for a faster road to confirmation as well," said one Senator upon introduction of the resolution. "We are confident this package will eliminate many of the delays in the current confirmation process," said resolution sponsor Senator Schumer. He noted that it is his expectation the nominations, once placed on the Nominations section of the Executive Calendar , would receive quick approval from the Senate: "The presumption for these part-time positions is, as I said, that they will be approved by unanimous consent and not be held up as a part of other battles or leverage or whatever else." By removing the committees' need to act on these nominations, the new process, it could be argued, might save the committees time. As students of the Senate know, a good deal of member and staff time is used before and during committee markups, business meetings where the committee would decide whether to report nominations to the full Senate. Senate rules require a majority of a committee to physically be present in order to report anything to the parent chamber, and, with the press of business on the Senate floor and in other committees, it can be difficult to schedule meetings efficiently. Time could also be saved if the committees did not need to hold hearings on any of the nominations in this group. The committees retain the information gathering function, and are able to signal to other Senators their approval or disapproval of the nominations through informal discussions and floor speeches. The importance of the committee of jurisdiction in the process can be seen in the analysis of the nominations in the 111 th Congress. The resolution, as approved by the Senate Rules Committee in May 2011, specifies the 30 organizations and 244 positions that the measure, as reported, would cover. The positions included in this group are to boards of directors, advisory boards, and commissions, such as the Internal Revenue Service Oversight Board, the National Peace Corps Advisory Council or the Commission on Public Diplomacy. During the 111 th Congress, President Obama sent the Senate nominations to fill 76 of the 244 positions covered by the resolution as reported, roughly 31% of the positions. One of those nominations was withdrawn. Of the remaining 75 nominations, 47 or 63% were confirmed, all by voice vote. The remaining 28 nominations were not confirmed and were returned to the President. Of the 47 confirmed nominations, all had been reported favorably from the committees of jurisdiction. Of the 28 unconfirmed nominations, none had been acted on by the committees of jurisdiction. So, all the nominations in this group that saw action by the committees to which they were referred were confirmed, and all those whose nomination was not acted upon by committees were not confirmed. The absolute correlation between committee action and confirmation in the data from the 111 th Congress shows that the committee action did seem to play a central role in the fate of a nomination, though it is unclear whether the role was supportive (i.e., the Senate felt comfortable confirming a nomination that had received the endorsement of the committee), negative (i.e., the Senate could not act on a nomination if the committee was unwilling or unable to report it out), or a combination of both. It could also reflect an understanding on the part of the committee that the full Senate was unlikely to consider the nomination(s) and, therefore, that there was no benefit for the committee to report the nominations. On the other hand, the new process removes the official role of the committees of jurisdiction, and in doing so, may take some portion of control away from the chairs and other members of the committees over the fate of the nominations. While critics charge that members have too much say over who gets confirmed, members may be concerned about preserving the ability of a committee to have its say on a nomination simply by not acting on it. Supporters of the resolution might counter that the single objection provision in the rule would take care of this problem. The new process would not apply to a nomination if any Senator objects to it. So, if a committee chair or member felt strongly that a certain nomination needed to have more time and attention devoted to it, he or she could trigger the exemption and the nomination will revert back to the regular confirmation process. In fact, a Senator desiring to lengthen the regular confirmation process for any nominee to one of these positions could do so by waiting to object to the new process until the nomination had been on the calendar section entitled "Privileged Nominations – Information Received" for nine days of session. The objection would re-start the confirmation process at the beginning, referral to committee, well after the Senate had received the nomination, instead of immediately upon receipt of the nomination. This failsafe mechanism in the resolution—the ability of one Senator to derail the special process for any nominee—could be both the strength of the resolution and also its weakest point. If, as sponsors believe, the positions included in this group, and the nominations intended to fill them are non-controversial, then the new process could streamline the confirmation process for those nominees, especially if Senators are assured that they retain an ultimate ability to influence the path of any nomination. If, however, any Senator desired to require that any nominee in this group proceed through the regular confirmation process, they can do so, essentially leaving open the question of how effective S.Res. 116 will be as a new procedure. Adoption of the resolution, however, puts the Senate on record as saying it wants to act on these nominations quickly, whatever the process that is followed. Appendix A. Positions That No Longer Require Senate Confirmation Under P.L. 112-166 Appendix B. Privileged Nominations, S.Res. 116 | The responsibility for populating top positions in the executive and judicial branches of government is one the Senate and the President share. The President nominates an individual, the Senate may confirm him, and the President would then present him with a signed commission. The Constitution divided the responsibility for choosing those who would run the federal government by granting the President the power of appointment and the Senate the power of advice and consent. Several hundred people go through the appointments process each year. Prior to the adoption of the measures discussed in this report, there were approximately 1,200-1,400 positions in the executive branch requiring the Senate's advice and consent. The pace of the appointment and confirmation processes has been the subject of a series of critical reports and proposals for change. Critics believe that the executive branch vetting, and/or the confirmation process in the Senate, is too long and difficult and discourages people from seeking government office. Others, however, contend that most nominations are successful, suggesting that the process is functioning as it should, and that careful scrutiny of candidates is appropriate. During the 112th Congress, a bipartisan group of Senators crafted two measures they contend will make the appointment process easier and quicker. Both measures were adopted. P.L. 112-166, the Presidential Appointment Efficiency and Streamlining Act of 2011, removed the requirement for Senate confirmation for appointees to 163 positions, authorizing the President alone to appoint certain officials. Originally introduced into the Senate in March 2011 as S. 679, the Senate passed an amended version of the bill by a vote of 79-20 on June 29, 2011. The House of Representatives passed the Senate's version of the bill under suspension of the rules on July 31, 2012. President Barack Obama signed the bill into law on August 10, 2012. Parts of the act took effect immediately, and other parts took effect on October 9, 2012, 60 days after its enactment. P.L. 112-166 contains two major provisions. The first eliminated the requirement for the Senate's advice and consent on nominations to 163 positions in the executive branch. This provision of the law took effect on October 9, 2012. Members who supported the bill during its consideration have stated that the reduction in the number of positions subject to the Senate's advice and consent will ease the Senate's workload on processing nominations. The second major provision of P.L. 112-166 established a working group to examine the appointments process. The working group is required to write two reports that are expected to generate a number of recommendations. The first, which is required to be submitted by November 8, 2012, is to make recommendations on how to streamline the collection of paperwork required of nominees. The second report, which is required to be submitted by May 3, 2013, is to examine whether the background investigations currently conducted of nominees can or should be improved. S.Res. 116, a resolution "to provide for expedited Senate consideration of certain nominations subject to advice and consent," established a potentially faster Senate confirmation process for nominees to an additional 272 positions. On June 29, 2011, the Senate agreed to an amended version of S.Res. 116, by a vote of 89-8. The provisions of S.Res. 116 are now a standing order of the Senate and took effect for nominations received after August 28, 2011. |
Traditionally, the exclusive locales for stock trades were exchanges such as the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), and NASDAQ. In recent decades, cheaper and more powerful computer-based technology and at least two Securities and Exchange Commission (SEC) regulations helped give rise to an array of alternative trading venues, including a new type called "dark pools." Although it is sinister sounding to some, the "dark" appellation simply means that dark pools do not publicly display traders' buy and sell interests (quotes) as the traditional "lit" platforms do. This opacity attracted institutional investors (such as pensions and mutual funds), which became the pools' initial clients. Concerned about potentially harmful, market-moving information leaks about their intended trades, these big investors believed that the dark pools' concealed quotes helped reduce the riskiness of their trades. Securities regulators and state officials have raised policy concerns about the pools, as have Members of Congress in various committee oversight hearings. Such concerns include the impact of the pools on market quality, their lack of pre-trade transparency, transparency about whether the pools allow high-frequency trading (HFT), and to what extent they do so. This report explains what dark pools are, outlines recent developments of significance to the pools (including public policy and regulatory developments), and examines various current public policy concerns. Alternative trading systems (ATSs) can be subdivided into electronic communication networks (ECNs) and dark pools. ATSs broadly are broker-dealer firms that match the orders of multiple buyers and sellers according to established, non-discretionary methods. They have been around since the late 1960s and grew in popularity in the mid-1990s as technological developments made it easier for broker-dealers to match buy and sell orders. Their growth also benefitted from the SEC's 1998 adoption of a new regulatory framework, Regulation ATS (Reg ATS). Reg ATS sought to reduce barriers to entry for such systems while also promoting competition and innovation and regulating the exchange functions that they performed. An ECN publicly displays its best orders in the consolidated quote stream—as exchanges such as the NYSE and NASDAQ do—and allows their stock trade offers (known as quotes) to be accessed by investors. Over the last decade, ECNs have been widely perceived to have benefited the equity market through such features as faster trading technologies, innovative pricing strategies, and robust inter-market linkages. Two of the better known independent ECNs are INET and Archipelago. Other ECNs, such as BATS and Direct Edge, have merged with registered securities exchanges or have themselves become exchanges. The ATSs, including the ECNs, have collectively gained growing equity trading market share through the years. By various accounts, the competitive pressure from the ATSs, including the ECNs, has led legacy exchanges such as the NYSE to enhance the customer trading experience. Another kind of ATS, "dark pools," do not provide quotes into the pre-trade public quote stream as is generally required of trades on the NASDAQ, the stock exchanges, and ECNs. They publish trade data only after transactions occur. Some argue that post-trade disclosure is more informative. Generally, dark pools are said to merely indicate that the trade was executed off an exchange and do not identify themselves as the pool that executed the trade. Also, unlike NASDAQ and the exchanges, dark pools do not guarantee trade execution, which means that orders sometimes go unfilled. More specifically, when an investor places an order to buy or sell on a "lit" trading venue, the venue typically makes that quote available to the public. Within dark pools, however, traders often become aware of the existence of potential trading counterparties only after they have submitted their orders. Alternatively, a trader may signal to a limited number of traders who are also clients of a dark pool of their interest in either buying or selling a security. These "indications of interest" in dark pools are similar to the conventional quote on the lit exchanges but may display fewer elements of the trading interest. This pre-trade opacity initially attracted institutional investors that wanted to anonymously trade blocks of shares without triggering unfavorable price movements. There is a widely held view that rules adopted by the SEC in 2005, Regulation National Market System (Reg NMS), boosted the growth of the dark pools. Reg NMS was aimed at fostering competition among individual markets and among individual orders by promoting efficient and fair price formation across securities markets. Currently, there are about 40 dark pools that trade in domestic markets. Primarily trading NASDAQ- and NYSE-listed stocks, they now account for about 15% of the overall trading volume of such stocks. Dark pools have contributed to today's more fragmented equities market, which also includes about 11 exchanges and more than 200 broker-dealers that execute retail trades via their own stock inventories—a process known as direct internalization . Together, dark pools and internalization processes—both of which are generally exempt from requirements to display pre-trade quotes—constitute the bulk of what are alternately called dark trading, unlit trades, and off-exchange trading. By some estimates, internalization may account for about 60% of dark trades, whereas dark pools account for about 40%. Dark pools have also enabled the brokers who own them to charge traders a fee for access to the order flow in the dark pools. This practice is sometimes referred to as indirect internalization . In his book Flash Boys , Michael Lewis describes instances in which HFT firms that paid for access to dark pools preyed upon the pool's retail order flow, sometimes by front-running those orders. Front-running refers to the practice of trading ahead of a large order to benefit from the anticipated price movement that the large order will create. The most common example of front-running is when an individual trader buys shares of a stock just before a large institutional order to buy, which may cause a rapid, small increase in the stock's price. The trader can later sell the order back to the institutional investor or to the market at the slightly higher price. While certain forms of front-running are illegal, the legality depends on the circumstances of the situation. Dark pools have been divided into several structural subgroups, including Broker-dealer owned. Some large broker-dealers have created dark pools for their clients and at times for the benefit of their own proprietary traders. These dark pools reportedly derive their share prices from the broker-dealer's order flow. As a consequence, they are said to provide some price discovery. Examples reportedly include Credit Suisse's CrossFinder, Goldman Sachs's Sigma X, and Morgan Stanley's MS Pool. Broker-dealers dominate the dark pool business: Domestically, Credit Suisse Group AG, UBS, Bank of America Corporation's Merrill Lynch, Deutsche Bank, and Morgan Stanley own the largest dark pools. Agency broker or exchange-owned. These dark pools act as agents, not principals. The trades that they conduct are based on the security prices that derive from the exchanges. As such, they have no price discovery function. Examples of agency broker dark pools include Liquidnet and ITG Posit, while exchange-owned dark pools include those offered by BATS and the NYSE. Electronic market maker. These dark pools are affiliated with independent securities operators, such as Getco and Knight, which operate as principals for their own accounts. Like the aforementioned broker-dealer-owned dark pools, the transaction prices in pools are not calculated from the national best bid and offer (NBBO). As such, the dark pools do not materially contribute to price discovery. Economists perceive a mix of non-regulatory and regulatory factors to have played roles in boosting the popularity of dark pools, which reportedly grew from a share of about 4% of overall trading volume in 2008 to about 15% in 2013. Several of them are described below. There are at least five key non-regulatory factors: 1. A general fall in the level of market volatility. There is a perspective that when share price volatility is more pronounced, resulting in greater trading uncertainty, many large investors have greater interest in quickly and reliably getting their trades executed. This is widely seen as a particular advantage of NASDAQ and exchanges such as the NYSE. According to Justin Schack, managing director of Rosenblatt Securities, a financial firm that does market analysis, "When prices are really swinging around, traders seem to prefer the certainty of displayed-market price discovery and the generally more-robust technology on the exchanges to dark pools and other off-exchange destinations." By some measures, since about 2009, share price volatility has generally declined, helping to boost the demand for the anonymity of dark pool trading. 2. Potential t echnological m ishaps. Another catalyst in the shift to dark pools reportedly involves investor interest in avoiding technological mishaps that have occurred on the NASDAQ and large exchanges such as the NYSE—and avoiding HFT firms that trade on such lit platforms. 3. Low c omparative t rading f ees. Dark pools tend to charge lower fees for trades than do the NASDAQ and the exchanges. Relatedly, dark pool traders' total transaction costs tend to be lower than costs on exchanges in part because within the pools, large orders can be subdivided into smaller orders, potentially enabling simpler and faster execution. In addition, the pools often charge lower per-share fees than do the exchanges. 4. Trader a utonomy. Dark pools give traders comparatively more autonomy in the choice of the opposing buyers and sellers, potentially avoiding problematic traders, such as some allegedly predatory HFT firms. 5. Trade e xecution e fficiency. Dark pools can be a valuable execution tool for large orders as well as stocks, which may be more difficult to trade because they have wider bid-ask spreads or lower market liquidity. Two major SEC-adopted regulations—Reg ATS and Regulation National Market System (Reg NMS)—are also commonly cited as pivotal in the proliferation of dark pools. 1. Reg ATS. In 1998, the SEC adopted a new regulatory framework, Reg ATS, as a set of regulations in the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq). The regulation sought to reduce barriers to entry while promoting competition and innovation and regulating the ATS's exchange functions. Under Reg ATS, dark pools are required to register either as exchanges with the SEC or as broker-dealers with the Financial Industry Regulatory Authority (FINRA), the frontline regulator of SEC-registered broker-dealers. Dark pools are subject to the same rules that govern trading on an exchange or by a broker-dealer. However, unlike exchanges, they are not required to publicize ongoing offers to buy or sell stocks, called quotes. If an ATS displays orders to more than one person, it must display the best-priced quotes submitted to it by the public when the average trading volume in a given stock on it is 5% or more, a requirement that most individual dark pools do not meet or are exempted from. By various accounts, the advent of Reg ATS was a catalyst for the proliferation of dark pools. 2. Reg NMS. Adopted by the SEC in 2005, Reg NMS was intended to improve domestic exchanges through improved price execution, quotes, and investor access to market data. Three key Reg NMS rules are (1) the order protection rule, aimed at ensuring that investors receive the best buy or sell price when their orders are executed by eliminating the ability to have orders "traded through" (i.e., executed at a worse price); (2) the access rule, which required better market center linkages and lower access fees; and (3) the market data rule, which requires market centers to route orders for execution to the market center that shows the best price, the NBBO. Various observers have asserted that Reg NMS contributed to today's fragmented trading marketplace, which includes at least 11 exchanges and about 40 dark pools that compete for business in listed stock trades. HFT firms often exploit those fragmented markets by moving quickly between trading venues. Reg NMS is widely said to have helped advance the pools' expansion by abolishing an earlier rule that protected manually submitted exchange (non-electronic) quotes, thus helping to foster more innovative electronic trading venues, including the dark pools. A 2010 report issued by the International Organization of Securities Commissions (IOSCO), a global association of securities regulators, noted, "While dark pools and dark orders may meet a demand in the market, they may raise regulatory issues that merit examination." Several such potential dark pool regulatory concerns are examined below, some of which are also discussed in the IOSCO report. Some believe that the stock market has become excessively fragmented with a proliferation of trading. This fragmentation has many potential causes, though Reg NMS is frequently cited. Some consider the multiplicity of dark pools to be a symptom rather than a cause. Still, the dark pools are an integral part of this fragmentation, and their opacity arguably exacerbates the potential pitfalls of fragmentation. The multiplicity of pools may also pose special challenges to traders, including the cost and logistical burden of accessing the various venues. Another concern is that the fragmentation affords brokers greater opportunity to route customer orders to venues that best meet the brokers' needs (for example, through rebate payment trade enticements) rather than to those that might ultimately be best for their customers. The fragmented trading landscape does, however, appear to have helped produce some market benefits. Greater competition between trading venues arguably led to reduced transaction costs for traders and trading system technological innovations. Reg ATS requires an exchange to provide fair access to its services. Specifically, the regulation requires an ATS to meet fair access requirements with respect to any particular stock that exceeds a 5% trading volume threshold. Dark pools are generally not subject to this requirement, which means that their liquidity is not made available to the investing public on terms that "are not unfairly discriminatory." Meanwhile, there are concerns that individual dark pools may have been selectively offering different traders dissimilar terms for the right to trade on them or route orders to them. Those concerns may assume added significance when certain traders are denied access to dark pools with substantial trading volume (but still less than 5%) in certain stocks. Some have raised concerns that some HFT firms may be placing orders in the lit markets for the purpose of manipulating securities prices in dark pools. For example, the head of FINRA has said that the regulator is expanding its oversight of dark pools with special focus on whether orders that are submitted to public exchanges are "trying to move prices or encourage sellers that may advance their trading in the dark market." Another regulatory focal point stems from observations that dark pools can be used to facilitate potentially improper trading and that the pools' promise of trader confidentiality could give traders opportunities to conduct such trades. Some cite as a potential illustration of such abuse an insider trading complaint filed by the Department of Justice and the SEC against a former fund manager at SAC Capital Advisors. According to the complaint, the manager's emails demonstrated that allegedly unlawful dark pool trades were "executed quietly and efficiently over a four-day period through algorithms and dark pools and booked into two firm accounts with very limited viewing access." Because dark pools, which collectively account for a significant portion of trades in many stocks, do not publicly disseminate pre-trade data, there is concern that stock prices on the lit venues may not reflect the actual market price, thus impeding the price discovery process. Related to this is the fact that a large proportion of orders executed on dark pools offer either no or limited price discovery; those prices derive from either the midpoint of quoted bid and ask prices on the lit markets or somewhere else between those prices. The potentially detrimental role played by dark pools in overall price discovery is a central public policy concern surrounding the pools. A rejoinder to the notion that dark pools undermine price discovery comes from Tabb, a securities market researcher: "While there is, no doubt, some amount of off exchange volume that would adversely impact price discovery, it does not appear that the market is anywhere near that level. Furthermore, there does not appear to be an upward trend suggesting the market should be concerned. Accordingly, at this point in time the price discovery mechanism does not appear threatened." Most of the empirical examinations of dark pools have focused on the relationship between dark pools and price discovery and market quality. After an SEC review of such studies, SEC Chairwoman Mary Jo White remarked that "the current extent of dark trading can sometimes detract from market overall quality, including the informational efficiency of prices." Research from Hatheway et al. found that the regulatory exemptions possessed by dark pools, including exemptions from compliance with fair (investor) access rules and pre-trade data display rules, enables them to "segregate order flow based on asymmetric information risk, which results in their transactions being less informed and contributing less to price discovery on the consolidated market." On balance, the research concluded that "the effects of order segmentation by dark venues are damaging to overall market quality except for the execution of large [block] transactions." Another study analyzed Canadian dark trading before and after the advent of minimum price improvement rules in October 2012, which generally required dark trading venues to provide price improvements to prevailing lit market quotes before they could execute orders. The research by Foley and Putniņš divided trading in dark pools into two types: 1. One-sided trading , which takes place at a single price, such as the midpoint of the national best bid and offer. The trading is also characterized by the fact that at any point in time, dark liquidity can exist only on the buy side or the sell side of a transaction but not both. It is also depicted as having relatively low execution probability, especially for informed traders. The trading also tends to involve the imperfect concealment of trading intentions from rival traders. 2. Two-sided trading , which takes place at different prices on both the buy and sell sides of the market. Compared with one-sided dark trading, traders in a two-sided dark market can immediately execute their orders if there is liquidity on both the buy and the sell sides of a potential trade. Also, in contrast to one-sided trading, these trades tend to provide better concealment of a trader's intentions. The research is potentially significant because it does not treat dark pool trading as homogeneous (as many studies do) but as varied and distinctive. Such differences, the researchers concluded, can manifest themselves through markedly different market impacts: The authors found that two-sided dark trading tends to benefit market liquidity, facilitate pricing, and contribute to informational efficiency in moderate levels of trading. Two-sided dark pool trading was also found to have lowered bid-ask spreads—a key component of overall investor transactions—and reduced the delay with which stock prices reflect market-wide information. On the other hand, the researchers also found that one-sided dark pool trading had a modestly negative impact on a number of measures of market quality. Securities regulators have recently adopted or laid the groundwork for dark-pool-related regulatory regimes. One completed regulatory development is a FINRA-based ATS trading data disclosure regime. A pending initiative will be a pilot project to be overseen by the SEC that will assess a protocol in which off-exchange trading venues, including dark pools, would be able to execute orders only if they could provide a significant price improvement or a significant size improvement. The protocol is known as the "trade-at" rule. These developments are discussed below. In May 2014, FINRA began requiring ATSs, including dark pools, to report their aggregate weekly volume of transactions and number of trades by security, data that FINRA then reports on its website on a delayed basis. In November 2014, FINRA will require ATSs, including dark pools, to employ a unique identifier called a market participation identifier when reporting information. FINRA has said that the rules will, among other things, "enhance FINRA's regulatory and automated surveillance efforts by enabling it to obtain more granular information regarding activity conducted on or through individual ATSs as well as FINRA's ability to determine whether an ATS is subject to any provisions of Regulation ATS that are triggered by exceeding certain trading volume thresholds." On June 24, 2014, the SEC ordered the national stock exchanges, the NASDAQ, and FINRA to establish a yearlong pilot program that would require several hundred lightly traded and more illiquid stocks to trade in five-cent minimum increments rather than the current regime's one-cent convention. Specifically, the pilot will consist of a control group and two test groups with 300 stocks each and will include stocks of companies that have a market capitalization of below $5 billion, an average daily trading volume of 1 million shares, and a share price of at least $2.00. The test group is to be the same as the control group but will allow for certain exceptions to the five-cent trading tick requirement. The second test group will be similar to the first group but will also provide a test of the trade-at rule. The pilot is expected to last several years. Various proponents of a system-wide increase in minimum trading increments have argued that it would help increase the bid-ask spread for trades in relatively illiquid stocks of small companies. They say that this, in turn, should translate into greater broker profits, giving brokers greater incentives to research and promote relatively low-visibility stocks. The SEC has said that the pilot will provide "the means to continue to gather further information and views on the impact of decimalization on the liquidity and trading of the securities of small capitalization companies." Exchange owners, including owners of the NYSE and Nasdaq, have advocated such a trade-at rule. They have seen a migration of significant portions of their trading volume to dark trades. However, brokerage firms as well as the exchange BATS, which is owned by a brokerage firm that owns a dark pool, are reportedly critical of such trade-at rules. On the rationale behind the trade-at rule pilot, the SEC explained, "When quoting and trading increments are widened in the absence of a trade-at requirement, the Commission preliminarily believes there is a possibility trading volume could migrate away from 'lit venues.' … [Thus the pilot] should test whether a trade-at requirement would stem the potential migration of trading volume away from these lit venues." In 2012 and 2013, Canada and Australia (respectively) instituted system-wide trade-at rules for off-exchange orders, including in dark pools. The rules were aimed in part at reducing the level of smaller-sized off-exchange trades. To be executed, quotes for smaller-sized orders in a given stock on an off-exchange venue such as a dark pool must generally represent a meaningful price improvement over the quotes simultaneously displayed on exchanges. Research by Foley and Putniņš, described above, found that Canada's trade-at regulation reduced the level of dark trading but also led to a shift away from two-sided dark trading, which they found tends to benefit market quality, and toward one-sided dark trading, which they found tends to reduce market quality. In June 2014, Mary Jo White asked agency staff to draft recommendations for expanding the scope of the operational disclosures that dark pools and other ATSs might provide to both the SEC and the public. In addition, with a possible eye toward future regulatory actions, White noted that the agency would "continue to examine whether dark trading volume is approaching a level that risks seriously undermining the quality of price discovery provided by lit venues." Regulators and law enforcement authorities have taken a number of enforcement actions against dark pool owners for violations of laws or regulations. This section describes some examples of such actions, including a 2014 civil suit by the New York attorney general against Barclays, one of the largest dark pool operators, and some enforcement actions undertaken by the SEC and FINRA. On June 25, 2014, New York Attorney General Eric Schneiderman filed a civil action with the state supreme court against one of the largest dark pool operators, the U.K.-based financial firm Barclays. The lawsuit charged, under New York state law's Martin Act, that Barclays falsified marketing material related to the extent and type of HFT in its dark pool. Another charge was that the firm falsely claimed that it was able to "restrict" HFT firms from interacting with its other clients but noted that it did not actually monitor such things. Referencing the case, some observers reiterated the fact that institutional investors are often attracted to dark pools because they have offered some protection against their large orders being spotted before they are fully executed. They then noted that if an HFT firm becomes aware of such an institutional stock order early on, the firm could then jump in and acquire the stock ahead of the institutional investor, potentially raising the investor's costs. Speaking about some of the possible implications of the Barclays suit, Justin Schack, Rosenblatt's managing director of market structure analysis, reportedly observed: "The problem isn't that [HFT] firms are participating in dark pools. That's pretty widely known, it's not necessarily bad and it's happening in most of the major ones.… [The troubling allegation is] that the broker lied to clients about the presence of a big HFT firm." In addition, Columbia law professor John C. Coffee Jr. has decried the fact that the people who actually understand the workings of dark pools is probably only in the hundreds. In congressional testimony, White has attempted to assure Congress of the adequacy of the agency's oversight of dark pools. She said that the agency has "taken a data-driven, disciplined approach to addressing complex market structure issues, such as high-frequency trading and dark pools, [and is] implementing a powerful new analytical tool called MIDAS [the Market Information Data Analytics System, a market analysis system that combines advanced technologies with empirical data that is designed to give the SEC added insight into securities markets]." The SEC and FINRA are both involved in probes of dark pools and their owners with respect to possible violations of securities laws. Some observers have noted that "the SEC has proven a willingness to prosecute dark pool operators for various violations, such as failing to provide the kind of anonymity and discretion that traders expect." Regulatory probes may lead to such cases. The SEC reportedly first fined a dark pool owner in 2011. For allegations involving customer misrepresentation, the agency levied a $1 million fine on Pipeline Trading Systems for failing to disclose to Pipeline's "dark pool customers" that an affiliate actually filled most of the customers' orders. The agency's ongoing probe of dark pools reportedly involves the pools' proper disclosure to clients about how they operate, fair treatment of investors, and protection of confidential client information, among other things. Barclays dark pool is reportedly under investigation by the SEC. In the aforementioned June 2014 speech, White indicated that the SEC would continue to examine whether dark trading volume is approaching a level that risks undermining the quality of price discovery provided by public exchanges. She also noted that the agency planned to work with FINRA to possibly expand trading disclosures required of dark pools and other off-exchange trading venues. In 2014, FINRA negotiated a settlement with Goldman Sachs, which had allegedly failed to ensure that clients in SIGMA-X, its dark pool, got the best price while trading stocks. The regulator reportedly charged that SIGMA-X executed nearly 400,000 trades between July 29, 2011, and August 9, 2011, at inferior prices and in violation of investor protection rules. Goldman Sachs agreed to pay $800,000 in fines. Meanwhile, FINRA is reportedly seeking information on various dark pools' operations, including what the pools disclose to clients. Based on the answers it receives, the regulator could bring enforcement actions against dark pool operators or issue recommendations for more stringent oversight of the pools. | The term "dark pools" generally refers to electronic stock trading platforms in which pre-trade bids and offers are not published and price information about the trade is only made public after the trade has been executed. This differs from trading in so-called "lit" venues, such as traditional stock exchanges, which provide pre-trade bids and offers publicly into the consolidated quote stream widely used to price stocks. Dark pools arose partly due to demand from institutional investors seeking to buy or sell big blocks of shares without sparking large price movements. The volume of trading on dark pools has climbed significantly in recent years, from about 4% of overall trading volume in 2008 to about 15% in 2013. While dark pools reportedly have lower trading fees, their lack of price transparency has sparked concerns about the continued accuracy of consolidated stock price information. In addition, fairness concerns have surfaced in recent regulatory and enforcement actions, in the press, and in Michael Lewis's book Flash Boys over allegations that dark pool operators may have facilitated front-running of large institutional investors by high-frequency traders, in exchange for payment, and misrepresented the nature of high-frequency trading in the dark pools. This report examines the confluence of factors that led to the rise of dark pools; the potential benefits and costs of such trading; some regulatory and congressional concerns over dark pools; recent regulatory developments by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), which oversees broker-dealers; and some recent lawsuits and enforcement actions garnering significant media attention. These include a 2014 civil suit filed by New York Attorney General Eric Schneiderman against the securities firm Barclays for its dark pool operations. A central allegation was that in marketing materials for prospective investors, Barclays misrepresented the extent and nature of the high-frequency trading in its pool. The report also examines steps regulators in Canada and Australia have taken to address any reduction in price transparency from dark pool trading. Traditionally, the exclusive locales for stock trades were exchanges such as the New York Stock Exchange and NASDAQ. In recent decades, the availability of cheaper and more powerful computers and at least two SEC regulations—Regulation ATS and Regulation NMS—helped give rise to an array of alternative trading venues that include dark pools. SEC Chair Mary Jo White and others have voiced concerns that the pools impede the overall process of price discovery in stocks. Proponents of dark pools, however, point out that they have lowered trading costs and that they may afford faster trading or superior technology and enable investors to buy or sell larger blocks of stocks without moving the market. In an effort to increase market transparency, FINRA in 2014 began requiring dark pools to report their aggregate weekly volume of transactions and the number of trades executed in each security. In June 2014, White asked SEC staff to draft recommendations for expanding the scope of operational disclosures that dark pools would have to provide to the SEC and the public. The SEC also announced a pilot project dubbed the "trade-at" rule, in which off-exchange trading venues, including dark pools, could execute orders only if they provided a significant price improvement or size improvement over "lit" venues. Both Canada and Australia saw significant reductions in dark pool trades after adopting such trade-at rules. Critics of the trade at rule include brokerage firms, some of whom own dark pools. Congress has examined regulatory concerns over dark pools in a number of 2014 hearings on high-frequency trading as part of its oversight over the SEC. |
In August 2018, the U.S. Environmental Protection Agency (EPA) proposed the "Affordable Clean Energy" (ACE) rule. ACE would modify provisions for existing power plants under two major Clean Air Act (CAA) programs. Among other things, ACE would "replace the Clean Power Plan (CPP)," a greenhouse gas (GHG) rulemaking that EPA promulgated under CAA Section 111(d) in 2015. ACE would also modify an applicability determination for New Source Review (NSR), which is a CAA preconstruction permitting program intended to ensure that new and modified stationary sources of air pollution do not significantly degrade air quality. EPA proposed ACE in response to Executive Order 13783, in which President Trump directed federal agencies to "review existing regulations and policies that potentially burden the development or use of domestically produced energy resources." Among the order's specific directives was that EPA review the CPP, which was one of the Obama Administration's key actions directed at reducing GHG emissions. EPA's review also led the agency to convene an "NSR Reform Task Force" to assess opportunities to simplify the NSR application and review process. Congress has also considered questions about NSR. A House hearing , held in early 2018, highlighted some long-standing and divergent views on the NSR program. Witnesses speaking in favor of NSR emphasized the program's health and environmental benefits, while other stakeholders described it as an outdated, cumbersome impediment to economic growth. For example, one of the witnesses testified that the complexities and costs of the NSR permitting process discourage pollution control and energy efficiency projects. In addition, two bills— H.R. 3127 and H.R. 3128 —were introduced in the 115 th Congress that would amend the CAA definition of modification , a key term in determining NSR applicability. Notable interest in the CPP and subsequent proposals to repeal or replace it reflects the perceived importance of their potential effects on the economy and the health, safety, and well-being of the nation. Some stakeholders contend that the U.S. economy would be adversely affected by controls on GHG emissions from power plants. At the same time, national and international scientific assessments of climate change have concluded that there is an increasing likelihood of "severe, pervasive and irreversible" GHG-induced impacts. After EPA proposed the CPP in 2014, the agency received more than 4.3 million public comments, the most ever for an EPA rule. EPA responded by making numerous changes to the rule between proposal and promulgation. Congressional and public interest has continued since EPA promulgated the CPP final rule in 2015. This report provides background information about the CAA and GHG emissions from the power sector and highlights some of the major components of EPA's ACE proposal. The topics discussed do not represent an exhaustive list of the proposal's elements. For a more comprehensive analysis of the CPP, see CRS Report R44341, EPA's Clean Power Plan for Existing Power Plants: Frequently Asked Questions , by [author name scrubbed] et al. For an analysis of the CPP's potential impact on the electric power sector, see CRS Report R44265, EPA's Clean Power Plan: Implications for the Electric Power Sector , by [author name scrubbed]. The report does not provide a legal analysis of the actions and legal interpretations proposed in ACE. For a detailed discussion of legal issues, see: CRS Legal Sidebar LSB10198, EPA Proposes the Affordable Clean Energy Rule to Replace the Clean Power Plan , by [author name scrubbed]. CRS Legal Sidebar LSB10199, EPA Proposes New Permitting Test for Power Plant Modifications , by [author name scrubbed]. CRS Report R44480, Clean Power Plan: Legal Background and Pending Litigation in West Virginia v. EPA , by [author name scrubbed]. CRS Legal Sidebar LSB10016, EPA Proposes to Repeal the Clean Power Plan , by [author name scrubbed]. This section provides background information on sources of U.S. GHGs emissions (particularly CO 2 ), CAA Section 111, the CPP, and NSR. Anthropogenic GHG emissions are generated throughout the United States from millions of discrete sources: vehicles, power plants, industrial facilities, households, commercial buildings, and agricultural activities (e.g., soils and livestock). CO 2 emissions from fossil fuel combustion account for the largest percentage (76% in 2016) of total U.S. GHG emissions. Historically, the electricity sector accounted for the largest percentage of U.S. CO 2 emissions from fossil fuel combustion. However, the transportation sector surpassed electricity in 2016. In 2017, the transportation sector accounted for 37% and the electricity sector accounted for 34% of U.S. CO 2 emissions from fossil fuel combustion. In previous decades (1973-2010), CO 2 emissions from electricity generation followed an upward course—similar to electricity generation levels in the same time period, as illustrated in Figure 1 . In 2010, their courses diverged. Although electricity generation has remained relatively flat in recent years (2010-2017), CO 2 emissions have generally continued to decline. In 2017, electricity generation was equivalent to generation levels in 2010, while CO 2 emissions were 23% below 2010 levels. Multiple factors impact CO 2 emission levels from the electricity sector. One key factor in CO 2 emission levels is the electricity generation portfolio. Electricity is generated from a variety of sources in the United States. Some sources—nuclear, hydropower, and some renewables—directly produce no CO 2 emissions with their electricity generation. Fossil fuels, on the other hand, generate different amounts of CO 2 emissions per unit of generated electricity. For example, natural-gas-fired electricity from a combined cycle unit yields approximately 43% of the CO 2 emissions of coal-fired electricity per kilowatt-hour of electricity. Therefore, shifting the U.S. electricity generation portfolio to lower emissions sources would likely have (all else being equal) a considerable impact on CO 2 emissions from the electricity sector, which in turn, would likely reduce total U.S. GHG emissions. As illustrated in Figure 2 , recent changes in the U.S. electricity generation portfolio between 2005 and 2017 have played a key role in electric power emission levels: Coal's contribution to total electricity generation decreased from 50% to 30%. Natural gas's contribution to total electricity generation increased from 19% to 32%. Non-hydro renewable energy (wind and solar) generation increased from 2% to 10%. Structural changes in the electricity sector are likely playing a role in the electricity generation portfolio changes described above. Over the last decade (2007-2017), the electricity-generating capacity (measured in megawatts) of coal-fired power plants has decreased by 19%, while natural gas capacity has increased by 45%, and (non-hydro) renewable sources has increased by 445%. If these recent changes in the electricity generation portfolio continue, U.S. CO 2 emissions may continue to decline as well—assuming the emission levels in other economic sectors, particularly the transportation sector, do not offset the reductions. As discussed in the section " CO2 Emissions Projections " below, recent analyses of CO 2 emissions project further declines in the near term under baseline scenarios. CAA Section 111 requires EPA to establish nationally uniform, technology-based standards for categories of industrial facilities, also referred to as stationary sources of air pollution. These standards establish a consistent baseline for pollution control that competing firms must meet and thereby remove any incentive for states or communities to weaken air pollution standards in order to attract industry. They also conserve clean air to accommodate future growth as well as for its own benefits. CAA Section 111(b) establishes maximum emission levels (called New Source Performance Standards, or NSPS) for new and modified major stationary sources—power plants, steel mills, and smelters, for example. The emission levels are determined by the best system of emission reduction (BSER) "adequately demonstrated," taking costs and any non-air-quality health and environmental impacts and energy requirements impacts into account. Section 111 directs EPA to determine what constitutes the BSER. Section 111 also addresses existing stationary sources of pollution. Section 111(d) requires EPA to promulgate regulations, which EPA has historically referred to as "emission guidelines." These emission guidelines establish binding requirements that states are required to address when they develop plans to regulate the existing sources in their jurisdictions. In particular, states must establish performance standards for existing sources reflecting the BSER, which is determined by EPA. States, in their plans, provide for their implementation and enforcement of the standards. Similar to Section 110 of the CAA—which requires states to develop and revise implementation plans to achieve EPA's National Ambient Air Quality Standards (NAAQS) and subsequent changes to those standards—Section 111(d) directs EPA to establish state plan "procedures." EPA promulgated these procedures in 1975 and codified them at 40 C.F.R. Part 60, Subpart B. In the CPP, EPA established "emission guidelines for states to follow in developing plans to reduce" GHGs from existing fossil-fuel-fired power plants. Specifically, the CPP set national performance standards for CO 2 emissions from existing fossil-fuel-fired power plants. One national performance applied to existing electric steam generating units (which are mostly coal), and the other applied to existing stationary combustion turbines—for example, natural gas combined cycle (NGCC) units. EPA based these standards on BSER. The agency determined BSER based on three "building blocks": (1) improving the heat rate at coal-fired units, (2) shifting generation to lower-emitting natural gas units, and (3) shifting generation from fossil fuel units to renewable energy generation. The CPP rule also set individual state targets for average emissions from existing power plants based on the CO 2 performance standards. In particular, it set interim targets for the period 2022-2029 and final targets to be met by 2030. Although EPA set state-specific targets, states would determine how to reach these goals. The CPP is the subject of ongoing litigation and has not gone into effect. The Supreme Court in 2016 stayed the implementation of the rule until the lawsuit challenging its legality is resolved. The U.S. Court of Appeals for the District of Columbia Circuit heard oral arguments in the case in September 2016 but agreed to an EPA request to continue to hold the case in abeyance while the agency reviewed the CPP and considered next steps. Upon its review of the CPP and its 2015 legal justification, EPA has now determined that the CPP exceeds its statutory authority based on a change in the agency's legal interpretation of Section 111 of the CAA. Thus, on October 10, 2017, EPA proposed to repeal the CPP. EPA also published an Advanced Notice of Proposed Rulemaking on December 28, 2017, which requested information on a potential replacement to the CPP. The 1977 CAA amendments established NSR, a preconstruction permitting program intended to support attainment of federal air quality standards and also limit air quality deterioration in areas that have met or exceeded federal air quality standards. In general, the NSR program requires the installation of modern pollution controls when new facilities are built or when existing facilities make a change that substantially increases emissions. Owners or operators must obtain an NSR permit before the construction or modification begins. Permit applicants must demonstrate, among other things, that the proposed new source or modification will not violate or worsen a violation of a NAAQS or that, in areas complying with the NAAQS, it will not exceed the increments of increased air pollution allowed under Prevention of Significant Deterioration (PSD) regulations. The CAA defines modern pollution controls as the "best available control technology" (BACT), which would achieve the maximum degree of emissions reductions, taking into consideration energy, environmental, and economic impacts. The way that the CAA applied NSR to existing facilities is described as "grandfathering," meaning that facilities that were in existence before August 7, 1977, were not required to install BACT immediately following enactment of the 1977 CAA amendments. Rather, the NSR provisions did not require existing facilities to install BACT until such facilities made major modifications. This approach was premised in part on an expectation that the "grandfathered" facilities would "either be upgraded or replaced over time and that, whenever changes were made later, existing facilities would install new, cleaner technologies to prevent or control air pollution." Historically, NSR applicability determinations have been contentious and extensively litigated. The CAA broadly defines modification as "any" physical or operational change in a stationary source "that increases the emissions of any air pollutant or results in the emission of any air pollutant not previously emitted." EPA and state air pollution control agencies have interpreted this definition to implement NSR through regulations and policy guidance. EPA's interpretation of modification under the NSR program has been subject to various legal challenges. Since 1974, EPA has construed the term to not include "routine maintenance, repair, and replacement" at a stationary source —despite the CAA's inclusion of "any" physical or operational change that increases emissions in its definition of modification . Courts have long accepted this agency-created exemption as reasonable. For additional discussion about legal interpretations of NSR applicability, see CRS Report R43699, Key Historical Court Decisions Shaping EPA's Program Under the Clean Air Act , by [author name scrubbed]. EPA proposed to replace the CPP with revised emission guidelines for existing fossil fuel steam generating units, which are largely coal-fired units. Specifically, EPA proposed a new BSER for these electric generating units (EGUs) based on heat rate improvement (HRI) measures, discussed below. EPA did not propose a BSER for other types of EGUs, such as stationary combustion turbines, which includes NGCC units. Under the proposal, states would establish unit-specific performance standards based on the list of candidate technologies identified by EPA and other considerations, such as the remaining useful life of the unit. In other words, EPA would not establish a numeric performance standard for steam EGUs, as the agency did as part of the CPP. EPA based the proposal on its finding that the BSER set in the CPP exceeded EPA's statutory authority by using measures that applied to the power sector rather than measures carried out within an individual facility. EPA stated that under Section 111(d), BSER should "be determined by evaluating technologies or systems of emission reduction that are applicable to, at, and on the premises of the facility for an affected source." EPA also proposed revisions to the corresponding emission guidelines in order to clarify the roles of the agency and of states under Section 111(d) and to "provide states with needed time and flexibility to accomplish their role." The ACE proposal would alter the CPP's allocation of tasks for establishing emission standards between EPA and the states. Under ACE, EPA would continue to determine "nationally applicable BSER," but the states would establish numeric performance standards based on source-specific considerations. EPA noted that the CAA directs EPA to allow states to account for source-specific factors, such as the remaining useful life of the source, when developing performance standards. The ACE proposal applies a narrower interpretation of BSER compared to the CPP. Specifically, EPA proposed to define BSER for existing, fossil fuel steam EGUs as on-site HRI. The ACE proposal would limit the BSER for CO 2 emissions to existing fossil fuel steam EGUs, which are largely coal-fired units. While the ACE preamble discusses the BSER based on existing coal-fired EGUs, the proposal's applicability to other existing fossil-fuel-fired steam EGUs—namely natural gas steam units and fuel oil units—is ambiguous. In particular, EPA proposed to define affected EGU as a fossil-fuel-fired "steam generating unit" that exceeds a specified nameplate capacity and base load rating. The ACE preamble specifies that it would not establish BSER for other types of existing EGUs. EPA proposed to exclude integrated gasification combined cycle units and stationary combustion turbines (e.g., NGCC units) from the definition of affected source . EPA stated that it could not establish BSER for these sources because it did not have sufficient information "on adequately demonstrated systems of emission reduction—including HRI opportunities—for existing natural gas-fired stationary combustion turbines." For the CPP, EPA took a broader view of BSER for existing power plants and based it on three "building blocks": (1) HRI at coal-fired EGUs, (2) shifting generation from higher-emitting coal units to lower-emitting NGCC units, and (3) shifting generation from fossil fuel units to renewable energy generation. From these building blocks, the agency established two national CO 2 emission performance standards, one for fossil steam units (e.g., coal-fired units) and one for stationary combustion turbines (e.g., NGCC units). Based on these national standards, EPA calculated emission reduction targets for each state. The CPP allowed states to choose various options to meet those emission targets. The "heat rate" measures the amount of energy that a power plant uses to generate one kilowatt-hour of electricity. A power plant with a lower, more efficient heat rate uses less fuel to generate the same amount of electricity as a power plant with a higher heat rate. Using less fuel per kilowatt-hour may result in lower emissions of CO 2 as well as sulfur dioxide and nitrogen oxides. HRI can also lead to greater use of the more efficient fossil-fuel-fired power plants, which contributes to a "rebound effect." That is, efficiency gains may lead to increased electricity generation by fossil-fuel-fired plants instead of relying on other electricity generation technologies, thereby increasing absolute emissions and, to some extent, offsetting the emission reductions from the HRI. According to EPA, its ACE analysis "indicates that the system-wide emission decreases due to reduced heat rate are likely to be larger than any system-wide increases due to increased operation." In the CPP, EPA raised concerns about the rebound effect—particularly when using an HRI approach in isolation (as is done in the ACE proposal)—and concluded in 2015 that a combined approach using all three building blocks would alleviate such concerns. Specifically, EPA stated that applying building block 1 [HRI at coal-fired EGUs] in isolation can result in a "rebound effect" that undermines the emissions reductions otherwise achieved by heat rate improvements…. [T]he building block 1 measures described below cannot by themselves constitute the BSER because the quantity of emission reductions achieved—which is a factor that the courts have required EPA to consider in determining the BSER—would be of insufficient magnitude in the context of this pollutant and this industry. The potential rebound effect, if it occurred, would exacerbate the insufficiency of the emission reductions. However, applying building block 1 in combination with other building blocks can address this concern. See " CO2 Emissions Projections " later in this report for a more detailed discussion about rebound effects in the context of EPA's CO 2 emission projections under ACE and the CPP. Under ACE, EPA is not proposing specific performance standards for the BSER. EPA stated that the agency is not required to establish a performance standard that "presumptively reflects such degree of emission reduction which is achievable through application of the BSER, as that is appropriately the states' role." Instead, EPA proposed a list of "candidate technologies" of HRI measures that constitute the BSER. States could use this list to establish standards of performance for existing steam-fired units under Section 111(d). Specifically, states would need to evaluate each HRI measure on the candidate technology list to (1) determine which ones are appropriate for each power plant and (2) establish the source-specific "standard of performance that reflects the degree of emission reduction" from application of the technology. The candidate technologies list includes HRI measures that EPA determined were "most impactful." The list of candidate measures, which the agency based partly on a 2009 EPA-funded study, includes steam turbine blade upgrades—which according to EPA, may offer the greatest potential for HRI—seal improvements to reduce air leaks, and use of computer models that can optimize combustion conditions. The proposed rule does not explicitly identify criteria used to classify these particular measures as the "most impactful," though it presents the estimated range of HRI potential for each listed candidate technology. EPA also considered the cost of the candidate technology measures, reporting estimates from the 2009 study. EPA proposes to allow affected sources to use "either BSER technologies or some other non-BSER technology or strategy" to comply with the standards established in the state plan. EPA identified examples of non-BSER technologies that were not on the candidate technologies list, including carbon capture and storage and fuel co-firing (natural gas or certain biomass). EPA noted, however, that the agency "takes no position regarding whether there may be other methods or approaches to meeting such a standard." In ACE, EPA proposes that states have "considerable flexibility" in establishing performance standards generally and "considerable latitude for implementing measures and standards" for affected EGUs specifically. EPA proposes that states may account for various factors, including the remaining useful life of the source, when establishing unit-specific performance standards. Consideration of source-specific factors would allow states to establish less stringent standards "than would otherwise be suggested by strict implementation of the BSER technologies." EPA notes that Congress explicitly identified one factor—remaining useful life of the source—in the CAA and proposes to codify this and other factors in its implementing regulations. These factors include "unreasonable cost of control resulting from plant age, location, or basic process design" and "physical impossibility of installing necessary control equipment." EPA also proposed to allow states to include in their plans "emissions averaging among [affected] EGUs across a single facility" but not between affected and non-affected units or between units at separate facilities. EPA identified several concerns about averaging between affected and non-affected units at the same facility, in particular that it would be "contrary to the intention of the rule which is to focus on reducing the rate at coal-fired EGUs when they run, not to reduce the amount they run." Averaging across existing affected EGUs at a single facility would be consistent with the proposed BSER, according to EPA's determination. However, EPA determined that "legal and practical concerns may weigh against the inclusion of averaging and trading between existing sources" located at different facilities. EPA acknowledged that averaging and trading could provide states flexibility, however, and requested comment on ways to permit trading between affected units without "encouraging generation shifting." EPA's ACE proposal would allow states to determine the appropriate compliance deadlines for affected units based on the standards of performance determined as part of the state plan process (discussed below). That is, EPA proposes that "states will include custom compliance schedules for affected EGUs as part of their state plan." States that choose a compliance schedule extending more than 24 months beyond the submission of the state plan would have to specify "legally enforceable increments of progress for that source" in the state plan. Under the CPP, EPA directed states to establish interim targets that would be measured between 2022 and 2029. The CPP also required states to demonstrate their progress in implementing a gradual application of BSER with "glide paths" that the states identify for reductions in three time periods: 2022-2024, 2025-2027, and 2028-2029. The second action that EPA proposed in ACE would revise the "general implementing" regulations (40 C.F.R. Part 60, Subpart B). Originally promulgated in 1975, these regulations establish procedures for state plans. EPA determined that these regulations "do not reflect section 111(d) in its current form as amended by Congress in 1977, and do not reflect section 110 in its current form as amended by Congress in 1990." In particular, EPA seeks to codify its current legal interpretation that states have "broad discretion in establishing and applying emissions standards consistent with the BSER." EPA therefore proposed changes that would, among other things, revise some definitions, lengthen the time for development and review of state plans, add a step for EPA to determine whether state plan submissions are complete, and modify a variance provision. EPA proposed to codify the revised implementing regulations in a new subpart—40 C.F.R. Part 60, Subpart Ba. Subpart Ba would apply to the proposed ACE emission guidelines for affected EGUs and corresponding state plans as well as any future emission guidelines and associated state plans issued under Section 111(d). EPA proposed to redefine the phrase emission guideline as a "final guideline document" to reflect the agency's current interpretation that Section 111 does not require EPA to establish a presumptive standard. The current regulations define emission guideline as a "guideline set forth in subpart C of this part, or in a final guideline document published under §60.22(a)." EPA concluded that the current regulatory definition has "arguably required EPA to provide a presumptive emission standard"—that is, a standard that reflects the degree of emission limitation achievable through BSER application. EPA determined that nothing in CAA Section 111(a)(1) or Section 111(d) "compels EPA to provide a presumptive standard." Moreover, the agency regards a presumptive standard as a potential limitation, because it "could be viewed as limiting a state's ability to deviate from the prescribed methodology." EPA proposed instead to provide "information" about the emission limit that could be achieved. EPA also proposed to replace the term emission standard with performance standard . The current regulations, which EPA promulgated in 1975, reflect the CAA of 1970 (P.L. 91-604), which required state plans to include "emission standards" for existing sources. EPA has since twice amended the regulatory definitions, including for emission standards . Congress replaced " emission standards " with standard of performance in the CAA amendments of 1977 ( P.L. 95-95 ). While EPA has since amended some of the definitions in this section, the agency stated that it has not revised the regulations to reflect the "standard of performance" terminology from the CAA amendments of 1977. EPA proposed to lengthen the time periods for the development and review of state plans as well as federal plans under Section 111(d). EPA cited workload considerations as one reason for lengthening the timelines. EPA also stated that it proposed this change in order to be consistent with the timelines for development and review of state implementation plans and federal implementation plans under Section 110. The existing regulations require state plans to be submitted to EPA within nine months after publication of a final emission guideline unless otherwise specified in an emission guideline. For example, the CPP required each state to submit an initial state plan within 13 months, at which time the state could seek a two-year extension for the submittal of its final plan. EPA is proposing to provide states with three years after the notice of the availability of the final emission guideline to adopt and submit a state plan to EPA. The existing regulations provide EPA four months after the submittal deadline to review the state plan submissions. EPA's proposal would give the agency six months to determine whether a state plan is complete. Once the EPA made a determination of completeness, the agency would have 12 months to review the state plan. The completeness determination would be a new addition to the Section 111(d) implementing regulations. EPA proposed 14 criteria—eight items pertaining to administrative issues and six items pertaining to the state plan's technical support—that the agency would consider to determine whether the state plan is complete. Finally, if states do not submit an approvable state plan, EPA would promulgate a federal plan. The current regulations direct EPA to promulgate a federal plan six months after the state's submittal deadline. EPA proposed that the agency would have two years to promulgate a federal plan after finding that a state has failed to submit a complete plan or after EPA disapproves a state plan. The current implementing regulations specify that state plans for health-based pollutants must be as stringent as the emission guideline established by EPA unless the state demonstrates, on a case-by-case basis, that a source meets certain factors. This so-called variance provision would allow a state to apply less stringent standards for health-based pollutants if the state demonstrates any of the following factors: Unreasonable cost of control resulting from plant age, location, or basic process design; Physical impossibility of installing necessary control equipment; or Other factors specific to the facility (or class of facilities) that make application of a less stringent standard or final compliance time significantly more reasonable. Under ACE, EPA proposed a new variance provision that includes these three factors verbatim but also explicitly accounts for a statutory factor—the remaining useful life of the source. Under ACE, EPA proposed to revise the test used to determine whether physical or operational changes to an EGU constitute a "major modification" that triggers NSR. The proposed revision would not be mandatory. Rather, states would have the option to decide whether to incorporate it into state regulations. EPA expects that the proposed NSR revision would "help prevent NSR from being a barrier to the implementation of efficiency projects at EGUs" for states that adopt the new applicability test. The current test for NSR permits, which is codified in the NSR regulations, requires consideration of emissions increases on an annual basis. EPA proposed to consider whether the modification at an existing EGU would increase emissions on an hourly basis. Under ACE, NSR would not be triggered if the modification to an existing EGU does not increase emissions on an hourly basis. These EGUs would not be required to install additional pollution controls, even if the modification leads to an increase in the annual emissions. EPA acknowledged that adoption of HRI measures could increase a facility's annual emissions despite the decrease in the hourly rate of emissions. For example, EGUs that adopt HRI measures may operate more efficiently, which in turn may lower their operating costs. The reduced operating costs may lead these units to be dispatched for more hours in a year, thereby increasing emissions on an annual basis. Under existing law, the higher annual emissions may trigger the NSR process. Under ACE, however, the annual emissions would not be considered in states that adopt the revised NSR test. That is, facilities in those states would not be required to consider the potential increase in annual emissions, provided the hourly rate of emissions does not increase. EPA explained the basis for the proposed NSR revision partly as a way to facilitate "prompt implementation of a revised CAA Section 111(d) standard for EGUs." EPA stated that "over the years, some stakeholders have asserted that the NSR rules discourage companies" from implementing energy efficiency projects. Other stakeholders, however, have suggested that the proposed NSR revision has broader implications for the energy and air quality programs. For example, one state agency described ACE as "a significant overhaul" of NSR that would increase the number of "projects that are excluded from requirements to install reasonable controls," thereby allowing "poorly controlled and grandfathered sources to continue to operate without cost-effective controls." Moreover, it is uncertain how the proposed NSR revision would affect each state's air quality objectives. In general, it is difficult to discern the incremental effect of the proposed NSR change from the scenarios that EPA analyzed. As a result, the extent to which the proposed NSR provisions contribute to the estimated emissions changes and the associated projections of air quality impacts is unclear. EPA conducted air quality modeling—based on the agency's estimated emission changes under several implementation scenarios—and projected that ACE would increase ambient concentrations of particulate matter and ozone in some areas relative to the CPP. While EPA's air quality modeling did not identify areas that would experience a change in attainment status as a result of ACE, these projections do not account for potentially important factors, such as implementation decisions made at the state level. For example, the extent to which the actual impacts diverge from the agency's projections will depend in part on "a variety of federal and state decisions with respect to NAAQS implementation and compliance, including [PSD] requirements." In addition, EPA's analysis did not account for federal initiatives that may extend the life of coal-fired power plants beyond planned retirement dates. That is, actual emissions under ACE could be higher than estimated emissions if the coal-fired power plants that were assumed to retire in EPA's analysis continue operating beyond planned retirement dates. The ACE proposal does not repeal or otherwise change CO 2 performance standards for new and modified power plants, sometimes referred to as the "111(b) standards." Once EPA lists a source category, such as fossil-fuel-fired EGUs, Section 111(b) requires EPA to establish NSPS for new and modified sources within a listed source category. Once EPA promulgates NSPS under Section 111(b) for new or modified sources in that category, EPA is to require the states, under 111(d), to submit plans establishing standards of performance for existing sources that would be subject to NSPS if they were new, unless the sources or the pollutants regulated by the NSPS are already subject to standards under other sections of the act. EPA promulgated the performance standards for new power plants in 2015 under CAA Section 111(b)—the "111(b) rulemaking"—concurrent to the 111(d) standards for existing plants in the CPP. Although the performance standards for new power plants remain in effect, EPA stated that it is "currently considering revising" them. In 2009, EPA made two findings under CAA Section 202: (1) that GHGs currently in the atmosphere potentially endanger public health and welfare and (2) that new motor vehicle emissions cause or contribute to that pollution. (Collectively, these findings are known as the "endangerment finding.") The endangerment finding triggered EPA's duty under CAA Section 202(a) to promulgate emission standards for new motor vehicles. In the 2015 NSPS rule for new and modified power plants, EPA concluded that it did not need to make a separate endangerment finding under Section 111, which directs EPA to list categories of stationary sources that cause or contribute significantly to "air pollution which may reasonably be anticipated to endanger public health or welfare." EPA reasoned that because EGUs had been listed previously under Section 111, it was unnecessary to make an additional endangerment finding for a new pollutant emitted by a listed source category. The agency also argued that, even if it were required to make a finding, EGUs would meet that endangerment requirement given the significant amount of CO 2 emitted from the source category. The ACE proposal does not reconsider EPA's 2009 GHG endangerment finding or the conclusions related to the endangerment finding in the 2015 NSPS for new and modified power plants. EPA clarified that ACE is "not re-opening any issues" related to the trigger for power plant CO 2 standards under Section 111. Without reconsidering the GHG endangerment finding, EPA appears to have a continuing obligation to limit emissions of CO 2 from power plants and other sources. EPA estimated the emission changes and the monetized benefits and costs under four scenarios, comparing each one to a baseline that assumed implementation of the CPP. The first scenario—the "No CPP" scenario—modeled a world without either the CPP or the ACE proposal. The remaining three scenarios considered implementation of the ACE proposal and modeled different levels of HRI at corresponding levels of assumed capital costs at affected coal-fired EGUs in the contiguous United States. EPA explained that data limitations required the agency to assume a uniform level of HRI and capital cost within each ACE scenario rather than modeling a "more customized HRI and cost functions to specific units." EPA projected that power sector emissions of CO 2 , SO 2 , and NO x would increase under the ACE proposal compared to the CPP. For example, compared to the CPP in the year 2030, EPA estimated that CO 2 emissions would increase 3% (47 million short tons to 61 million), SO 2 emissions would increase 5.0-5.9% (45,000 short tons to 53,000), and NO x emissions would increase 4.1-5.0% (32,000 short tons to 39,000) in the year 2030 under each of the ACE scenarios. EPA also projected that ACE would, in most scenarios, decrease CO 2 , SO 2 , and NO x emissions compared to a baseline without the CPP. For example, compared to a baseline without the CPP in the year 2030, EPA estimated that CO 2 emissions would decrease 1% (13 million short tons to 27 million), SO 2 emissions would decrease 0.7-1.6% (7,000 short tons to 15,000), and NO x emissions would decrease 1.0-1.8% (8,000 short tons to 15,000) in 2030 under ACE. EPA also compared this No-CPP baseline to a CPP implementation scenario, which showed that CO 2 emissions would decrease 4% (74 million short tons), SO 2 emissions would decrease 6.3% (60,000 short tons), and NO x emissions would decrease 5.7% (47,000 short tons) in 2030. In sum, EPA's projections show that, compared to a world without the CPP, ACE would generally reduce CO 2 , SO 2 , and NO x emissions, but the reductions are lower than those projected for the CPP. As discussed below, however, the emissions estimates for the ACE scenarios are particularly uncertain given the "considerable uncertainty regarding the specific technology measures that might be applied by States." This section compares projections of CO 2 emissions from each of the scenarios EPA modeled in its 2018 proposed rule and emission projections from other organizations. EPA's ACE proposal and its supporting documents contain estimates of CO 2 emission projections in future years for several different scenarios, including: No CPP. This scenario models a repeal of the CPP without any replacement. It assumes that none of the affected sources adopt HRI. CPP . This scenario, which EPA refers to as its baseline scenario, assumes states use their mass-based targets to comply with the 2015 CPP. In particular, EPA assumes intrastate trading between covered sources but no incremental demand-side energy efficiency investments. CPP with demand-side energy efficiency. 152 This scenario is the same as the above CPP scenario, except that it assumes that demand-side energy efficiency measures are undertaken as a compliance option under the CPP framework. ACE ( 2% HRI at $50/kilowatt ). This scenario models "modest improvements" in HRI in the absence of the NSR revisions also proposed in ACE. The model required each affected coal-fired EGU to improve its heat rate by 2% at a capital cost of $50 per kilowatt. The model allowed a source to either adopt the improvement or retire, depending on the economics of either option. ACE ( 4.5% HRI at $50/kilowatt) . This scenario assumes implementation of the proposed NSR revisions and, at each source, models a 4.5% HRI at a capital cost of $50 per kilowatt. The model allowed a source to either adopt the improvement or retire, depending on the economics of either option. ACE (4.5% HRI at $100/kilowatt) . This scenario assumes implementation of the proposed NSR revisions and, at each source, models a 4.5% HRI at a capital cost of $100 per kilowatt. The model allowed a source to either adopt the improvement or retire, depending on the economics of either option. EPA's CO 2 projections show that, compared to a world without the CPP, ACE would generally reduce CO 2 emissions, but the reductions are lower than those projected for the CPP. See Figure 3 , which indicates that EPA's projected CO 2 emissions are generally lower than recent historical emissions. Figure 3 also presents a magnified view of EPA's scenario projections in the subset box, which shows that CO 2 emissions do not vary much under the different ACE scenarios. While uncertainty is inherent in any projection, the emission estimates for the ACE scenarios may contain more uncertainty than the estimates for the CPP. The CPP would establish unit-specific, federally enforceable performance standards underpinning the state-specific emission rate and emission reduction targets. In contrast, the ACE proposal would not establish a numeric performance standard for coal-fired EGUs. The proposed rule authorizes states to determine performance standards at individual EGUs based on the technology options identified in EPA's proposed rule (i.e., BSER) and other considerations, such as the remaining useful life of the unit. EPA states that "affected sources may not be able to apply the technology options because they have already adopted these technologies, they are not applicable to the source, or for other reasons." For these reasons, EPA states that HRI outcomes of the proposed rule contain "considerable uncertainty." Another factor in the uncertainty of the emissions projections involves the "rebound effect." As discussed above (see " HRI and Potential Emission Impacts "), EPA raised concerns about the rebound effect in its 2015 CPP final rule, stating that "improved competitiveness and increased generation at the EGUs implementing heat rate improvements could weaken or potentially even eliminate the ability of building block 1 [i.e., HRI] to achieve CO 2 emission reductions." However, in its 2018 proposed rule, EPA stated that its "analysis indicates that the system-wide emission decreases due to reduced heat rate are likely to be larger than any system-wide increases due to increased operation." A Resources for the Future study examined the emission impacts of the rebound effect with an "inside the fence line" approach and found that implementing an average fleet-wide HRI of 4% at coal-fired power plants could reduce CO 2 emissions at power plants by 2.6% in 2030 compared to a no-policy baseline scenario. The study pointed out that this result was a national estimate and that eight states would see CO 2 emission increases (and corresponding increases in co-pollutants) at their power plants in 2030 (compared to a baseline scenario). A more recent Resources for the Future analysis of rebound effects noted that the agency's analysis did not account for federal energy sector initiatives that may extend the life of coal-fired power plants beyond planned retirement dates. That is, actual emissions under ACE could be higher than estimated emissions if the coal-fired power plants that were assumed to retire in EPA's analysis continue operating beyond planned retirement dates. As of October 2018, CRS is unaware of analyses other than the EPA's that model the ACE proposal and examine potential rebound effects. In recent years, other organizations have prepared CO 2 emissions projections, comparing policy scenarios with and without the CPP. Selected results from the 2018 proposed rule and other groups are identified in Table 1 . The emission estimates in Table 1 include (1) electricity sector CO 2 emission projections for 2030 and (2) the percent reduction in 2030 compared to 2005 electricity sector CO 2 emission levels. Observations regarding the CO 2 emissions percentage reduction in 2030 compared to 2005 emissions levels include the following: Compared to the other studies, the emissions projections from EPA's 2018 ACE proposed rule display a more narrow range across the policy scenarios EPA modeled. For example, the CPP and non-CPP scenarios differ by 2% (4% with the CPP demand-side efficiency scenario). The estimated percentage emission reductions between the ACE proposed HRI scenarios and the CPP and non-CPP scenarios range between 0% and 1%. The emission reduction differences between CPP and non-CPP scenarios are greater in the studies from earlier years. For example, a comparison between CPP and non-CPP scenarios from the past three EIA analyses shows the percentage difference has decreased from 16% (in 2016) to 8% (in 2018). This reflects the fact that many of the changes EPA expected to result from the CPP (e.g., natural gas and renewables replacing coal-fired units) have already happened as the result of market forces in the electric power sector. The reference case scenarios in more recent studies project significantly lower emissions in 2030 when compared to earlier studies. For example, the reference case in the 2015 EPA analysis projected an emission reduction of 16% below 2005 levels in 2030, while the 2018 EPA analysis projected an emission reduction of 32% below 2005 levels in 2030. As EPA notes in its 2018 analysis, "over the past few years, the power sector has changed notably." In particular, EPA's 2015 projections do not include the renewable energy tax extensions enacted in December 2015. Comparisons between the projections in Table 1 should be made with caution for several reasons. Models from different organizations may include different assumptions about future economic conditions and underlying energy inputs (e.g., natural gas prices). As noted above, the underlying conditions have changed considerably in the past few years. There is also uncertainty related to factors previously discussed, including potential rebound effects and about which technology measures would be adopted under ACE. A comparison between CO 2 emissions projections and actual CO 2 emissions illustrates the uncertainties of emission projections. Figure 4 compares actual U.S. CO 2 emissions between 1990 and 2017 with selected EIA emission projections made in past years. In general, actual emissions have remained well below projections. For example, the AEO from 2006 projected that CO 2 emissions would be almost 6.9 billion metric tons in 2017, about 33% higher than observed emissions. Compared to the current regulation—which is the CPP—the ACE proposal would reduce compliance costs but would also yield lower emission reductions, thereby increasing the climate-related damages (forgone benefits) and human health damages (forgone benefits). EPA's analysis shows that the estimated value of the forgone benefits would outweigh the compliance cost savings when replacing the CPP with ACE, yielding net costs. Specifically, EPA estimated that the net costs of replacing the CPP with ACE range from $12.8 billion to $72.0 billion (2016 dollars) over a 15-year period (2023-2037). These estimates account for forgone benefits—the forgone domestic climate benefits and the forgone co-benefits—that is, the human health benefits from emission reductions not targeted by either ACE or the CPP: SO 2 and NO x emissions. EPA's analysis also shows that repealing and not replacing the CPP would yield net costs ranging from $14.8 billion to $76.2 billion (2016$) over a 15-year period (2023-2037). This range accounts for forgone domestic climate benefits and forgone human health co-benefits. Consideration of co-benefits and other indirect impacts is typically viewed as a principle of benefit-cost analysis and consistent with federal guidance. In particular, OMB Circular A-4 directs agencies to "look beyond the direct benefits and direct costs" of a rulemaking and quantify and monetize co-benefits as well as adverse impacts not already considered in the direct cost estimates. Likewise, EPA's Guidelines for Preparing Economic Analyses recommends that the agency's economic analysis "include directly intended effects and associated costs, as well as ancillary (or co-) benefits and costs." EPA excludes the forgone human health co-benefits from some of the benefit-cost comparisons. EPA explained these comparisons as a way to consider the benefit of reducing the "targeted pollutant" (CO 2 ) against the compliance cost. The estimated compliance costs are the same regardless of whether EPA counts the human health co-benefits. Therefore, the benefit-cost comparisons that exclude the co-benefits show a lower net impact—that is, they weigh a lower estimate of the forgone benefits against compliance cost savings. Specifically, the exclusion of forgone human health co-benefits from these comparisons yields estimates that range from net costs to net benefits. These benefit-cost comparisons, which are limited to compliance cost savings and forgone domestic climate benefits—range from a net cost of $5.4 billion to a net benefit of $3.4 billion over a 15-year period (2023-2037). In addition, repealing without replacing the CPP appears more favorable when EPA excludes the forgone human health co-benefits. Under this scenario, the estimated present value of repealing the CPP ranges from a net benefit of $1.2 billion to $2.7 billion (2016$) over a 15-year period (2023-2037). EPA also compares the three ACE scenarios to an alternative baseline that does not include the CPP. When EPA excludes the forgone human health co-benefits, these comparisons yield present value estimates that range from a net cost of $6.6 billion to a net benefit of $2.0 billion (2016$) over a 15-year period (2023-2037). The net cost figure signifies that the estimated value of the forgone domestic climate benefits outweighs the estimated compliance cost savings. The net benefit figure signifies that the estimated compliance cost savings outweigh the estimated value of the forgone domestic climate benefits. While these comparisons provide some perspective on the potential effects of ACE (separate from the CPP), the scenario design makes it difficult to discern the incremental effect of key components of the ACE proposal. EPA designed two of the ACE scenarios to account for "benefits from the proposed revisions to NSR." The third ACE scenario does not. The level and cost of HRI improvements also vary among the three scenarios, making it difficult to understand how much the proposed NSR revisions and assumed level of HRI affects the benefit-cost estimates. | In August 2018, the U.S. Environmental Protection Agency (EPA) proposed three actions in the "Affordable Clean Energy Rule" (ACE). First, EPA proposed to replace the Obama Administration's 2015 Clean Power Plan (CPP) with revised emission guidelines for existing fossil fuel steam electric generating units (EGUs), which are largely coal-fired units. Second, EPA proposed revised regulations to implement emission guidelines under Clean Air Act (CAA) Section 111(d). Third, EPA proposed to modify an applicability determination for New Source Review (NSR), a CAA preconstruction permitting program for new and modified stationary sources. The first action stems from EPA's finding that the CPP exceeded EPA's statutory authority by using measures that applied to the power sector rather than measures carried out within an individual facility. In the ACE rule, EPA proposed to base the "best system of emission reduction" (BSER) for existing coal-fired EGUs on heat rate improvement (HRI) measures. EPA did not propose a BSER for other types of EGUs, such as natural gas combined cycle units. In addition, EPA did not establish a numeric performance standard as the agency did in the CPP. Instead, EPA proposed a list of "candidate technologies" of HRI measures that constitute the BSER. States would establish unit-specific performance standards based on this list and other unit-specific considerations. Second, EPA proposed to revise the general implementing regulations to clarify EPA's and states' roles under Section 111(d) based on the agency's current legal interpretation that states have broad discretion to establish emissions standards consistent with the BSER. The proposed changes would, among other things, revise definitions and lengthen the time for development and review of state plans. Third, EPA proposed to revise the NSR applicability test for EGUs. According to EPA, this would prevent NSR from discouraging the installation of energy efficiency measures. EGUs that adopt HRI measures and operate more efficiently may be used for longer time periods, thereby increasing annual emissions and potentially triggering NSR. Under ACE, NSR would not be triggered if the EGU modification did not increase emissions on an hourly basis, even if the modification increases annual emissions. EPA estimated emission changes under multiple scenarios. EPA projected that power sector emissions of carbon dioxide (CO2), sulfur dioxide (SO2), and nitrogen oxides (NOx) would increase under the ACE proposal compared to the CPP. EPA also projected that ACE would, in most scenarios, decrease CO2, SO2, and NOx emissions compared to a baseline without the CPP. Power sector emissions projections, comparing CPP and non-CPP scenarios, provide context for evaluating the potential impacts of the ACE proposal. The CO2 emission reduction differences between CPP and non-CPP scenarios are greater in the studies from earlier years. For example, a comparison between CPP and non-CPP scenarios from the past three Energy Information Administration analyses shows that the percentage difference has decreased from 16% (in 2016) to 8% (in 2018), reflecting the fact that many of the changes EPA expected to result from the CPP (i.e., natural gas and renewables replacing coal-fired units) have happened already due to market forces and other factors. Comparisons between modeling projections of electricity sector CO2 emissions should be made with caution, however, given potential differences in modeling assumptions about future economic conditions and underlying energy inputs (e.g., natural gas prices). EPA estimated that compared to the CPP, ACE would reduce compliance costs and yield lower emission reductions, thereby increasing climate-related damages and human health damages ("forgone benefits"). According to EPA, the estimated value of the forgone benefits would outweigh the compliance cost savings when replacing the CPP with ACE, yielding net costs. Specifically, EPA estimated that this replacement would yield net costs ranging from $12.8 billion to $72.0 billion (2016$) over a 15-year period (2023-2037). Excluding forgone human health co-benefits from these comparisons yields estimates that range from a net cost of $5.4 billion to a net benefit of $3.4 billion over a 15-year period (2023-2037). |
T he Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) includes reforms of the health insurance market that impose requirements on private health insurance plans. Such reforms relate to the offer, issuance, generosity, and pricing of health plans, among other issues. Certain reforms also require the participation of public agencies and officials, such as the Secretary of Health and Human Services (HHS), to facilitate administrative or operational elements of the insurance market. This report first provides background information about the private health insurance market. It then describes the market reforms included in the ACA. The Appendix provides additional information about how the ACA market reforms apply to different market segments and types of health plans. The private health insurance market is often characterized as having three segments—the large-group, small-group, and individual markets. Insurance sold in the large- and small-group markets refers to plans offered through a plan sponsor, typically an employer. A small employer is defined as one with 50 or fewer employees, but states may elect to define a small employer as one with 100 or fewer employees. The individual, or non-group, market refers to insurance policies offered to individuals and families buying insurance on their own (i.e., not through a plan sponsor). States are the primary regulators of the business of health insurance, as codified by the 1945 McCarran-Ferguson Act. Each state has a unique set of rules that apply to state-licensed insurance carriers and the plans they offer. These rules are broad in scope and address a variety of issues, such as the legal structure and organization of insurance issuers (e.g., licensing requirements); business practices (e.g., marketing rules); market conduct (e.g., capital and reserve standards); the nature of insurance products (e.g., benefit mandates); and consumer protections (e.g., plan disclosure requirements), among others. In addition to state regulation, the federal government has established standards applicable to health coverage and imposes requirements on state-licensed insurance carriers and sponsors of health benefits (e.g., employers). The federal regulation of health coverage is particularly salient with respect to health benefits provided through employment. The ACA follows the model of federalism that has been employed in prior federal health insurance reform efforts (e.g., Health Insurance Portability and Accountability Act of 1996, P.L. 104-191 ). In other words, although the ACA establishes many federal rules, the states have primary responsibility for monitoring both compliance with and enforcement of such rules. In addition, states may impose additional requirements on insurance carriers and the health plans they offer, provided that the state requirements neither conflict with federal law nor prevent the implementation of federal market reforms. The ACA establishes federal requirements that apply to private health insurance. The reforms affect insurance offered to groups and individuals; impose requirements on sponsors of coverage; and, collectively, establish a federal floor with respect to access to coverage, premiums, benefits, cost sharing, and consumer protections. Although such market reforms may be new at the federal level, many of the ACA's reforms had already been enacted in some form in several states, with great variation in scope and specificity across the states. In general, all ACA market reforms are currently effective. (See the text box, "Transitional Policy," for a discussion about why some plans may not have to comply with applicable ACA market reforms until 2017.) The reforms do not apply uniformly to all types of plans. Often, reforms apply differently to health plans according to the market segment in which the plan is offered and whether the plan has grandfathered status. Furthermore, the reforms do not apply to certain types of plans (this is true of other federal health reforms as well). For example, retiree-only health plans are not required to comply with federal health insurance requirements, including the ACA's market reforms. For information as to the specific types of plans (i.e., a grandfathered plan in the large-group market) to which a reform applies, see the Appendix . Descriptions of the market reforms are grouped under the following categories: obtaining coverage, keeping coverage, cost of purchasing coverage, covered services, cost-sharing limits, consumer assistance and other health care protections, and plan requirements related to health care providers. Certain types of coverage must be offered on a guaranteed-issue basis. In general, guaranteed issue in health insurance is the requirement that a plan accept every applicant for health coverage, as long as the applicant agrees to the terms and conditions of the insurance offer (e.g., the premium). With regard to plans offered in the group market, guaranteed issue generally means that a plan sponsor (e.g., an employer) must be able to purchase a group health plan any time during a year. Individual plans are allowed to restrict enrollment to open and special enrollment periods. Plans that otherwise would be required to offer coverage on a guaranteed-issue basis are allowed to deny coverage to individuals and employers in certain circumstances. Those circumstances include when a plan demonstrates that it does not have the network capacity to deliver services to additional enrollees or the financial capacity to offer additional coverage. Plans are prohibited from basing eligibility or coverage on health status-related factors. Such factors include health status, medical condition (including both physical and mental illness), claims experience, receipt of health care, medical history, genetic information, evidence of insurability (including conditions arising out of acts of domestic violence), disability, and any other health status-related factor determined appropriate by the HHS Secretary. However, plans may offer premium discounts or rewards based on enrollee participation in wellness programs, in keeping with prior federal law. If a plan offers dependent coverage, the plan must make such coverage available to a child under the age of 26. Plans that offer dependent coverage must make coverage available for both married and unmarried adult children under the age of 26 but not for the adult child's children or spouse (although a plan may voluntarily choose to cover these individuals). The sponsors of health plans (e.g., employers) are prohibited from establishing eligibility criteria for any full-time employee that are based on the employee's total hourly or annual salary. Eligibility rules are not permitted to discriminate in favor of higher-wage employees. The Departments of HHS, Labor, and the Treasury have determined that compliance with this requirement is not required until after regulations are issued. As of the date of this report, regulations have not been issued. Plans are prohibited from establishing waiting periods longer than 90 days. A waiting period refers to the time that must pass before coverage for an individual who is eligible to enroll under the terms of the plan can become effective. In general, if an individual can elect coverage that becomes effective within 90 days, the plan complies with this provision. Guaranteed renewability in health insurance is a plan's requirement to renew individual coverage at the option of the policyholder or to renew group coverage at the option of the plan sponsor. Most plans offered in the individual and small-group markets must renew coverage at the option of the enrollee or plan sponsor; however, plans may discontinue coverage under certain circumstances. For example, a plan may discontinue coverage if the individual or plan sponsor fails to pay premiums or if an individual or plan sponsor performs an act that constitutes fraud in connection with the coverage. The practice of rescission refers to the retroactive cancellation of medical coverage after an enrollee has become sick or injured. In general, rescissions are prohibited, but they are permitted in cases where the covered individual committed fraud or made an intentional misrepresentation of material fact as prohibited by the terms of the plan. A cancellation of coverage in this case requires that a plan provide at least 30 calendar days advance notice to the enrollee. Plans must use adjusted (or modified) community rating rules to determine premiums. Adjusted community rating rules prohibit plans from pricing health insurance products based on health factors but allow plans to price products based on other key characteristics, such as age. The rating rules restrict premium variation to the four factors described below. Self- O nly or F amily E nrollment. In most states, plans can vary premiums based on whether an individual or an individual and any number of his/her dependents enroll in the plan. However, under certain circumstances, the state is allowed to require that premiums for family coverage are determined using state-established uniform family tiers. For example, such a state may allow plans to vary premiums based on self-only coverage, self plus one coverage, and family coverage. Geographic R ating A rea. States are allowed to establish one or more geographic rating areas within the state for the purposes of this provision. The rating areas must be based on one of the following geographic boundaries: (1) counties, (2) three-digit zip codes, or (3) metropolitan statistical areas (MSAs) and non-MSAs. If a state does not establish rating areas or if the Centers for Medicare & Medicaid Services (CMS) determines that a state's proposed rating areas are inadequate, then the default is one rating area for each MSA in the state and one rating area comprising all non-MSAs in the state. Tobacco U se. Plans are allowed to charge a tobacco user up to 1.5 times the premium that they charge an individual who does not use tobacco. Age. Plans can vary premiums by no more than a 3-to-1 ratio for adults aged 21 and older. This provision means that a plan may not charge an older individual more than three times the premium that the plan charges a 21-year-old individual. Each state must use a uniform age rating curve to specify the rates across all adult age bands, and each state must set a separate rate for all individuals aged 20 and younger. HHS created an age curve that states may choose to use, but some states have implemented standards other than the federal defaults. The rate review program aims to ensure that proposed annual health insurance rate increases in the small-group and individual markets that meet or exceed a specified threshold are reviewed by a state or CMS to determine whether they are unreasonable. States have the option to establish state-specific thresholds, and a 10% threshold is in effect in any states that do not establish state-specific thresholds. Plans subject to review are required to submit to CMS and the relevant state a justification for the proposed rate increase prior to its implementation, and CMS will publicly disclose the information. The rate review process does not establish federal authority to deny implementation of a proposed rate increase; it is a sunshine provision designed to publicly expose rate increases determined to be unreasonable. A risk pool is used to develop rates for coverage. A health insurance issuer must consider all enrollees in plans offered by the issuer to be members of a single risk pool. More specifically, an issuer must consider all enrollees in individual plans offered by the issuer to be members of a single risk pool; the issuer must have a separate risk pool for all enrollees in small-group plans offered by the issuer. (However, states have the option to merge their individual and small-group markets; if a state does so, an issuer will have a single risk pool for all enrollees in its individual and small-group plans.) A result of the single risk pool requirement is that issuers must consider the medical claims experience of enrollees in all plans (individual and small-group, either separately or combined) offered by the issuer when developing rates. Plans must cover the essential health benefits (EHB). The ACA does not explicitly list the benefits that comprise the EHB; rather, it lists 10 broad categories from which benefits and services must be included. The HHS Secretary is tasked with further defining the EHB. For 2014 through 2016, the Secretary asked each state to select a benchmark plan from four different types of plans. If the selected benchmark plan does not cover services and benefits from all 10 categories listed in statute, the state must supplement the benchmark plan (according to a process outlined by HHS) to ensure that all 10 statutorily required categories are represented. In general, plans that are required to offer the EHB must model their benefits package after the state's selected benchmark plan. The EHB requirement does not prohibit states from maintaining or establishing state-mandated benefits. In fact, state-required benefits enacted on or before December 31, 2011, are considered part of the EHB for 2014 through 2016. However, any state that requires plans to cover benefits beyond the EHB and what was mandated by state law prior to 2012 must assume the total cost of providing those additional benefits. In other words, states must defray the cost of any mandated benefits enacted after December 31, 2011. Plans are generally required to provide coverage for certain preventive health services without imposing cost sharing. The preventive services include the following minimum requirements: evidence-based items or services that have in effect a rating of "A" or "B" from the United States Preventive Services Task Force (USPSTF); immunizations that have in effect a recommendation for routine use from the Advisory Committee on Immunization Practices (ACIP) of the Centers for Disease Control and Prevention (CDC); evidence-informed preventive care and screenings (for infants, children, and adolescents) provided for in the comprehensive guidelines supported by the Health Resources and Services Administration (HRSA); and additional preventive care and screenings for women not described by the USPSTF, as provided in comprehensive guidelines supported by HRSA. Additional services not recommended by the USPSTF may be offered but are not required. For the purposes of this provision and others in federal law, the ACA negated the November 2009 USPSTF recommendation that women receive routine screening mammograms to detect breast cancer beginning at the age of 50. Plans have instead been required to cover screening mammograms beginning at the age of 40, based on the prior (2002) USPSTF recommendation. The USPSTF published a draft revision in April 2015 that reiterated the recommendation in January 2016. In the interim, Congress included a provision in FY2016 Omnibus appropriations clarifying that for the purposes of any law that references USPSTF recommendations, the mammography screening recommendation from 2002 shall be used, though January 1, 2018. As a result, for 2016 and 2017, the coverage requirement continues to apply for women beginning at age 40. A plan with a network of providers is not required to provide coverage for an otherwise required preventive service if it is delivered by an out-of-network provider, and the plan may impose cost-sharing requirements for a recommended preventive service delivered out of network. Additionally, if a recommended preventive service does not specify the frequency, method, treatment, or setting for the service, then the plan can determine coverage limitations by relying on established techniques and relevant evidence. The ACA prohibits plans from excluding coverage for preexisting health conditions. In other words, plans may not exclude benefits based on health conditions for any individual. A preexisting health condition is a medical condition that was present before the date of enrollment for health coverage, whether or not any medical advice, diagnosis, care, or treatment was recommended or received before such date. Plans must comply with annual limits on out-of-pocket spending. The limits apply only to in-network coverage of the EHB. In 2016, the limits cannot exceed $6,850 for self-only coverage and $13,700 for coverage other than self only. The self-only limit applies to each individual, regardless of whether the individual is enrolled in self-only coverage or coverage other than self only. For instance, if an individual is enrolled in a family plan and incurs $8,000 in cost sharing, the plan is responsible for covering the individual's costs above $6,850. Plans must tailor cost sharing to comply with one of four levels of actuarial value. Actuarial value (AV) is a summary measure of a plan's generosity, expressed as the percentage of total medical expenses that are estimated to be paid by the issuer for a standard population and set of allowed charges. In other words, AV reflects the relative share of cost sharing that may be imposed. On average, the lower the AV, the greater the cost sharing for enrollees overall. Each level of plan generosity is designated according to a precious metal and corresponds to an actuarial value: Bronze: 60% AV Silver: 70% AV Gold: 80% AV Platinum: 90% AV Prior to the ACA, plans were generally able to set lifetime and annual limits—dollar limits on how much the plan would spend for covered health benefits either during the entire period an individual was enrolled in the plan (lifetime limits) or during a plan year (annual limits). Under the ACA, both lifetime and annual limits are prohibited; the limits apply specifically to the EHB. Plans are permitted to place lifetime and annual limits on covered benefits that are not considered EHBs, to the extent that such limits are otherwise permitted by federal and state law. The HHS Secretary, in consultation with the states, is required to establish an Internet portal for the public to easily access affordable and comprehensive coverage options. The portal is required to provide, at minimum, information on the following coverage options: health plans offered in the private insurance market, Medicaid and the State Children's Health Insurance Program (CHIP), high-risk pools, and small-group health plans. The Internet portal, www.healthcare.gov , launched on July 1, 2010. Plans are required to provide a summary of benefits and coverage (SBC) to individuals at the time of application, prior to the time of enrollment or reenrollment, and when the insurance policy is issued. The SBC must meet certain requirements, as specified in statute and further developed by the Secretaries of HHS, Labor, and the Treasury. The statutory requirements for the SBC are summarized in Table 1 . The SBC may be provided in paper or electronic form. Enrollees must be given notice of any material changes in benefits no later than 60 days prior to the date that the modifications would become effective. Plans also must provide a uniform glossary of terms commonly used in health insurance coverage (e.g., coinsurance) to enrollees upon request. Health plans are required to submit to the HHS Secretary a report concerning the percentage of premium revenue spent on medical claims ( medical loss ratio , or MLR). The MLR calculation includes adjustments for health quality costs, taxes, regulatory fees, and other factors. The law requires plans in the individual and small-group markets to meet a minimum MLR of 80%; for large groups, the minimum MLR is 85%. States are permitted to increase the percentages, and the HHS Secretary may adjust the state percentage for the individual market if HHS determines that the application of a minimum MLR of 80% would destabilize the individual market within the state. Health plans whose MLR falls below the specified limit must provide rebates to policyholders on a pro rata basis. Any required rebates must be paid to policyholders by August of that year. The ACA requires that plans implement an effective appeals process for coverage determinations and claims. At a minimum, the plans must have an internal claims appeals process; provide notice to enrollees regarding available internal and external appeals processes and the availability of any applicable assistance; and allow an enrollee to review his or her file, present evidence and testimony, and receive continued coverage pending the outcome. To comply with the requirements for the internal claims appeals process, group plans are expected to initially incorporate the claims and appeals procedures previously established under federal law and to update their processes in accordance with any standards established by the Secretary of Labor. Individual health plans must comply with internal claims and appeals procedures set forth under applicable law and updated by the Secretary of HHS. To comply with the requirements for the external appeals process, plans must comply with a state's external review process, provided that process includes, at a minimum, the consumer protections set forth in the Uniform External Review Model Act promulgated by the National Association of Insurance Commissioners. If a state's review process does not meet the minimum requirements, the state must implement a process that meets the standards established by the HHS Secretary and plans must comply with such a process. Plans are subject to three requirements relating to the choice of health care professionals. 1. A plan that requires or allows an enrollee to designate a participating primary care provider is required to permit the designation of any participating primary care provider who is available to accept the individual. 2. This same provision applies to pediatric care for any child who is a plan participant. 3. A plan that provides coverage for obstetrical or gynecological care cannot require authorization or referral by the plan or any person (including a primary care provider) for a female enrollee who seeks obstetrical or gynecological care from an in-network health care professional who specializes in obstetrics or gynecology. Plans also must comply with one requirement relating to benefits for emergency services. If the plan covers services in an emergency department of a hospital, the plan is required to cover those services without the need for any prior authorization and without the imposition of coverage limitations, irrespective of the provider's contractual status with the plan. If the emergency services are provided out of network, the cost-sharing requirement will be the same as the cost sharing for an in-network provider. Health plans cannot prohibit qualified individuals from participating in an approved clinical trial; deny, limit, or place conditions on the coverage of routine patient costs associated with participation in an approved clinical trial; or discriminate against qualified individuals on the basis of their participation in approved clinical trials. Plans are not allowed to discriminate, with respect to participation under the plan, against any health care provider who is acting within the scope of that provider's license or certification under applicable state law. This provision does not require that a plan contract with any health care provider willing to abide by the plan's terms and conditions, and the provision cannot be read as preventing a plan or the HHS Secretary from establishing varying reimbursement rates for providers based on quality or performance measures. Beginning upon the ACA's enactment and concluding no later than two years after enactment, the HHS Secretary must develop quality reporting requirements for use by specified plans. The Secretary must develop these requirements in consultation with experts in health care quality and other stakeholders. The Secretary is also required to publish regulations governing acceptable provider reimbursement structures not later than two years after ACA enactment. Not later than 180 days after these regulations are promulgated, the U.S. Government Accountability Office (GAO) is required to conduct a study regarding the impact of these activities on the quality and cost of health care. To date, the Secretary has not published the required regulations; therefore, the required GAO report has not been published. Once the reporting requirements are implemented, plans will annually submit, to the Secretary and enrollees, a report addressing whether plan benefits and reimbursement structures do the following: improve health outcomes through the use of quality reporting, case management, care coordination, and chronic disease management; implement activities to prevent hospital readmissions and to improve patient safety and reduce medical errors; and implement wellness and health promotion activities. The Secretary is required to make these reports available to the public and is permitted to impose penalties for noncompliance. Wellness and health promotion activities include personalized wellness and prevention services, specifically efforts related to smoking cessation, weight management, stress management, physical fitness, nutrition, heart disease prevention, healthy lifestyle support, and diabetes prevention. These services may be made available by entities (e.g., health care providers) that conduct health risk assessments or provide ongoing face-to-face, telephonic, or web-based intervention efforts for program participants. | The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) establishes federal requirements that apply to private health insurance. Its market reforms affect insurance offered to groups and individuals and impose requirements on sponsors of coverage (e.g., employers). In general, all of the ACA's market reforms are currently effective; some became effective shortly after the ACA was passed in 2010, and others became effective for plan years beginning in 2014. Although some of the market reforms had previously been enacted in some states, many of the reforms are new at the federal level. Collectively, the reforms create federal minimum requirements with respect to access to coverage, premiums, benefits, cost sharing, and consumer protections. For example, the requirement to offer health plans on a guaranteed-issue basis generally means that insurers must accept every applicant for health coverage, as long as the applicant agrees to the terms and conditions of the coverage (e.g., the premium). The ACA's requirement to offer the essential health benefits means that certain plans must cover a specified package of benefits. The market reforms do not apply uniformly to all types of plans. Some reforms apply to all three segments of the private insurance market—individual, small group, and large group—whereas others may apply only to plans offered in the individual and small-group markets. In the group market, the reforms do not always apply to both fully insured plans (plans offered by state-licensed carriers that are purchased by employers or other sponsors) and self-insured entities (groups that set aside funds to pay for health benefits directly). The reforms' applicability also depends on whether a plan has grandfathered status. Under the ACA, an existing health plan in which a person was enrolled on the date of ACA enactment was grandfathered; the plan can maintain its grandfathered status as long as it meets certain requirements. Grandfathered health plans are exempt from the majority of ACA market reforms. Although the market reforms' applicability is not necessarily uniform across plan types, it is uniform for plans offered inside and outside health insurance exchanges. Every state has an exchange, and individuals and small employers can use the exchanges to shop for and obtain health insurance coverage. The same market reforms apply to an individual plan offered through an exchange and to an individual plan offered in the market outside of an exchange. Some types of plans do not have to comply with any of the market reforms. For example, retiree-only health plans are not required to comply with federal health insurance requirements, including the ACA's market reforms. This report provides background information about the private health insurance market, including market segments and regulation. It then describes each ACA market reform. The reforms are grouped under the following categories: obtaining coverage, keeping coverage, cost of purchasing coverage, covered services, cost-sharing limits, consumer assistance and other health care protections, and plan requirements related to health care providers. The Appendix provides details about the types of plans that are required to comply with the different reforms. |
On the morning of August 29, 2005, Hurricane Katrina made landfall on the Gulf Coastbetween the major cities of New Orleans, Louisiana, to the west, and Mobile, Alabama, to the east. Along the Gulf Coast and inland in the swath of the storm, Hurricane Katrina impacted hundreds ofthousands of families in three states (Louisiana, Mississippi, and Alabama) and contributed to thedeaths of more than 1,000 people. (1) While CRS estimates that 5.8 million people in three states mayhave experienced hurricane-force winds, the majority rode out the storm safely. The geographicrange of Katrina's hurricane-force winds corresponds quite closely with the 88 counties declared asdisaster areas by the Federal Emergency Management Agency (FEMA) (2) . (See Figure 1 , depictingHurricane Katrina's storm track, estimated extent of hurricane and tropical force winds, countiesdesignated FEMA disaster areas, and county population density. (3) ) Property damage, loss of life,and sizeable displacement of population appear to have been largely concentrated within a 100-mileradius of where the storm made landfall. Within this area, damage due to high winds and stormsurge resulted in significant devastation, but flooding, largely resulting from breached levees andflood walls, affected the greatest number of people, with much of New Orleans flooded. Figure 1. Hurricane Katrina: Storm Track and Counties Designated Eligible for Disaster Assistance (FEMA Individual Assistance), with 2004 CountyPopulation Density Fourteen counties with a combined population of 2.5 million peopleexperienced some flooding and/or structural damage based on FEMA flood anddamage assessments. All of these counties are within the 100-mile radius of thestorm's landfall. Included in this region are the cities of New Orleans (estimated tohave 445,000 people), the Biloxi-Gulfport-Pascagoula Mississippi metropolitan area(estimated at 364,000 people), and Mobile (County) Alabama (estimated at 393,000persons). (4) The populations of these 14 counties bore the brunt of the storm; however,the impact was not uniform across the counties. Using a combination of FEMAdamage assessment and Census data, CRS estimates that within these 14 counties,about 700,000 people may have been the most acutely impacted by HurricaneKatrina, experiencing flooding and/or significant structural damage. (See Figure 2 ,which provides an overview of the areas most directly impacted by the storm.) It isthis population -- those most severely impacted -- that is the report's primary focus. Structure of the Report. Thisreport begins with a discussion of FEMA's disaster declaration process and itsapplication to Hurricane Katrina. It then presents CRS estimates of the population,living within 14 of the 88 counties designated as eligible for disaster assistance, whowere most affected and most likely displaced by the storm, in total and in each of thethree affected states: Louisiana, Mississippi, and Alabama. These estimates arebroken down by whether people were living in areas that experienced flooding and/or structural damage (and further, by the level of structural damage). Thebalance of the report presents a social-demographic profile of this acutely affectedpopulation, looking at such characteristics as poverty and race/ethnicity status,homeownership and housing status. Separate discussions are also provided of theaged, children, and working-age adults. Although this report does not explicitlydiscuss policy implications, its findings are relevant to numerous aspects of thepost-Katrina debate on how to address the immediate and ongoing needs of theaffected populations, both in their home counties as well as the many other parts ofthe country to which some have relocated. Figure 2. Hurricane Katrina: Overview of Areas Affected by Flooding and/or Structural Damage (Based on FEMA Flood and Damage Assessments) The Presidential declaration of a major disaster identifies the types of disasterassistance available in affected areas (usually counties, or the state equivalent ofcounties or independent cities). The Robert T. Stafford Disaster Relief andEmergency Assistance Act authorizes a range of federal aid for states, localities, andhouseholds in the event of a Presidentially declared major disaster. The declarationprocess for "emergencies" is similar to that used for major disasters, but the criteria(based on the definition of "emergency") are less specific. (5) The two majorcategories of assistance are public assistance, which encompasses various forms ofaid to state and local governments and some nonprofit organizations, and federalassistance to individuals and households. (6) Federal assistance is provided to individuals andhouseholds who are uninsured or under-insured to pay for necessary expenses as aresult of the disaster that cannot be met otherwise, and may include financial help tooccupy alternative housing, provision of temporary housing units, home repair, andaid for other expenses. FEMA has issued regulations that specify the criteria for determining whetherindividual and household assistance is available in an area. Though the Stafford Actprovides for Presidential discretion in designating areas as eligible for disaster aid,the regulations include the following factors for considering whether individual andhousehold assistance should be available in an area: (1) concentration of damage; (2)the degree of trauma to a state and communities, such as large numbers of injuriesor deaths, large scale disruptions of normal community functions, and emergencyneeds such as extended or widespread loss of power; (3) special populations, such aswhether the area includes low-income, elderly or unemployed persons; (4) the extentto which state and local or voluntary agencies can meet needs; (5) the amount ofinsurance coverage in an area; and (6) the amount of individual assistance providedby the state. (7) In all, a total of 31 parishes in Louisiana, 47counties in Mississippi, and 10 counties in Alabama were declared eligible forindividual and household disaster assistance. Government entities in wider areas ofthese states were declared eligible for other forms of disaster aid. The analysis that follows focuses on the population in those areas that werehardest hit by the hurricane -- those communities that experienced significant damagefrom flooding (excluding areas with saturated soil) or that had assessed structuraldamage (excluding limited damage). The estimates are based on an analysis ofCensus 2000 Census Tract level data and FEMA damage assessment data, mappedinto a Geographic Information System (GIS). (8) It should beemphasized that the estimates are based on 2000 Census data, reflecting the numberand characteristics of the population at that time -- as if Hurricane Katrina struck inApril 2000, as opposed to August 2005. FEMA Damage AssessmentCriteria. FEMA's damage assessment is characterized by severaldamage categories: Structural Damage Catastrophic Damage: Most solid and all light ormobile structures are destroyed; Extensive Damage: Some solid structures aredestroyed; most sustain exterior and interior damage (e.g., roofs are missing, interiorwalls exposed), most mobile homes and light structures aredestroyed; Moderate Damage: Solid structures sustain exteriordamage (e.g., missing roofs or roof segments); some mobile homes and lightstructures are destroyed, many are damaged or displaced; Limited Damage: Generally superficial damage to solidstructures (e.g., loss of tiles or roof shingles); some mobile homes and light structuresare damaged or displaced; Flood/water Damage Flood: Indicates a separate severe damage categoryrelated to the specific effects of flooding; Saturated Area: Indicates the possibility of waterdamage due to saturated soil. It should be noted that flood and water damage are assessed separately fromstructural damage. Consequently, areas that are designated as flooded may or maynot also contain areas of assessed structural damage. Similarly, some areas withstructural damage may also be assessed as flooded. Population Estimates. CRSestimates that more than 700,000 people were most acutely impacted by HurricaneKatrina, having lived in neighborhoods that either experienced flooding or significantstructural damage (catastrophic, extensive, or moderate). Persons who lived in areasthat experienced only limited damage, unless also flooded, or in non-floodedsaturated areas, are excluded from this estimate. Approximately 657,000 peoplelived in areas that were flooded, accounting for over 90% of those most acutelyimpacted by the storm. Among the 657,000 people likely impacted by flooding,approximately 25,000 also lived in areas with significant structural damage that waseither catastrophic (5,000), extensive (4,200), or moderate (15,400). In non-floodedareas, approximately 54,000 people were impacted by catastrophic (35,000),extensive (5,600), or moderate structural damage (13,700) -- likely due to windand/or surging water. Because areas could be affected by both flooding and structural damage, wehave regrouped areas affected into the following, non-overlapping groups, to avoiddouble counting and to capture the populations most directly impacted by the storm: Catastrophic damage, regardless of flood status(40,000); Flooded, excluding areas of catastrophic damage(652,000); Non-flooded, extensive damage (5,600);and Non-flooded, moderate damage(13,700). People who lived in areas that were affected only with limited damage (144,000), ornon-flooded saturated areas (not assessed in this analysis) are grouped with theremainder of the population in the 14 counties/parishes chosen for this analysis,based on the FEMA damage/flood assessment (see Table 1 ). Flooding. As noted above,flooding is a separate assessment criterion, which may or may not overlap withassessed structural damage. Here, areas that had flooding and structural damage,other than catastrophic damage, are classified as flooded, along with those areas thatonly had flooding, and no assessed structural damage. The preponderance of thepopulation who lived in flooded areas were concentrated in Louisiana (97% of thetotal). St. Bernard Parish, to the south-east of New Orleans, was especially hard hitby flooding, with an estimated 65,000 affected -- nearly its entire population (97%). Over three-quarters (372,000) of Orleans Parish's population is estimated to havebeen affected by flooding, nearly half (13,000) of Plaquemines Parish's population,also to the south-east of New Orleans, and about two-fifths (181,000) of JeffersonParish's population, just to the west and south of New Orleans. (See Figure 3. ) In Mississippi, nearly 22,000 people appear to have been affected by flooding,with the majority (20,000) concentrated in Hancock County, the western most countyon the Mississippi Gulf Coast, just to the northeast of New Orleans, Louisiana. Alabama experienced little flooding that directly impacted populated areas. Table 1. Estimated Number of Persons Living inCounties with Assessed Damage or Flooding From Hurricane Katrina and NumberLiving in Areas with Significant Flooding or Damage (Based on FEMA Flood andDamage Assessments and Census 2000 Population) Source: Estimates prepared by the Congressional Research Service (CRS) withassistance from the Library of Congress Congressional Cartography Program, basedon analysis of FEMA flood and damage assessments and U.S. Census Bureau 2000Summary File 4 (SF4) data files. a. Flooded and areas of assessed structural damage have been reclassified as follows,to avoid double counting. Flooded: Any flooded area, excluding areas of catastrophic damage. Includes areaswith extensive, moderate, or limited damage where flooding also occurred, and areaswhere there was only flooding. Catastrophic damage : Areas of catastrophic damage, regardless of flood status. Extensive damage: Areas of extensive damage, other than those areas that alsoexperienced flooding. Moderate damage: Areas of moderate damage, other than those areas that alsoexperienced flooding. Figure 3. Hurricane Katrina: FEMA Damage Assessment New Orleans and Vicinity Catastrophic Structural Damage. As noted above, an estimated 40,000 persons lived in areas that experiencedcatastrophic damage. In such areas, most structures were destroyed. The majorityof the population affected by catastrophic damage lived in Mississippi (94%), andwas concentrated predominantly in Harrison County, which includes the cities ofBiloxi and Gulfport. In Harrison County, 31,000 people are likely to have beendisplaced by catastrophic hurricane damage; they account for about four-fifths of thepopulation that experienced catastrophic damage, and about 17% of that county'spopulation. (See Figure 4. ) In Louisiana, an estimated 2,400 people are likely to have experiencedcatastrophic damage. Over 60% of this group (or 1,500 people) lived in PlaqueminesParish, where Katrina first made landfall. These 1,500 people comprise 5% of thatparish's population. In Alabama, no catastrophic damage was assessed, and as noted above,minimal flooding affecting populated areas. Extensive and Moderate Damage. An estimated 9,700 persons lived in areas that incurred extensive damage and 29,000 persons in areas that incurred moderate damage. Extensive damage meansthat some structures are destroyed and most have exterior and interior damage; andmost mobile homes and light structures are destroyed. In the moderate damagecategory, solid structures withstood exterior and interior damage, and some mobilehomes are destroyed. Again, as with catastrophic damage, Mississippi accounted for the bulk of thepopulation affected by extensive (66%) and moderate (53%) damage. HancockCounty, to the west of Gulfport, had higher concentrations of its population affectedby extensive and moderate hurricane damage (33%) than bordering Harrison County (2%), or Jackson County (3%), further to the east, which encompasses Pascagoula. In Louisiana, Orleans Parish accounted for the majority of the state'spopulation impacted by extensive damage (2,000, or two-thirds of those affected byextensive hurricane damage in Louisiana). Jefferson Parish accounted for overtwo-fifths (5,300) of Louisiana's population affected by moderate hurricane damage(13,000). In Alabama, Mobile and Baldwin Counties experienced no catastrophicdamage, though some Alabamians are estimated to have lived in areas thatexperienced extensive damage (300) or moderate damage (660). Figure 4. Hurricane Katrina: FEMA Damage Assessment Mississippi Gulf Coast, Bay St. Louis to Biloxi and Vicinity Figure 5 depicts the relative impact of flood and storm damage fromHurricane Katrina in Louisiana and Mississippi in terms of the estimated number ofpeople affected. Figure 5. Hurricane Katrina: Comparative Impact of Flooding and StormDamage in Louisiana and Mississippi (Estimated Number of People Impactedbased on 2000 Census Data) Source : Estimates prepared by the Congressional Research Service (CRS) withassistance from the Library of Congress Congressional Cartography Program, basedon analysis of FEMA flood and damage assessments and U.S. Census 2000 SummaryFile 4 (SF4) data files. Hurricane Katrina likely made one of the poorest areas of the country evenpoorer. Among those displaced by the storm, many lost their homes, materialpossessions, and jobs. Some had insurance to replace their material property losses,received help from FEMA or Small Business loans to get by on an emergency basisor replace property, or received unemployment insurance or disaster unemploymentinsurance to replace lost wages. However, some who lived in the areas mostimpacted by the storm may now be destitute; while having financially gotten bybefore the storm, in the storm's aftermath they may have joined the ranks of the poor. Further, the socio-economic profile of the areas hardest hit by Katrina indicates thatthese newly poor would join a population that was already disproportionately poorand disadvantaged. Before the storm, the 700,000 people acutely affected by Katrina were more likely than Americans overall to be poor; minority (most oftenAfrican-American); less likely to be connected to the workforce; and more likely tobe educationally disadvantaged (i.e., not having completed a high school education). Both those who were poor before the storm, and those who have become poorfollowing the storm, are likely to face a particularly difficult time in reestablishingtheir lives, having few if any financial resources upon which to draw. The economic and social impact of Hurricane Katrina will be felt for yearsto come. The hurricane resulted in mass displacement of people and fracturedcommunities. Estimates of the number of people displaced range widely; the analysisin this report assumes 700,000 were acutely impacted, Secretary Chertoff has statedthat FEMA has sheltered over 600,000, (9) and media reports have cited figures as high as 1.2million in describing the displaced. (10) At their peak, shelters were housing over270,000 evacuees, (11) but, as of October 19, fewer than 8,000 were stillin shelters. While some families have already returned home, many are living ininterim housing, including FEMA-provided trailers, and apartments, paid for in partwith grants from FEMA. FEMA reports, as of September 26, that it has approvedover 265,000 applications for temporary housing payments (12) and, as ofOctober 19, has provided just under 12,000 trailers. (13) Whether these families will eventually return home or resettle in newcommunities is unclear and will not be fully known until the reconstruction of theGulf Coast is complete. Regardless, individuals, families, and communities havebeen, and will be, dramatically transformed by the storm. Hurricane Katrina disproportionately impacted communities where the poorand minorities, mostly African-Americans, resided. The three states wherecommunities were damaged or flooded by the hurricane rank among the poorest inthe nation. According to the 2000 Census, Mississippi ranked second only to theDistrict of Columbia in its poverty rate; Louisiana was right behind it ranking third,and Alabama ranked sixth. CRS estimates that about one-fifth of the populationmost directly impacted by the storm was poor. That poverty rate (21%) was wellabove the national poverty rate of 12.4% recorded in the 2000 Census. (14) Figure 6 shows the national poverty rate alongside the rates for Alabama,Louisiana, and Mississippi. Morever, the figure shows how the national andstatewide rates compare to rates in the storm-damaged or flooded areas in the threeaffected states combined, and individually. The poverty rates in the storm-damagedor flooded areas generally reflect the high poverty rates for the region as a whole, andare higher than the national average (12.4%) in each of the three states, although thepoverty rate for the damaged areas of Mississippi was considerably below the state'soverall poverty rate. The poverty rate for storm-damaged areas in all three statescombined (20.7%) is determined mostly by the high poverty rates in the flooded anddamaged areas of Louisiana, which has most of the population of the storm-damagedand flooded areas. Figure 6. Poverty Rates for the United States, Alabama, Louisiana, andMississippi, and Hurricane Katrina Flood or Storm-Damaged Areas (Basedon 2000 Census Data) Source: Estimates prepared by the Congressional Research Service (CRS) withassistance from the Library of Congress Congressional Cartography Program, basedon analysis of FEMA flood and damage assessments and U.S. Census 2000 SummaryFile 4 (SF4) data files. Note: Population for who poverty status is determined. Excludes persons living ininstitutions and unrelated individuals under age 15. As noted above, CRS estimates that about one-fifth of the population mostdirectly impacted by the storm was poor (144,000 people). In addition, over 30% ofthe most impacted population had incomes below one-and-one-half times the povertyline and over 40% had income below twice the poverty line (See Figure 7 ). (15) Figure 7. Estimated Number of Persons in Hurricane Katrina Flood orStorm-Damaged Areas, by Race and Poverty Status in 1999 (Population for whomPoverty Status is Determined based on 2000 Census Data) Source: Estimates prepared by the Congressional Research Service (CRS) withassistance from the Library of Congress Congressional Cartography Program, basedon analysis of FEMA flood and damage assessments and U.S. Census 2000 SummaryFile 4 (SF4) data files. Note: Population for who poverty status is determined. Excludes persons living ininstitutions and unrelated individuals under age 15. The hurricane's impact on New Orleans also took a disproportionate toll onAfrican Americans. An estimated 310,000 black people were directly impacted bythe storm, largely due to flooding in Orleans Parish. Blacks are estimated to haveaccounted for 44% of storm victims. In Orleans Parish, an estimated 272,000 blackpeople were displaced by flooding or damage, accounting for 73% of the populationaffected by the storm in the parish. In contrast, an estimated 101,000 non-blackpeople in Orleans Parish were displaced by flooding or damage, accounting for about63% of the non-black population living in the parish; still a high proportion affected,but somewhat less than that experienced by blacks. Among blacks living in Orleans Parish who were most likely displaced by thestorm, over one-third (89,000 people, or 34.0% of displaced blacks) were estimatedto have been poor, based on 2000 Census data. Among non-black (predominantlywhite) persons living in the parish who were likely displaced by the storm, anestimated 14.6% (14,000) were poor. The aged may have been especially affected by Katrina. Many had close tiesto their communities, having resided there for years, and for some, their entirelifetimes. Some may have found it more difficult than others to evacuate. Theelderly are more likely to live alone, and less likely to own a car, or be able to drive. Some may have been more isolated, living alone, or homebound due to frailty ordisability. Home Ownership Status and CommunityTies. Among households headed by persons age 65 or older whowere likely displaced by the storm, 70% are estimated to have owned their own home-- an ownership rate higher than any other age group. Among aged homeownerslikely displaced by the storm, over 70% had lived in their homes for over 20 years,and 47% over 30 years, in the year 2000. Among likely displaced aged renters, anestimated 55% had lived in their rental units for over 20 years, and 36% over 30years, based on 2000 Census data. Living Arrangements. Anestimated 88,000 persons age 65 and older were likely displaced by HurricaneKatrina, or 12.4% of the population affected by flooding and/or storm damage.Among the aged population affected, an estimated 27,000 lived alone, in one-personhouseholds, which accounted for 41% of households with an aged member. The hurricane likely displaced an estimated 45,000 persons age 75 and older,a population prone to frailty. Among this group, nearly 15,000 are estimated to havelived alone, in one-person households, which accounted for 45% of the householdswith a member age 75 or older. Disability Status. Nearly half(48%) of all persons age 65 or older living in flooded or damage-affected areasreported having a disability, and over one-quarter (26%) reported two or more typesof disability. (16) Reported disabilities included sensory disabilities(blindness, deafness, or severe hearing impairment), and other disabilities reflectingconditions lasting more than six months that limit various activities. Theseactivity-limiting disabilities include mental disabilities (difficulty learning,remembering, or concentrating); self-care disabilities (difficulty dressing, bathing,or getting around inside the home); and, going outside disabilities (difficulty goingoutside the home alone to shop or visit a doctor's office). An estimated 13% ofpersons age 65 and older in the flood or damage affected areas reported a self caredisability, and 19% of those age 75 and older; one-quarter of those age 65 and olderreported a disability that made it difficult to go outside, unassisted, and of those age75 and older, one-third reported such a disability. Poverty Status. Among agedpersons likely displaced by the storm, an estimated 12,600, based on 2000 Censusdata, were poor, or about 14.7% of the aged displaced population, and nearly 23,600(27.6%) had incomes below 150% of the poverty line. Vehicle Availability. Among allhouseholds living in the flood or damage-affected areas, an estimated 19% had novehicle available to the household. Among households with heads age 65 or older,over one-quarter (26%) were without a vehicle, and among those age 75 or older,one-third (33%). In order to evacuate from the storm, these households would havebeen dependent on other nonresident family members, friends, neighbors, or publicor specially arranged transportation. About one-fourth of the people who lived in areas damaged or flooded byHurricane Katrina were children (under age 18). Hurricane Katrina struck at thebeginning of the school year, potentially displacing an estimated 183,000 children,based on CRS analysis of 2000 Census data, including an estimated 136,000 childrenwho were of school age. An estimated 47,000 children under the age of 5 lived inneighborhoods that experienced flooding or damage from the hurricane. Child Poverty Rates in areas Acutely Affected byHurricane Katrina. The characteristics of the children in thedamaged and flooded areas reflect greater disadvantage compared with thecharacteristics of children in the nation as a whole. Many of the children in affectedareas were poor. Table 2 shows the number of poor children and the child povertyrate in the affected areas. Note that the number of children for whom the CensusBureau determines poverty status (180,000) is slightly less than the total for allchildren in these areas (183,000), because poverty is not determined for childrenunder the age of 15 who live in group quarters (e.g., foster children). The povertyrate of 30% for children in hurricane-flooded or damaged areas is almost twice the2000 Census child poverty rate for the nation as a whole of 16.6%. Table 2. Number and Poverty Rate forChildren in Hurricane Katrina Flooded or Damaged Areas Source: Estimates prepared by the Congressional Research Service (CRS) withassistance from the Library of Congress Congressional Cartography Program, basedon analysis of FEMA flood and damage assessments and U.S. Census 2000 SummaryFile 4 (SF4) data files The table shows that about 15,000 children of preschool age (age 0-4), orabout one-third of all children in that age group, were poor. Another 40,000 schoolage children who lived in flooded or hurricane-damaged areas were poor. Over half (55%) of the children most likely to have been displaced by thehurricane were African-American based on 2000 Census data. Approximately 45%of the displaced black children were estimated to have been poor (about 45,000children), accounting for 25% of all children displaced by the storm, and 82% of all poor displaced children. Living Arrangements of Children inHurricane-Affected Areas. Children in the areas damaged andflooded by Hurricane Katrina were more likely than children nationwide to live infemale-headed families. Table 3 shows the percent of children (17) in thehurricane-damaged or flooded areas by their family type -- whether they lived in afamily headed by a married couple or single female or male head. Overall, 38% of children under the age of 18 in the hurricane-affected areas lived with a female head;nationally, this percentage is 20%. Children in female-headed families are morelikely to be poor than children living in married couple or other families. (Accordingto the 2000 Census, nationwide, 41% of children in female-headed families were inpoverty versus an overall poverty rate of 16%.) Further, a single mother often needschild care to enter the workforce or remain working. In the HurricaneKatrina-damaged and flooded areas, there were 12,000 preschool children living infamilies headed by a single mother. The high rate of children living with singlemothers also is consistent with the hurricane having disproportionately affectedAfrican-Americans, as African-American children are more likely than children ofother racial and ethnic groups to be raised by a single mother. Table 3. Own Children in Hurricane KatrinaFlood and Storm-Damaged Areas, by Age and Family Type Source: Estimates prepared by the Congressional Research Service (CRS) withassistance from the Library of Congress Congressional Cartography Program, basedon analysis of FEMA flood and damage assessments and U.S. Census 2000 SummaryFile 4 (SF4) data files. The disproportionate impact of Hurricane Katrina on the poor is also shownthrough other indicators of disadvantage. Hurricane-damaged areas tended to havelower labor force participation rates and higher unemployment rates than the nationas a whole. Labor Force Participation. Persons who are either with a job (employed), or actively searching for work(unemployed) are considered as participating in the labor force. Labor forceparticipation among men -- both youth (aged 16-24) and adults (aged 25-64) -- in thehurricane-damaged areas was considerably below that in the nation as a whole. Thelabor force participation rate for male youths in hurricane-damaged areas was 55%,compared with a nationwide average rate of 65%. For adult men, the labor forceparticipation rate was 77% in hurricane-damaged areas, compared with an 82% rateon average nationwide. Additionally, unemployment rates for both youth and adultmen were higher in hurricane-damaged areas than nationally. (18) Thecombined lower levels of labor force participation and higher unemployment meantthat a larger share of men in hurricane-damaged areas were not working than is truenationally. Overall, an estimated 72,000 men over the age of 16 were not working. Of this number, 47,000 were age 25-64. The labor force participation and work status of young women (aged 16-24)is similar to that for young men: lower labor force participation rates than thenational average (57% versus 62% nationally) and higher rates of unemployment. Almost 19% of young women aged 16-24 in hurricane-damaged or flooded areaswere unemployed, an even higher unemployment rate than observed for young men.However, women aged 25-64 in hurricane-damaged areas had very similar laborforce participation rates to the national average, though their unemployment rateswere above the national average. Employment Population Ratio. Figure 8 shows the employment-population ratio for youths (age 16-24) and primeworking age adults (age 25-64) for the nation as a whole and for the areas damagedor flooded by Hurricane Katrina for men and women. The employment-populationratio is the percentage of the population actually employed. For all groups, those inthe areas acutely affected by the hurricane had lower employment rates than for thenation as a whole. However, for men, both youths and prime working-aged men, theemployment-population ratio in hurricane-affected areas was substantially lower thanthe national average, reflecting both lower labor force participation and higherunemployment rates for men. Employment-population ratios for young women inhurricane-affected areas were also substantially below national averages. However,the employment-population ratio for prime working-aged women inhurricane-affected areas was only slightly below average. Figure 8. Employment-Population Ratios for Youth and PrimeWorking-Age Men and Women in Hurricane Katrina Flood orStorm-Damaged Areas Compared with National Averages (Based on 2000Census Data) Source: Estimates prepared by the Congressional Research Service (CRS) withassistance from the Library of Congress Congressional Cartography Program, basedon analysis of FEMA flood and damage assessments and U.S. Census 2000 SummaryFile 4 (SF4) data files. Education. The adult populationliving in hurricane-damaged or flooded areas was also educationally disadvantagedrelative to the averages for the nation as a whole. Overall, 23% of adults (aged 25and over) in storm-damaged or flooded areas lacked a high school diploma,representing 106,000 people. Younger adults living in hurricane-damaged or flooded areas had lower levelsof educational attainment compared to their counterparts living in U.S. metropolitanareas overall. (19) Among younger adults, age 18 to 34, who werenot enrolled in school, 22.8% had not attained a high school diploma, or itsequivalent, compared to 20.6% in U.S. metropolitan areas overall. (See Figure 9. ) In U.S. metropolitan areas overall, 29.3% of younger adults who were no longer inschool had attained a post-secondary school degree (associates, bachelors, graduateor professional degree), compared to 22.5% of those living in Katrina storm orflood-damaged areas. Figure 9. Educational Attainment of Younger Adults (Age 18 to 34) in HurricaneKatrina Flood or Storm-Damaged Areas Compared to U.S. Metropolitan AreasOverall (Based on 2000 Census Data) Source: Estimates prepared by the Congressional Research Service (CRS) withassistance from the Library of Congress Congressional Cartography Program, basedon analysis of FEMA flood and damage assessments and U.S. Census 2000 SummaryFile 4 (SF4) data files. Note: Estimates are for younger adults not enrolled in school. Aggregate Earnings Losses. Atthe time of the 2000 Census, households living in the hurricane-damaged or floodedareas had estimated aggregate annual earnings in 1999 of $10 billion. This figureincludes wages and salaries, and net self employment income. Additionally,employers in the affected areas may have depended on workers who lived in areasthat were less severely impacted by the storm, and their earnings are not included inthis estimate. Some of the workers in the most affected areas may have had jobselsewhere, in less affected areas, and could conceivably retain their jobs and earnings. The estimated $10 billion in earnings of households that lived in hurricane-damagedor flooded areas amounts to nearly 29% of the total earnings of all households livingin the 14 county area. The $10 billion aggregate earnings figure, cited above, is onlya crude approximation of potential lost earnings in the affected areas, reflectingeconomic circumstances of households in 1999, not 2005, but even by this crudemeasure, the impact is substantial. For most American families, a home is or will be their largest investment andasset. It can be a source of equity and financial stability, as well as a tie to thecommunity. Another indicator of the pre-hurricane financial disadvantage in theareas impacted by Hurricane Katrina is the low rate of homeownership. Accordingto CRS analyses, the area most heavily impacted by Hurricane Katrina had a lowerthan average proportion of homeowners. The rate of homeownership among allhouseholds in occupied housing units was 66% nationally in 2000, according toCensus figures, but was only 55% in the Katrina-impacted areas. As shown in Figure10 , this lag existed for the elderly, the non-elderly as well as the poor. Figure 10. Percent of People Living in Owner-Occupied Housing inHurricane Katrina Flood or Storm-Damaged Areas Compared to the Nation (Based on 2000 Census Data) Source: Estimates prepared by the Congressional Research Service (CRS) withassistance from the Library of Congress Congressional Cartography Program, basedon analysis of FEMA flood and damage assessments and U.S. Census 2000 SummaryFile 4 (SF4) data files. It is unclear whether this lower rate of homeownership will impact the returnof residents displaced by Hurricane Katrina. Renters are more mobile and may havean easier time resettling in new communities than homeowners, who will need toeither repair and return to damaged homes or sell them, assuming that they are worthmore than the amount of debt still owed on them. Note that 65% of owner-occupiedhomes in the impacted region had some form of mortgage at the time of the 2000Census. While Census data cannot answer the question of who will return, the datado indicate that homeowners in the impacted areas had lived in their homes for manyyears, possibly indicating strong community ties. More than half of all homeownershad lived in their homes for 20 or more years (compared to 42% nationally), and justunder a third had lived in their homes for 30 or more years (compared to 22%nationally). The data also indicate that, despite their general mobility, renters mayalso have had strong ties, with 29% having lived in their homes for 10 years or more(compared to 23% nationally). Most homeowners in impacted areas lived in single-family homes (69%),although a larger share than the national average lived in mobile homes (25%,compared to 8% nationally). The finding that a high percentage of homes in thedamaged areas are mobile homes is not surprising, given the lower incomes in theimpacted areas as well as mobile homes' susceptibility to damage. Overall, an estimated 55% of 278,000 households impacted by the stormowned their own home. Among poor households, over one-quarter owned theirhome (27%); among non-poor households, over three-fifths (62%). (20) About a quarter of all owners and 46% of all renters in the impacted areas hadat least one housing condition as of the 2000 Census. Housing conditions are definedas paying more than 30% of income toward housing costs (the standard consideredaffordable), living with more than 1.01 person per room (the standard forovercrowding), and lacking complete plumbing and/or kitchen facilities (the standardfor housing inadequacy). These rates are consistent with the national averages (of24% of owners and 43% of renters). It is likely that these measures of inadequacyand/or affordability will change as housing is rebuilt and new stock is added after thehurricane. This report's analysis is based on the merger of FEMA flood and damageassessments (data of September 21, 2005) with Census 2000 data. The FEMA floodand damage assessments are derived from interpretations of satellite and aircraftoverflight imagery of the impacted area, combined with analysts' assessments on thescene. The FEMA flood and damage assessments were primarily derived frominterpretations of aerial imagery, which may be limited by the range of the flightsas well as subject to errors in categorizing areas. (The FEMA flood assessmentrepresents the high-water mark of hurricane-related flooding, not the level of floodingon September 21.) Although the data from Census 2000 are now more than fiveyears old, they are the only currently available data at the geographic scale required(Census Blocks and Tracts) to infer the social and demographic characteristics ofpopulations who were likely directly impacted by hurricane damage and/or flooding.The estimates presented in this report rely heavily on the completeness and accuracyof the FEMA flood and damage assessment data. The FEMA data are likely to havecaptured most, but not all hurricane-related damage, and miss inland damage alongthe hurricane's storm track through Mississippi (mostly less than catastrophicdamage). The data that were used in this report are not the only data being developedto assess Hurricane Katrina's impact. More will become available as time goes on. In terms of categorizing the damage, the NOAA (National Oceanic and AtmosphericAdministration) has continued to conduct flyovers of the impacted area and updateits data, especially as flood waters have receded. Further, local officials andinsurance adjusters have now gone into many of the impacted areas to conductthorough assessments of structural damage. The American Red Cross has alsoconducted a structure-by-structure damage assessment. Using trained volunteers anddamage categories aligned with FEMA, the American Red Cross has estimated that885,791 structures were impacted by Hurricane Katrina, of which 492,576 wereeither destroyed (352,930) or sustained major damage (139,646). The breakdown,as of October 3, 2005, is as follows: Source: Greg Tune, American Red Cross. Numbers verbally presented at HousingStatistics Users Group meeting on Tuesday, October 25, 2005 at the NationalAssociation of Home Builders Headquarters, Washington, DC. Note: More recent Red Cross data discussed below are not included in this tablebecause they include Hurricane Rita. Further assessments conducted by the American Red Cross suggest that theFEMA damage assessment does not capture the full extent of inland damage,concentrated largely along Hurricane Katrina's storm track in Mississippi. TheFEMA damage assessment accounts for damage in just three Mississippi Counties -- Hancock, Harrison, and Jackson -- that are situated directly on the Gulf Coast. Information obtained from the American Red Cross indicate 4,609 destroyeddwellings in areas that are outside of these three counties, accounting for 6.7% of alldestroyed dwellings (68,729) in Mississippi. (21) The RedCross's assessment identifies a total of 65,237 dwellings that suffered major damage(e.g., large portions of roofs missing, extensive wall damage) in Mississippi, ofwhich 45.9% (29,917) were located in inland counties, not included in the FEMAassessment and therefore not included in this CRS analysis. The best source of data about the families who were displaced as a result ofHurricane Katrina is the FEMA database of registrants. By early October, over 2million individuals and households (not all necessarily displaced) had registered withFEMA for disaster assistance as a result of hurricanes Katrina and Rita . (22) Thatdatabase includes information about each person who has registered for assistanceafter the disaster, including information about where they lived prior to evacuationand where they are living after the disaster, based on postal zipcodes. While notpublicly available, at least one newspaper has had access to the zipcode informationand has published a map showing where families were from and where they havegone. (23) While FEMA has stated it is concerned about the privacy rights of registrants, (24) it can beexpected that more information about displaced families will become available in thefuture from this database. The estimates presented in this report are based on FEMA flood and damageassessment data, combined with Census 2000 demographic and geographic boundarydata. The FEMA flood and damage assessments are as of September 21, 2005. (25) Theyreflect FEMA's assessment of areas affected by structural damage and/or flooding,based on remote sensing imagery (satellite and aircraft) interpretation, combined withanalysts' assessments on the scene. (The FEMA flood assessment represents thehigh-water mark of hurricane-related flooding, not the level of flooding onSeptember 21). FEMA data files showing the areas affected by flooding and/orstructural damage were obtained and mapped into a Geographic Information System(GIS) by a Library of Congress cartographer. Among its other features, the GIScontains U.S. Census population and geographic boundary data, and provides thefacility for geo-spatial analysis and mapping. The GIS was used to apportion areasof assessed damage and/or flooding to Census Blocks, and then to aggregate CensusBlocks up to Census Tracts. Flood and damage apportionment factors were thenapplied to Census 2000 Tract-level data in order to assess impacted areas in terms ofthe social-demographic characteristics of the population most likely to have beendirectly affected by the hurricane. As noted in the body of the report, the estimates are based on 2000 data,reflecting the number and characteristics of the population at that time -- as if thehurricane struck in April 2000, as opposed to August 2005. Numbers presented inthis report are estimates, providing a rough approximation of the numbers andcharacteristics of persons, families, and households that are most likely to have beenimpacted by the hurricane. The estimates are based on the methodology describedabove, and rely heavily on the completeness and accuracy of the FEMA flood anddamage assessment data. Subsequent and ongoing assessments conducted by the American Red Crosssuggest that the FEMA damage assessment does not capture the extent of inlanddamage, concentrated largely along Hurricane Katrina's storm track throughMississippi. The FEMA damage assessment accounts for damage in just threeMississippi Counties -- Hancock, Harrison, and Jackson -- that are situated directlyon the Gulf Coast. Information obtained from the American Red Cross indicate4,609 destroyed dwellings in areas outside of these three counties, accounting for6.7% of all destroyed dwellings (68,729) in Mississippi. (26) The RedCross's assessment identifies a total of 65,237 dwellings that suffered major damage(e.g., large portions of roofs missing, extensive wall damage) in Mississippi, ofwhich 45.9% (29,917) were located in inland counties, not included in the FEMAassessment and therefore not included in this CRS analysis. The FEMA flooding and structural damage data are based on separateassessments. Consequently, areas with flooding and structural damage may overlap.Structural damage is characterized at four different levels: Catastrophic Damage: Most solid and all light or mobilestructures are destroyed; Extensive Damage: Some solid structures are destroyed; mostsustain exterior and interior damage (e.g., roofs are missing, interior walls exposed),most mobile homes and light structures are destroyed; Moderate Damage: Solid structures sustain exterior damage(e.g., missing roofs or roof segments); some mobile homes and light structures aredestroyed, many are damaged or displaced; Limited Damage: Generally superficial damage to solidstructures (e.g., loss of tiles or roof shingles); some mobile homes and light structuresare damaged or displaced. Recategorization into Non-OverlappingAreas. GIS methods were applied to separate areas with floodingor structural damage only, from those areas where flooding and structural damageoverlapped, in order to avoid double counting. Ten mutually exclusive areas wereinitially derived: 1) Flooding Only, 2) Catastrophic Damage Only, 3) ExtensiveDamage Only, 4) Moderate Damage Only, 5) Limited Damage Only, 6) Flooding andCatastrophic Damage, 7) Flooding and Extensive Damage, 8) Flooding and ModerateDamage, 9) Flooding and Limited Damage, 10) No Flooding or Damage. Apportion Census Block Populations byFlood/Damaged Areas. The areas of assessed damage and/orflooding, defined above, were apportioned by Census Block (the smallest unit ofCensus geography), based on the population in the Block, and the Block'soverlapping and non-overlapping habitable area (i.e., land, as opposed to water) withthe assessed damage areas. Census Block boundaries are not coincident with thegeographic boundaries of the assessed damaged and/or flooded areas. In order toapportion the 10 mutually exclusive categories (mentioned above), an arealpercentage of the overlapping damaged and/or flooded area was applied to theCensus 2000 Block population. To do this, we had to make the assumption thatpopulation is evenly distributed within the Census Block. Because of the small areageography of the Census Block, error introduced at the Block level is less than itwould be if the apportionment methodology had been implemented directly at theTract level. Apportioned Census Block populations, by percent in flood areas, and/orareas with assessed structural damage, were then aggregated by Census Tract, toarrive at apportionment rates for the Tract, for flooding and/or level of structuraldamage, based on the 10 non-overlapping areas, defined above. The apportionment rates, derived above, were then applied to Census 2000data, summarized at the Census Tract level. (27) TheCensus 2000 summary Tract level data provide the lowest level of geographical detailthat is publicly available on a broad range of social, demographic, income, andhousing characteristics of the population. As an example, if a Census Tract had a population in 2000 of 3,200people (28) and 20% of its population was estimated to have lived in a flooded area based on theCensus Block population apportionment rate procedure described above, then 640people would be estimated to have lived in flooded areas, and 2,560 in non-floodedareas. If 40% of that Census Tract's population was African American (1,280 people), then, under the methodology employed, the same share for the Tract's overallpopulation estimated to live in its flooded area (i.e., 20%), would be applied to theblack population in the Tract (1,280), to arrive at an estimate of 256 black peoplewho lived in the flooded area of the Tract. While the methodology estimatesproportionate shares of Census Blocks' populations affected by flooding and/orstructural damage at the aggregated Census Tract level, it does not distinguish withina Census Tract where individuals with different characteristics lived. For example,it assumes at the Census Tract level, the entire population was affectedproportionately, regardless of their characteristics or where they lived within theTract. The ten mutually exclusive areas of flooding and/or damage, describedearlier, were regrouped into areas presented in the analysis. Areas with CatastrophicDamage were combined into one grouping, regardless of whether there was alsoFlooding (i.e., categories 1 and 2, above). All areas with Flooding, other than thosethat also had Catastrophic Damage (2), were combined into Flooded areas (i.e, 1, 7,8, and 9, above). Comprehensive data on the depth or duration of flooding by areawere not available when we conducted this analysis, so we are unable to distinguishthe severity of flooding. Areas without flooding, that had Extensive (3) or ModerateDamage (4) were combined into a single category. Lastly, areas with LimitedDamage and no flooding (5) were combined with areas where there was no Floodingor Damage (10). Among the 14 counties or parishes where any damage or flooding was assessed, the estimated populations in the redefined areas based on their April 2000Census populations were as follows: Catastrophic damage, regardless of flood status(40,000); Flooded, excluding areas of catastrophic damage(652,000); Non-flooded, extensive damage (5,600); Non-flooded, moderate damage(13,700); No damage or flooding, or limited damage only(1,747,000). | On the morning of August 29, 2005, Hurricane Katrina made landfall on the Gulf Coastbetween the major cities of New Orleans, Louisiana, to the west, and Mobile, Alabama, to the east. Along the Gulf Coast and inland in the swath of the storm, Hurricane Katrina impacted hundredsof thousands of families in three states (Louisiana, Mississippi, and Alabama) and contributed to thedeaths of more than 1,000 people. While CRS estimates that 5.8 million people in three states mayhave experienced hurricane-force winds, the majority rode out the storm safely. Property damage,loss of life, and sizeable displacement of the population appear to have been largely concentratedalong the Gulf Coast within a 100-mile radius of where the storm made landfall. Within this area,damage due to high winds and storm surge resulted in significant devastation, but flooding, largelyresulting from breached levees and flood walls, affected the greatest number of people, with muchof New Orleans flooded. CRS estimates that 700,000 or more people may have been acutely impacted by HurricaneKatrina, as a result of residing in areas that flooded or sustained significant structural damage. Thisestimate is based on geographical analysis of Federal Emergency Management Agency (FEMA)flood and damage assessments and year 2000 Census data. The estimates in this report are subjectto the methods and assumptions used. Other agencies and organizations are conducting assessmentsusing alternative and complementary methodologies; estimates may differ depending upon thespecific methodologies used. In the case of this analysis, the estimates reflect the numbers andcharacteristics of people, families, and households in 2000, who lived in areas that suffered damageor flooding from the hurricane in 2005. The analysis shows that the Louisiana parishes of Orleans and St. Bernard were especiallyhard hit by flooding, with an estimated 77% of Orleans's population affected, and nearly all residentsof St. Bernard. In Mississippi, 55% of Hancock County's population is estimated to have beenaffected by flooding and/or structural damage, and in the more populous Harrison County, about19% of its population. In Louisiana, an estimated 645,000 people may have been displaced by thehurricane (based on 2000 Census data), and in Mississippi, 66,000. Hurricane Katrina had varying impacts on the population. CRS estimates that of the peoplemost likely to have been displaced by the hurricane, about half lived in New Orleans. Due to thecity's social and economic composition, the storm impacted heavily on the poor and AfricanAmericans. CRS estimates that one-fifth of those displaced by the storm were likely to have beenpoor, and 30% had incomes that were below 1½ times the poverty line. African Americans areestimated to have accounted for approximately 44% of the storm victims. An estimated 88,000elderly persons (age 65 and older), many with strong community ties, may have been displaced,along with 183,000 children, many of whom were just starting the school year when the storm struck. Katrina's impact on individuals, families, and communities will be felt for years to come, and willtake time to fully comprehend. This report will not be updated. |
H.R. 4568 , the Consolidated Appropriations Act for FY2005, became the vehicle for appropriations for Interior and related agencies. The measure was enacted into law on December 8, 2004 ( P.L. 108-447 ). The law contains a total of $20.09 billion for Interior and related agencies, including two across-the-board rescissions in the law. The annual Interior and related agencies appropriations bill includes funding for agencies and programs in four separate federal departments, as well as numerous related agencies and bureaus. The bill includes funding for the Department of the Interior (DOI), except for the Bureau of Reclamation (funded in Energy and Water Development Appropriations laws), and for some agencies or programs in three other departments—Agriculture, Energy, and Health and Human Services. Title I of the bill includes agencies within the Department of the Interior which manage land and other natural resource or regulatory programs, the Bureau of Indian Affairs, and insular areas. Title II of the bill includes the Forest Service of the Department of Agriculture; several activities within the Department of Energy, including research and development programs, the Naval Petroleum and Oil Shale Reserves, and the Strategic Petroleum Reserve; and the Indian Health Service in the Department of Health and Human Services. In addition, Title II includes a variety of related agencies, such as the Smithsonian Institution, National Gallery of Art, John F. Kennedy Center for the Performing Arts, the National Endowment for the Arts, the National Endowment for the Humanities, and the Holocaust Memorial Council. In this report, appropriations levels enacted for FY2005 reflect two across-the-board rescissions contained in P.L. 108-447 . In general, the term appropriations represents total funds available, including regular annual and supplemental appropriations, as well as rescissions, transfers, and deferrals, but excludes permanent budget authorities. Increases and decreases generally are calculated on comparisons between the funding levels appropriated for FY2004, requested by the President for FY2005, and recommended and appropriated by Congress for FY2005. 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. Finally, some of the DOI websites provided throughout the report and listed at the end have not been consistently operational due to a court order regarding Indian trust funds litigation. Nevertheless, they are included herein for reference when the websites are operational. For FY2004, Congress enacted a total appropriation of $20.51 billion. This total was higher than the FY2003 funding level ($20.11 billion). It reflects an across-the-board cut of 0.646% in the FY2004 Interior and Related Agencies Appropriations Act ( P.L. 108-108 ) and an additional across-the-board cut of 0.590% in the Consolidated Appropriations Act of 2004 ( P.L. 108-199 ). It also reflects a supplemental appropriation of $500.0 million for urgent wildland fire suppression. Many controversial issues arose during consideration of the FY2004 Interior and related agencies appropriations bill. Key funding issues included the appropriate levels of funding for wildland firefighting and land acquisition. In other controversial areas, the FY2004 law (1) continued the automatic renewal of expiring grazing permits and leases for FY2004—FY2008; (2) extended the Recreational Fee Demonstration Program; (3) modified procedures for seeking judicial review of timber sales in Alaska, primarily in the Tongass National Forest; (4) capped funds for competitive sourcing efforts of agencies and required documentation on the initiative; and (5) led to a stay of a court decision requiring an accounting of Indian trust funds and trust asset transactions since 1887. However, the FY2004 law dropped language on other contentious issues, including barring funds from being used (1) to implement changes to BLM regulations on Recordable Disclaimers of Interest in Land, (2) for the Klamath Fishery Management Council, and (3) for Outer Continental Shelf leasing activities in the North Aleutian Basin planning area, which includes Bristol Bay, Alaska. For further information on these issues and FY2004 funding generally, see CRS Report RL31806, Appropriations for FY2004: Interior and Related Agencies , by [author name scrubbed] and [author name scrubbed]. Annual appropriations for Interior and related agencies were included in P.L. 108-447 , the Consolidated Appropriations Act for FY2005. The law contains a total of $20.09 billion for Interior and related agencies, including two across-the-board rescissions in the law, of 0.594% and 0.80%. The law provides $2.97 billion for wildfire protection for FY2005, under the National Fire Plan. That plan comprises the Forest Service wildland fire program and firefighting on DOI lands. The total includes $493.1 million for emergency firefighting if certain conditions are met. The law also provides $255.5 million for the Land and Water Conservation Fund for federal land acquisition ($164.3 million) and grants to states ($91.2 million). The President's FY2005 budget request for Interior and related agencies totaled $19.69 billion. The House and Senate Appropriations Subcommittees on the Interior held a series of hearings on the FY2005 budget requests. Subsequently, on June 3, 2004, the House Subcommittee on Interior appropriations approved the draft Interior appropriations bill and on June 9, 2004, the House Committee on Appropriations marked up and ordered the bill reported with amendments. The Committee bill was reported on June 15, 2004 ( H.Rept. 108-542 ). The bill contained a total of $20.03 billion for FY2005, including $500 million for emergency wildland firefighting. (The bill also contained $500 million for FY2004 for emergency wildland firefighting, which was enacted subsequently in other legislation.) A full committee amendment to the bill removed $227.0 million for the Weatherization Assistance Program with the expectation that the funds would be added to the appropriations bill for Labor, HHS, Education, and Related Agencies. H.R. 4568 , the Interior and Related Agencies Appropriations bill for FY2005, was passed by the House (334-86) on June 17, 2004. The bill also contained $20.03 billion. H.R. 4568 was referred to the Senate Committee on Appropriations on June 21, 2004. However, the Senate Appropriations Subcommittee on the Interior approved its own bill on June 23, 2004, reportedly containing $19.76 billion plus $1.0 billion for emergency firefighting for FY2004 and FY2005 if needed. On September 14, 2004, the Senate Committee on Appropriations reported its bill ( S. 2804 , S.Rept. 108-341 ) with $20.26 billion, including $500 million in supplemental fire funds. The Committee rejected a contentious amendment to strike language in the bill to change a trigger that requires the U.S. Army Corps of Engineers to implement drought conservation measures on the Missouri River. The Committee also voted to reauthorize collection of the fee for the Abandoned Mine Land Fund through May 31, 2005. Both the House-passed and Senate Committee-reported bills reflected an increase over the President's FY2005 request ($19.69 billion), but a decrease from the FY2004 enacted level ($20.51 billion). The FY2004 enacted level reflected $500 million in supplemental funding for emergency firefighting. Similarly, both the House-passed and Senate Committee-reported bills included $500 million for emergency firefighting for FY2005; emergency funds would become available if certain conditions are met. (The House bill also contained $500 million for emergency firefighting for FY2004, included prior to the enactment of supplemental funds for this purpose in P.L. 108-287 ). The FY2005 House-passed bill contained higher funding than the Senate Committee-reported bill in areas including Fossil Energy Research and Development, +59.3 million Bureau of Indian Affairs, +$58.7 million Indian Health Service, +$35.6 million Clean Coal Technology, +20.0 million National Endowment for the Arts, +$10.0 million National Endowment for the Humanities, +6.7 million. The FY2005 House-passed bill contained lower funding as compared to the Senate Committee-reported bill in areas including: Energy Conservation, -$198.2 million Federal Land Acquisition, -$168.6 million National Park Service, -$92.4 million U.S. Fish and Wildlife Service, -$46.3 million Bureau of Land Management, -$29.6 million Forest Service, -$24.8 million Smithsonian Institution, -$7.2 million. P.L. 108-447 provides $2.97 billion for the National Fire Plan for FY2005. The House-passed bill contained $3.02 billion, and the Senate committee-reported bill included $2.98 billion. These figures include $500 million for emergency fire fighting for FY2005 that would become available if certain conditions are met ($493.1 million enacted, after rescissions). The President had requested $2.47 billion for the National Fire Plan for FY2005, and Congress had enacted $3.27 billion for FY2004, including supplemental funding. For federal land acquisition and grants to states, under the Land and Water Conservation Fund, $255.5 million was enacted for FY2005. The House-passed bill included $140.0 million. An amendment to increase funding for land acquisition was defeated by the House Committee on Appropriations. The Senate committee-reported bill contained significantly higher funds—$311.1 million. The President had requested $314.0 million for FY2005. Prior to enactment of P.L. 108-447 , a series of continuing resolutions were enacted to provide temporary funding for FY2005 for Interior and related agencies. These resolutions were necessary because FY2005 began on October 1, 2004, without enactment of annual appropriations for Interior and related agencies (as well as for other departments and agencies). Controversial policy and funding issues typically have been debated during consideration of the annual Interior and related agencies appropriations bills. Debate on FY2005 funding levels focused on a variety of issues, many of which have been controversial in the past, including the issues listed below. Abandoned Mine Lands (AML) Fund , including whether, as part of AML reauthorization, to change the program as sought by the Administration to address state and regional concerns, including a change to return unobligated state share balances in the fund to the states. (For more information, see the " Office of Surface Mining Reclamation and Enforcement " section in this report.) Arts and Humanities , including whether funding for the arts and humanities is an appropriate federal responsibility, and if so what should be the proper level of federal support for cultural activities. (For more information, see the " Smithsonian Institution " and " National Endowment for the Arts and National Endowment for the Humanities " sections in this report.) Competitive Sourcing , namely the extent to which government functions should be privatized, agency funds can and should be used for such "outsourcing," and agencies are communicating appropriately with Congress on their outsourcing activities. (For more information, see the section in this report on " Competitive Sourcing of Government Jobs .") Grazing, Categorical Exclusions for , particularly to allow decisions by the Secretary of Agriculture authorizing grazing on Forest Service lands to be categorically excluded from documentation under the National Environmental Policy Act of 1969 (NEPA). (For more information, see the " Department of Agriculture: Forest Service " section in this report.) Indian Trust Funds , especially the method by which an historical accounting will be conducted of tribal and Individual Indian Money (IIM) accounts to determine correct balances, and a class-action lawsuit against the government involving tribal and IIM accounts. (For more information, see the section in this report on the " Office of Special Trustee for American Indians .") 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.) Maintenance Backlogs , primarily the adequacy of agency activities to determine the extent of their maintenance backlogs, the priority of the backlog relative to other agency responsibilities, and the appropriate level of funds to reduce the backlog. (For more information on the backlog of the National Park Service, which has been the focus of the Bush Administration, see the " National Park Service " section in this report.) Missouri River Management , essentially over the implementation of drought conservation measures on the Missouri River and water levels for upper and lower Missouri River Basin states. (For more information, see the " Missouri River Management " section in this report.) Outer Continental Shelf Leasing , particularly the moratorium on preleasing and leasing activities in the Eastern Gulf of Mexico; oil and gas leases in offshore California; and the possibility of opening to oil and gas development the North Aleutian Basin Planning Area, which includes Bristol Bay, AK. (For more information, see the " Minerals Management Service " section in this report.) Roads and Timber Harvesting in the Tongass National Forest , notably (1) whether to allow or prohibit the use of funds for roads for timber harvesting in the Tongass National Forest in Alaska, and (2) whether to extend standards for litigating timber sales in the Tongass. (For more information, see the " Department of Agriculture: Forest Service " section in this report.) Snowmobiling in Park Units , particularly whether to allow or prohibit the use of funds for snowmobiling in Yellowstone and Grand Teton National Parks and the John D. Rockefeller, Jr. Memorial Parkway. (For more information, see the " National Park Service " section in this report.) Strategic Petroleum Reserve (SPR) , notably whether the SPR should continue to be filled to capacity as ordered by President Bush. (For more information, see the " Strategic Petroleum Reserve " section in this report.) Wild Horse and Burro Management , namely new authority for sale of excess wild horses and burros, and removal of provisions of law barring wild horses and burros and their remains from being sold for processing into commercial products. (For more information, see the " Bureau of Land Management " section 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 "Forest Service" sections in this report.) Yukon Flats Land Exchange , involving funds for the Fish and Wildlife Service to acquire lands in the Yukon Flats National Wildlife Refuge (AK) and a related conveyance of federal lands and interests. (For more information, see the " Fish and Wildlife Service " section in this report.) Table 1 below contains information on congressional consideration of the FY2005 Interior appropriations bill. During the 10-year period from FY1996 to FY2005, Interior and related agencies appropriations increased by 60% in current dollars, from $12.54 billion to $20.09 billion. See Table 2 below. During the most recent five years, from FY2001 to FY2005, the rate of increase was much more modest—from $18.89 billion to $20.09 billion, or 6% in current dollars. The single biggest increase during the decade occurred from FY2000 to FY2001, when the total appropriation rose 27% in current dollars, from $14.91 billion to $18.89 billion. Much of the increase was provided to land management agencies for land conservation and wildland fire management. See Table 22 below for a budgetary history of each agency, bureau, and program from FY2001 to FY2005. The Bureau of Land Management (BLM) manages approximately 261 million acres of public land for diverse, and, at times, 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 non-federal land. For FY2005, Congress enacted $1.82 billion for the BLM, an increase of $57.6 million (3%) over the President's FY2005 request. The enacted level is a decrease of $76.3 million (4%) from the FY2004 enacted level, $59.5 million (3%) from the Senate committee-reported level, and $16.4 million (1%) from the House-passed level. See Table 3 below. For Management of Lands and Resources, Congress enacted $836.8 million for FY2005. This is a decrease from the FY2004 enacted level, and the levels requested by the President, passed by the House, and recommended by the Senate Appropriations Committee for FY2005. This line item funds an array of BLM land programs, including protection, recreational use, improvement, development, disposal, and general BLM administration. Some programs would receive increased funds over FY2004, including management of wild horses and burros and management of wildlife. Others would decrease from FY2004, including range management; recreation; and transportation and facilities maintenance, which includes deferred maintenance. Still other programs would be funded at relatively flat levels, including energy and minerals (including Alaska minerals). The FY2005 law would continue to bar funds from being used for energy leasing activities within the boundaries of national monuments, as they were on January 20, 2001, except where allowed by the presidential proclamations that created the monuments. The law also continues the moratorium on accepting and processing applications for patents for mining and mill site claims on federal lands. However, applications meeting certain requirements that were filed on or before September 30, 1994, would be allowed to proceed, and third party contractors would be authorized to process the mineral examinations on those applications. The FY2005 law includes changes to wild horse and burro management on federal lands. It provides new authority for agencies to sell excess animals or their remains, and removes provisions of law that had barred wild horses and burros and their remains from being sold for processing into commercial products. Also, the law does not expressly prohibit BLM from slaughtering healthy wild horses and burros, as had past appropriations laws apparently starting in FY1988. These changes have been controversial. For Wildland Fire Management for FY2005, Congress enacted $831.3 million, including $98.6 million for emergency firefighting during FY2005 that would become available if certain conditions are met. These contingent funds are intended to preclude borrowing from other BLM programs to fight wildfires; such borrowing has been typical in recent years. The FY2005 enacted level is an increase over the Administration's FY2005 request, but less than enacted for FY2004 and passed by the House and recommended by the Senate Appropriations Committee for FY2005. For FY2005, Congress enacted a $17.5 million (10%) increase over FY2004 for BLM fuels reduction, particularly in the wildland-urban interface. The Administration, House, and Senate Appropriations Committee had all supported an increase in FY2005 to reduce fuel loads. In its report on the bill, the House Appropriations Committee required the BLM to report on the methods used to prioritize fuel projects, which are to be in common with the Forest Service, to ensure that funds are used for the highest priorities. (For additional information on wildland fires, see the " Department of Agriculture: Forest Service " section in this report.) For FY2005, Congress enacted a decrease in funds for preparing for fires and for suppressing fires, relative to FY2004 levels. Conferees, in report language, expressed a need to control the cost of suppressing fires. They directed the Secretaries of Agriculture and the Interior to report to Congress by June 30, 2005, on performance measures planned to be used on an interagency basis to improve reporting on fire suppression costs. In earlier action, in its report on the bill, the House Committee on Appropriations expressed concern that fire funding for preparedness and suppression may not maintain the level of readiness needed for public safety that existed in FY2002 and FY2003 ( H.Rept. 108-542 , p. 17). The Committee directed the BLM to analyze current readiness levels, and adjust the level of funds for preparedness and suppression if the agency determines that maintaining preparedness funding at no less than the FY2003 level will result in lower overall firefighting costs. The wildland fire funds appropriated to BLM are used for fire fighting on all Interior Department 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 implementation of 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, among other provisions. Congress enacted $11.3 million for BLM construction for FY2005. This level is less than enacted for FY2004 and passed by the House for FY2005, but more than requested by the Administration and recommended by the Senate Committee on Appropriations for FY2005. In their report on the bill, conferees expressed concern about the low level of funding for BLM construction relative to other agencies. They urged the Administration to put more emphasis on funding for deferred maintenance construction projects on BLM lands. For Land Acquisition for FY2005, Congress enacted $11.2 million. Ten acquisition projects would be funded through this appropriation and use of $10.0 million of unobligated balances. In earlier action, the House had not supported funding new acquisitions. Similarly, the House Appropriations Committee did not earmark funds for acquisitions, in contrast to past practice, calling new acquisitions a "low priority" ( H.Rept. 108-542 , p. 5). By contrast, the Senate Committee on Appropriations had recommended $22.9 million for land acquisition, primarily for 11 earmarked acquisitions. The FY2005 enacted level was a decrease from the President's FY2005 request and the FY2004 enacted level. The FY2004 enacted level of $18.4 million for land acquisition was itself a reduction of the FY2003 level of $33.2 million, due to "the unfocused direction" in agency land acquisition, according to the House Appropriations Committee ( H.Rept. 108-195 , p. 10). Money for land acquisition is appropriated from the Land and Water Conservation Fund. (For more information, see " The Land and Water Conservation Fund (LWCF) " section in this report.) For the (O&C) Grant Lands, which include highly productive timber lands, Congress enacted $107.5 million, an increase over FY2004, but a decrease from the FY2005 requested, House-passed, and Senate committee-reported levels. This activity funds programs related to revested Oregon and California Railroad grant lands and related areas, including for land improvements and managing, protecting, and developing resources on these lands. For further information on the Department of the Interior , see its website at http://www.doi.gov . For further information on the Bureau of Land Management , see its website at http://www.blm.gov/nhp/index.htm . CRS Report RS21402, Federal Lands, R.S. 2477, and " Disclaimers of Interest " , by [author name scrubbed]. CRS Report RL32244, Grazing Regulations: Changes by the Bureau of Land Management , by [author name scrubbed]. CRS Report RS20902, National Monument Issues , by [author name scrubbed]. CRS Report RL32315, Oil and Gas Exploration and Development on Public Lands , by [author name scrubbed]. CRS Issue Brief IB10076. Public (BLM) Lands and National Forests , by [author name scrubbed] and [author name scrubbed], coordinators. For FY2005, Congress approved $1.332 billion for the U.S. Fish and Wildlife Service (FWS), slightly more than the Administration requested ($1.326 billion) and more than enacted for FY2004 ($1.308 billion). By far the largest portion of the FWS annual appropriation is for the Resources Management account. The President's FY2005 request was $951.0 million, a slight decrease from the FY2004 level of $956.5 million. Congress enacted $962.9 million for FY2005. 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 Administration proposed to reduce the program from $137.0 million in FY2004 to $129.4 million in FY2005. Congress enacted $143.2 million for FY2005. See Table 4 below. A number of related programs also benefit conservation of species that are listed, or proposed for listing, under the Endangered Species Act. The Landowner Incentive Program decreased from $29.6 million in FY2004 to $21.7 million for FY2005. Stewardship Grants fell from $7.4 million in FY2004 to $6.9 million for FY2005. The Cooperative Endangered Species Conservation Fund (for grants to states and territories to conserve threatened and endangered species) declined from $81.6 million in FY2004 to $80.5 million for FY2005. (See Table 4 .) Under the President's request, overall FY2005 funding for the endangered species program and related programs would have increased from FY2004 by $23.8 million (9%). As enacted, FY2005 funding for these programs as a group fell $3.4 million (1%). While certain changes affecting endangered species were supported by some interest groups, they apparently were not offered as amendments during consideration of FY2005 Interior appropriations legislation. These changes reportedly related to species recovery and an exemption for pesticide use, according to the Center for Biological Diversity. On March 14, 2003, the Nation observed the centennial of the creation by President Theodore Roosevelt of the first National Wildlife Refuge on Pelican Island in Florida. Accordingly, Congress appropriated funding in FY2003 and FY2004 for various renovations, improvements, and activities to celebrate the centennial; it included all of this funding under operations and maintenance for the National Wildlife Refuge System (NWRS). For operations and maintenance in FY2005, the President proposed $387.7 million, a decrease from $391.5 million in FY2004. Of this amount, $66.5 million was earmarked for deferred maintenance in FY2004, which the President also proposed for FY2005. Congress enacted $381.0 million for FY2005; the law contained no earmark for deferred maintenance. The President proposed $51.3 million for Law Enforcement—a decrease of $2.4 million from the FY2004 level ($53.7 million). Congress enacted $55.6 million for FY2005. For FY2005, the Administration proposed $45.0 million for Land Acquisition, a 5% increase from the FY2004 level of $43.1 million. The House approved significantly less—$12.5 million. The Senate Committee on Appropriations would have provided a higher level of funds—$49.9 million. In the end, Congress cut the program to $37.0 million for FY2005. This program is funded from appropriations from the Land and Water Conservation Fund. In the past, the bulk of this FWS program has been for acquisition of federal refuge land, but a portion is used for closely-related functions such as acquisition management, land exchanges, emergency acquisitions, purchase of inholdings, general overhead ("Cost Allocation Methodology"). Recently, less of the funding has been reserved for traditional land acquisition; the House bill continued this trend by allocating no funds for federal refuge lands. In contrast, the Senate committee-reported bill would have provided equal or greater funding for these programs, as well as allocating $34.7 million for federal refuge lands. The FY2005 law appropriated $22.6 million for the core acquisition program. (See Table 5 ; for more information, see " The Land and Water Conservation Fund (LWCF) " below.) The appropriation for Land Acquisition provides funds to FWS for acquisition of lands for waterfowl habitat in the Yukon Flats National Wildlife Refuge in Alaska and the related conveyance of federal lands and interests in the Refuge to Doyon, Limited, an Alaska Native Corporation. The FY2005 law also gives the federal government a right to a portion of the proceeds from any resources leased or discovered on land after the exchange has occurred, a feature that is unusual in federal land trades. Revenues to the federal government from any oil and/or gas production from the lands and interests acquired by Doyon, Limited will be deposited in a special Treasury account, and available without further appropriation to FWS for specified purposes. Supporters held that the provision expedites the completion of the Yukon Flats land exchange, facilitates energy production, and provides federal protection for key waterfowl habitat. Opponents argued that the exchange was arranged without public input, will result in a loss to the government of potentially oil rich lands, will allow energy development in areas that provide important wildlife habitat, and might be viewed as setting a precedent for land trades in potentially oil-rich areas of the Arctic National Wildlife Refuge. 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 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 authorized amounts, and county governments have long urged additional appropriations to make up the difference. Congress generally provides additional funding. The Administration, House, and Senate Committee supported $14.4 million for FY2005. However, with rescissions, the FY2005 law matched the FY2004 level of $14.2 million. When combined with the estimated receipts, the FY2005 appropriation level would cover 46% of the authorized full payment, down marginally from the FY2004 level of 47%. The MSCF has generated considerable constituent interest despite the small size of the program. It benefits Asian and African elephants, tigers, rhinoceroses, and great apes. The President's budget again proposes to move funding for the Neotropical Migratory Bird Conservation Fund (NMBCF) into the MSCF. Congress rejected the proposed transfer annually from FY2002 to FY2005. For FY2005, the President proposed $9.5 million for the MSCF (including the proposed transfer of the NMBCF to this program). The proposal included cuts in programs for great apes and African and Asian elephants, in contrast to increases in programs for rhinos, tigers, and neotropical migratory birds. The House approved $100,000 in increases over the President's request for each of these subprograms, and Senate Committee levels generally were between these two. The enacted levels for FY2005 represent modest cuts in all of the programs except that for tigers and rhinos. See Table 6 below. The State and Tribal Wildlife Grants program helps fund efforts to conserve species (including non-game species) of concern to states and tribes. The program was created in the FY2001 Interior appropriations law ( P.L. 106-291 ) and further detailed in subsequent Interior appropriations bills. It lacks any other authorizing statute. Funds may be used to develop conservation plans as well as 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 state portion is for matching grants to states. A state's allocation is determined on a formula basis. The President proposed $80.0 million, an increase from $69.1 million in FY2004. The House bill would have cut the program to $67.5 million, while the Senate committee approved an increase smaller than that requested by the President. The final FY2005 appropriation is $69.0 billion. See Table 7 below. Mute swans were introduced to Chesapeake Bay decades ago. Their population is now suspected of causing various types of ecological harm to the Bay, its aquatic plants, and other species of birds. Actions to reduce the population have been restricted on the grounds that the species is protected under the Migratory Bird Treaty Act (MBTA), even though it is not native to North America. Attempts were made in the 108 th Congress to enact legislation to exclude non-native species from protections of the MBTA, but were not successful as the second session was drawing to a close. Advocates of control of this species of swan, who also did not wish to see the MBTA's protections afforded to other non-native species, amended the MBTA by adding §143 (Title I) to the FY2005 law, defining the term "native to the United States," directing the FWS to publish a list of those bird species which are not native, and specifying that the MBTA applies only to native species. Since enactment, various animal welfare groups have objected to the provision and asked for its repeal. For further information on the Fish and Wildlife Service , see its website at http://www.fws.gov/ . CRS Issue Brief IB10144. Endangered Species Act in the 109 th Congress: Conflicting Values and Difficult Choices , by [author name scrubbed], [author name scrubbed], Pervaze Sheikh, [author name scrubbed], and [author name scrubbed]. 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 388 separate and diverse units with more than 84 million acres. The NPS protects, interprets, and administers the park system's diversity of natural and historic areas representing the cultural identity of the American people. The park system uses some 20 types of designations, including national park, to classify sites, and visits to these areas total close to 280 million annually. The NPS also supports some land conservation activities outside the park system. The FY2005 NPS appropriations total $2.37 billion, $5.1 million more than the President's budget request ($2.36 billion), and $107.1 million above the FY2004 enacted level ($2.26 billion). The House-passed NPS total was $2.27 billion, while the Senate committee-reported bill matched the President's request ($2.36 billion). See Table 8 below. Several amendments affecting the NPS, but not tied to specific funding accounts, were considered. The law included a provision directing the NPS to implement recently-issued winter use rules for snowmobiles in Yellowstone and Grand Teton National Parks. The provision applies only to the 2004-2005 winter use season and was designed to prevent lawsuits from blocking snowmobile use this winter. Earlier, the House had rejected an amendment to reinstate a Clinton-era rule that would phase out use of private snowmobiles in Yellowstone and Grand Teton National Parks and on the John D. Rockefeller, Jr. Memorial Parkway which links them. The Bush Administration has sought to overturn the rule. Another enacted provision adjusts the boundaries of the Cumberland Island Wilderness allowing use of an existing road through the wilderness portions of the Cumberland Island National Seashore and authorizing concession tours of the island. The park operations line item accounts for more than two-thirds of the total NPS budget. It covers resource protection, visitors' services, facility operations, facility maintenance, and park support programs. The FY2005 enacted level for NPS operations is $1.68 billion, $5.4 million less than the Senate committee recommended, and $2.5 million less than the House-passed level and the President's request, but $74.0 million (5%) more than was appropriated for FY2004. In its report on the bill, the House Appropriations Committee expressed concerns about the erosion of operating funds for core programs, attributed to "unbudgeted costs," including cost-of-living increases, storm damage, anti-terrorism activities, and management initiatives (e.g., competitive sourcing). The conference report also acknowledged budget shortfalls in recent years in core operating programs and visitor services across the park system, suggesting congressional intent to provide park base programmatic increases. For FY2005, Park advocacy groups estimate that the national parks operate, on average, with two-thirds of needed funding. As a visible symbol of the federal government and environmental protection, the condition, care, and operation of the national parks is considered politically potent. This budget item supports law enforcement programs of the U.S. Park Police, primarily in the urban park areas of New York City, San Francisco, and Washington, DC. Core responsibilities include protecting historic monuments and memorials, maintaining order during special events and demonstrations, and providing presidential security and dignitary escort. The USPP also provides investigative, forensic, and other services to support law-enforcement trained and commissioned rangers working in park units system-wide. The FY2004 conference agreement was critical of USPP's failure to implement 2001 recommendations by the National Academy of Public Administration to address problems of budget accountability, management issues, and overtime. Language in the report on the House-passed FY2005 bill urges the NPS and DOI to resolve ongoing USPP fiscal and management problems before the end of the calendar year 2004. For FY2005, the Administration focused on terrorist threat preparedness, and the budget request included $1.0 million for non-recurring costs associated with the 2005 Presidential Inauguration and $2.0 million for enhanced security and anti-terrorism efforts. The House-passed bill and the Senate committee-reported bill matched the request ($81.2 million), $3.3 million above FY2004. The enacted level is $80.1 million, $2.2 million above FY2004. In a recent dispute, the former USPP Chief was suspended from duty in December 2003, and officially fired in July 2004, for talking to the press about agency funding issues. Rulings on this case by the U.S. Merit System Protection Board (a quasi-judicial agency that protects federal workers from management abuse) are reported to be under appeal. This line item funds a variety of park recreation and resource protection programs, as well as programs connected with state and local community efforts to preserve cultural and national heritage resources. The FY2005 law provides $61.0 million, a decrease of $0.8 million from FY2004 and of $2.0 million from the Senate committee recommendation, and an increase of $7.1 million over the House-passed level and of $23.2 million over the FY2005 request. The Administration had proposed a substantial reduction to (1) discontinue statutory aid programs, and (2) curtail heritage area funding (from $14.3 million in FY2004 to $2.5 million in FY2005). In recent years, the Administration's requests for heritage areas have been significantly lower than the previous year's appropriation, but Congress has consistently restored or increased heritage area funding. The enacted level for the Heritage partnership program is $14.6 million for National Heritage Areas, between the House-passed level ($15.1 million) and the Senate committee recommended level ($14.3 million), and substantially above the $2.5 million requested by the Administration. Provisions in the FY2005 appropriations law created three new heritage areas. For Statutory or Contractual Aid, the enacted level is $11.2 million, $7.4 million more than the House-passed bill ($3.8 million), $0.9 million less than the Senate committee recommendation ($12.1 million), and $1.6 million below the FY2004 enacted level ($12.8 million). The Administration requested no funds for this program for FY2005. This matching grant program, created in 1978, was intended to help low-income inner city neighborhoods rehabilitate existing recreational facilities. Funding for new program grants was problematic (about $2 million annually) until the Conservation Spending Category (CSC) was created in the FY2001 Interior Appropriations Act, with $30.0 million for UPARR. In FY2001 and FY2002, Congress appropriated $30.0 million for UPARR. For FY2003, appropriations were $298,000 for program administrative costs, and the FY2004 appropriation was $301,000 to administer previously awarded grants. For FY2005, as in the preceding three budgets, the President requested no funds for UPARR and asked Congress to eliminate the separate UPARR line item and return program grant administration for previously awarded grants to the National Recreation and Preservation line item. The House-passed bill followed the request, with no funding for UPARR and allowing $316,000 under National Recreation and Preservation for urban park grant administration. The Senate committee also recommended eliminating the UPARR line item and transferring limited UPARR grant administration funding to the National Recreation and Preservation. The FY2005 law provides no funding for UPARR and is silent on grant administration. The construction line item funds new construction, as well as rehabilitation and replacement of park facilities. For FY2005, the enacted level for NPS construction is $353.0 million, including $50.8 million in emergency funding for disaster response. This total is $23.0 million above the Senate committee recommendation ($330.0 million), $55.4 million above the House-passed bill ($297.6 million), and $23.1 million above the request and the FY2004 level ($329.9 million). The FY2005 appropriations law includes $582.7 million for maintenance (in Operation of the National Park System line item, discussed above). This is $3.4 million less than the Administration's request, but is more than the House-passed level ($573.2 million), the Senate committee recommendation ($577.3 million), and the FY2004 appropriation ($559.2 million). In previous years, maintenance under NPS Operations was separated into facility operation and facility maintenance. Total FY2005 NPS construction and maintenance funding is $935.7 million. This is more than the Senate committee recommendation ($907.4 million), the House-passed total ($870.8 million), the Administration's request ($916.0 million), and the FY2004 appropriations ($889.1 million). The Administration asserted that its total request for construction and facility maintenance ($724.7 million) would address the backlog of deferred maintenance, and with $78 million from recreation fees and $310 million from the Highway Trust Fund, total spending to reduce the maintenance backlog in FY2005 would be more than $1.1 billion. However, the estimate of deferred maintenance for the NPS is between $4.52 billion and $9.69 billion, with a mid-range figure of $7.11 billion. Further, other DOI sources estimate the FY2004 appropriation for deferred maintenance at $319.3 million, and the FY2005 request at $332.5 million. These figures may cause some to raise questions about the magnitude and effectiveness of funding for construction and facility maintenance in reducing the backlog. The FY2005 law prohibits NPS funds in the law from being used for partnership construction projects (those undertaken by friends groups or corporate or foundation sponsorship) in excess of $5.0 million without the advance approval of the House and Senate Appropriations Committees. The joint explanatory statement of the conference report expressed concerns about the management of NPS partnership construction projects, and directed the NPS to provide a status report on such projects. Recently, the NPS developed interim guidance to govern such projects. In earlier action, the House-passed bill had sought to impose a temporary moratorium on partnership construction projects in excess of $5 million, unless approved by the Appropriations Committees. These provisions resulted from an effort to control relatively low priority, expensive construction projects outside the regular budget process that increase needs for operations and maintenance funding, thus possibly compounding operational shortfalls and delaying backlog projects and other service priorities. The Senate Appropriations Committee did not impose a blanket moratorium on partnership projects. For FY2005, appropriations under the Land and Water Conservation Fund (LWCF) total $146.3 million, with $55.1 million for federal land acquisition and $91.2 million for state assistance. The state assistance is for park land acquisition and recreation planning and development by the states. The funds provided to the states are allocated through a formula, with states determining their spending priorities. The enacted level is slightly lower than (within 3% of) the House-passed level, the Senate committee-recommended level, the requested level, and the FY2004 appropriation. Federal land acquisition—funds to acquire lands, or interests in lands, for inclusion within the National Park System—has been more controversial. FY2005 funding for acquisition management ($10.4 million) is between the House-passed ($10.0 million) and Senate committee-recommended and requested level ($10.5 million), and nearly matches FY2004 funding. However, acquisition funding (for purchases, emergencies, and inholdings) has differed widely. The enacted level is $44.8 million. This is below the Senate committee recommendation ($51.3 million) and the Administration's request ($73.8 million), but above the House-passed level ($6.0 million) and the FY2004 appropriation ($31.4 million). The FY2005 appropriations law established a new 10-year recreation fee program to replace the recreational fee demonstration program. The law authorizes the four major federal land management agencies, plus the Bureau of Reclamation, to retain and spend receipts from entrance and user fees without further appropriation, primarily at the site where the fees are collected. A portion of fee receipts is distributed to other agency sites. The NPS estimates fee receipts of $124.7 million for FY2004 and $122.8 million for FY2005. The former program had been created and extended in appropriations laws, and had been controversial. For further information on the National Park Service , see its website at http://www.nps.gov/ . CRS Issue Brief IB10145, National Park Management , coordinated by [author name scrubbed]. The Historic Preservation Fund (HPF), administered by the NPS, provides grants-in-aid to states (primarily through State Historic Preservation Offices), certified local governments, and territories and the Federated States of Micronesia for activities specified in the National Historic Preservation Act. These activities include protecting cultural resources and enhancing economic development by restoring historic districts, sites, buildings, and objects significant in American history and culture. Preservation grants are normally funded on a 60% federal/40% state matching share basis. In addition, the Historic Preservation Fund provides funding for cultural heritage projects for Indian tribes, Alaska Natives, and Native Hawaiians. For FY2005, Congress provided $71.7 million for the Historic Preservation Fund, a slight increase from the House-passed ($71.5 million) and Senate committee-reported bills ($71.3 million). However, the enacted level is a decrease of 7% from the Administration's FY2005 request ($77.5 million) and of 3% from the FY2004 level ($73.6 million). See Table 9 below. A major issue that often reappears during the appropriations process is whether historic preservation programs should be funded by private money rather than the federal government. Congress eliminated permanent federal funding for the National Trust for Historic Preservation, but has provided appropriations under Save America's Treasures to preserve nationally significant intellectual and cultural artifacts and historic structures. Due to concerns that the program did not reflect geographic diversity, appropriations law now requires that project recommendations be subject to approval by the Appropriations Committees prior to distribution of funds. The FY2005 law allows the National Endowment for the Arts to award Save America's Treasures grants through the Save America's Treasures grants selection panel. The law provides $29.6 million for Save America's Treasures, 1% less than the FY2005 request, the House-passed bill, and the Senate committee-reported bill (all $30.0 million) and a decrease of 9% from the FY2004 level ($32.6 million). The FY2005 appropriation did not include funding for the Administration's initiative for "Preserve America" grants. These grants-in-aid, recommended by the President for funding at $10.0 million, would have supplemented Save America's Treasures in supporting community efforts to develop resource management strategies and to encourage heritage tourism. Preserve America grants were to be competitively awarded on a 50/50 matching basis, as one-time seed money grants. In the past, the Historic Preservation Fund included funds for the preservation and restoration of historic buildings and structures on Historically Black Colleges and Universities (HBCU) campuses. An appropriation in FY2001 of $7.2 million represented the unused authorization remaining under law. There was no funding for HBCUs under HPF for FY2002 or FY2003, although in FY2004 funding of $3.0 million was provided with competitive grants administered by the NPS. The FY2005 law provides $3.5 million for HBCUs, slightly less than the House-passed bill ($4.0 million). The Senate committee-reported bill did not include funding for HBCUs. There is no longer federal funding for the National Trust for Historic Preservation, previously funded as part of the Historic Preservation Fund Account. The National Trust was chartered by Congress in 1949 to "protect and preserve" historic American sites significant to our cultural heritage. It is technically a private non-profit corporation, but it received permanent federal funding until FY1998. Since that time, the National Trust generally has not received federal funding in keeping with Congress's plan to make it self-supporting. However, relatively small appropriations were provided in FY2003 and FY2004, with $0.5 million in FY2004 for the National Trust's Endowment Fund for the care and maintenance of the most endangered historic places. The final FY2005 appropriation did not include funding for the National Trust's endowment fund. For further information on Historic Preservation , see its website at http://www2.cr.nps.gov/ . CRS Report 96-123, Historic Preservation: Background and Funding, by [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. In 2004, the USGS celebrated the 125 th anniversary of its creation. Funds for the USGS are provided under the heading Surveys, Investigations, and Research , with six activities falling under that heading: the National Mapping Program; Geologic Hazards, Resources, and Processes; Water Resources Investigations; Biological Research; Science Support; and Facilities. For FY2005, total USGS appropriations are $936.5 million, $3.0 million less than the Senate committee-reported bill ($939.5 million), $8.0 million less than the House-passed bill ($944.5 million), $1.5 million less than FY2004 ($938.0 million), but $16.7 million more than the Administration's request ($919.8 million). See Table 10 below. The FY2005 appropriations law, following the House-passed and Senate committee-reported bills and the Administration's request, would create a new line item in the USGS budget called Enterprise Information, yet with different funding amounts. (See below for details.) In its report on the FY2005 bill, the Senate Appropriations Committee directed reinstatement for most of the individual projects targeted for elimination in the Administration's request, and stated that there should be a stronger emphasis placed on the core programs of the USGS. The enacted appropriations, as with both the Senate committee-reported and the House-passed bill and the Administration's request for FY2005, provides less funding in five of the six activities traditionally conducted by the USGS compared to the FY2004 enacted levels. The decreases are roughly offset by funding for Enterprise Information. The Administration proposed a new line item for funding within the USGS for FY2005—Enterprise Information—to consolidate funding of all USGS information needs including information technology, security, services, and resources management, as well as capital asset planning. Funding for these functions previously was distributed among several different USGS offices and budget sub-activities. The House-passed bill included this new line item and provide $44.1 million, $1.0 million less than requested. The Senate-reported bill included $45.2 million for this line item. The FY2005 enacted appropriations are $44.4 million, between the House and Senate levels. 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) Federal Geographic Data Coordination, 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. The National Mapping Program aims to provide access to high quality geospatial data and information to the public. The FY2005 appropriations are $118.8 million, $4.0 million less than the House-passed level ($122.8 million) and $1.1 million less than the Senate committee-reported bill ($119.8 million). The largest decrease within this program from FY2004 is for the Cooperative Topographic Mapping Program, with appropriations of $71.4 million—a decrease of $9.5 million from FY2004. The Land Remote Sensing and Geographic Analysis and Monitoring sub-activities would be funded at $32.7 million and $14.6 million, respectively, which are slightly less than the Administration's request and the FY2004 enacted levels. In its report on the FY2005 bill, the House Appropriations Committee stated that no solutions to degraded satellite imagery in the Landsat 7 program have been proposed and that the Committee would not increase or reprogram funding for that program. In its report on the bill, the Senate Appropriations Committee also stated its concern about the program and that the USGS has no clear guidance on how to proceed. Landsat 7 is a satellite that takes remotely-sensed images of the Earth's land surface and surrounding coastal areas primarily for environmental monitoring. Last year, approximately 25% of the data from the Landsat 7 Satellite began showing signs of degradation. Nevertheless, an interagency panel concluded that the Landsat 7 Satellite data "continues to provide a unique, cost-effective solution to operational and scientific problems." The House committee also stated that it supports the acquisition of long-term satellite data and that the USGS should collaborate with other agencies to place the next generation Landsat sensors in orbit. The Senate Appropriations Committee also has stated that the USGS is responsible for satellite operations and data collecting, and that the USGS, DOI, and "administration officials at a higher policy level" should work towards a resolution on this issue ( S.Rept. 108-341 , p. 30). For Geologic Hazards, Resources, and Processes activities, FY2005 appropriations are $229.2 million, between the House-passed level ($230.9 million) and the Senate committee-reported level ($228.2 million), and $8.5 million more than the Administration's request ($220.8 million). This line item covers programs in three activities: Hazard Assessments, Landscape and Coastal Assessments, and Resource Assessments. The House-passed bill and the Senate-reported bill would have provided $21.6 million for the mineral resources program, $6.5 million more than the requested $15.1 million. This program conducts inquiries into the conditions affecting mining and materials processing industries. The FY2005 law provides $15.3 million, and the joint explanatory statement states that the funding level for this program will no longer be specified in committee reports. For the Water Resources Investigations heading, FY2005 appropriations are $211.2 million, nearly matching the House-passed bill, $1.7 million less than the Senate committee-reported bill ($212.9 million), $8.5 million above the Administration's request ($202.7 million), and $4.5 million less than the FY2004 enacted level ($215.7 million). All three programs within this line item received less funding for FY2005 than in FY2004. The appropriations for FY2005 are $142.5 million for the Hydrologic Monitoring, Assessments and Research activity; $62.3 million for the Cooperative Water Program; and $6.4 million for Water Resources Research Institutes. As with the Bush Administration's FY2002-FY2004 budget requests, the FY2005 request had sought to discontinue USGS support for Water Resources Research Institutes because, it alleged, most institutes have succeeded in leveraging sufficient funding for program activities from non-USGS sources. Congress has restored funding for the institutes from FY2002 to FY2005. For FY2005, appropriations are $171.7 million for Biological Research, $0.3 million less than the House-passed level ($172.0), $1.1 million less than the Senate Committee-recommended level ($172.8 million), $4.1 million above the Administration's request ($167.6 million), and $2.8 million below the FY2004 enacted level ($174.5 million). The House Appropriations Committee expressed concern in its report on the bill about the growth of the National Biological Information Infrastructure (NBII), citing that the number of planned regional and thematic nodes is too high and not adequately justified. The Committee directed the USGS to locate all new "thematic" nodes in the same location as regional nodes to consolidate operational expenses. The NBII is a collaborative program that aims to provide increased access to data and information on the nation's biological resources. The Committee also directed the USGS to develop a long-term plan to address the number and location of new units in the Cooperative Fish and Wildlife Research Program. The Cooperative Fish and Wildlife Research Program is a partnership between federal and state governments and academia to provide research, management, and technical assistance to maintain DOI managed lands and waters. For FY2005, the Administration and the House-passed bill proposed to continue work on reducing harmful invasive species and wildlife diseases. The conference agreement includes language to maintain this work. The USGS expects to complete an assessment of invasive species threats in the National Wildlife Refuge System and to continue to research and map "hotspots" of invasive species impacts throughout the United States. Science Support focuses on those costs associated with modernizing the infrastructure for management and dissemination of scientific information. For FY2005, appropriations are $65.6 million, $1.9 million less than the House-passed bill ($67.5 million), $0.1 million more than the Senate committee-reported bill ($65.4 million), $3.1 million less than the Administration's request ($68.7 million). All are significantly less than the $90.8 million enacted in FY2004. The Administration justified its proposed reduction by noting that funds historically provided in this account would be used for the Enterprise Information Program, which is expected to provide information support that previously was done by Science Support. Facilities focuses on the costs for maintenance and repair of facilities. FY2005 appropriations are $94.6 million, $1.3 million less than the House-passed bill and the Administration's request ($95.9 million), $0.4 million less than the Senate committee-reported bill($95.0 million), and $1.6 million more than the FY2004 level ($93.0 million). In addition, USGS was appropriated $1.0 million in emergency funds for disaster recovery in P.L. 108-324 . 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 lands and oversees production of offshore oil, gas, and other minerals. MRM collects and disburses bonuses, rents, and royalties paid on federal onshore and Outer Continental Shelf (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, Land and Water Conservation Fund, the Historic Preservation Fund, and the U.S. Treasury. The Administration's FY2005 budget request for MMS was $282.4 million. This included $7.1 million for Oil Spill Research, $275.3 million for Royalty and Offshore Minerals Management (comprised of $146.1 million for OMM, $81.9 million for MRM, and $47.3 million for General Administration). Of this total, $178.7 million would have derived from appropriations and $103.7 million from offsetting collections which MMS has been retaining from collections since 1994. The total FY2005 budget request was 4% over the $270.5 million provided for FY2004, with the appropriation increasing by 5%. For FY2005, Congress enacted overall funding for MMS of $277.6 million. Of that amount, $7.0 million is for oil spill research, $270.6 for Royalty and Offshore Minerals Management. Offsetting collections of $103.7 million are equal to the budget request. Congress enacted a total appropriation of $173.8 million for FY2005. The MMS estimates that it collects and disburses over $6 billion in revenue annually. This amount fluctuates 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 accounted for not more than 25%. Issues not directly tied to specific funding accounts were considered as part of the FY2005 appropriations process, as they were for FY2004. The FY2004 appropriations law continued the moratorium on preleasing and leasing activities in the Eastern Gulf of Mexico (GOM). Sales in the Eastern GOM have been especially controversial. Industry groups contend that the sales are too limited, given what they say is an enormous resource potential, while environmental groups and some state officials argue that the risks to the environment and local economies are too great. The FY2004 law continued leasing moratoria in other areas, including the Atlantic and Pacific Coasts. However, in a controversial development, the law ( P.L. 108-108 ) omitted language that would have prohibited funding for preleasing and leasing activity in the North Aleutian Basin Planning Area, currently under a leasing moratorium. There is some interest in eventually opening the area to oil and gas development as an offset to the depressed fishing industry in the Bristol Bay area. Environmentalists and others oppose this effort. The North Aleutian Basin Planning Area, containing Bristol Bay, is not in the MMS current five-year (2002-2007) leasing plan. Under the Outer Continental Shelf Lands Act of 1953 (OCSLA, 43 U.S.C. §1331), the Secretary of the Interior submits five-year leasing programs that specify the time, location, and size of lease sales to be held during that period. The FY2005 law continues to support the moratoria on leasing and preleasing activity in certain sections of the OCS, including the Atlantic and Pacific Coasts and the Eastern GOM. However, like the FY2004 law, it does not prohibit funding for preleasing and leasing activity in the North Aleutian Basin Planning Area. Controversy over MMS oil and gas leases in offshore California has drawn congressional interest. Under the Coastal Zone Management Act of 1972 (16 U.S.C. §1451), development of federal offshore leases must be consistent with state coastal zone management plans. In 1999, MMS extended 36 out of the 40 leases at issue in offshore California by granting lease suspensions, but the State of California contended that it should have first reviewed the suspensions for consistency with the state's coastal zone management plan. In June 2001 the U.S. Court for the Northern District of California agreed with the State of California and struck down the MMS suspensions. The Bush Administration appealed this decision January 9, 2002, to the U.S. Ninth Circuit Court of Appeals, after the state rejected a more limited lease development plan that involved 20 leases using existing drilling platforms. However, on December 2, 2002, a three-judge panel of the Ninth Circuit upheld the District Court decision. The Department of the Interior did not appeal this decision and is currently working with lessees to resolve the issue. The breach-of-contract lawsuit that was filed against MMS by nine oil companies seeking $1.2 billion in compensation for their undeveloped leases is pending further action. Several oil and gas lessees submitted a new round of suspension requests. The MMS has prepared six Environmental Assessments and found "no significant impact" for processing the applications for Suspension of Production or Operations. Under the Coastal Zone Management Act, a consistency review by the state will occur before a decision is made to grant or deny the requests. For further information on the Minerals Management Service , see its website at http://www.mms.gov . The Surface Mining Control and Reclamation Act of 1977 (SMCRA, P.L. 95-87 ) 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. SMCRA also established an Abandoned Mine Lands (AML) fund, with fees levied on coal production, to reclaim abandoned sites that pose serious health or safety hazards. Congress's intention was that individual states and Indian tribes would develop their own regulatory programs incorporating minimum standards established by law and regulations. Fee collections have been broken up into "federal" and "state" shares. Grants are awarded to the states after applying a distribution formula to the annual appropriation and drawing upon both the federal and state shares. In instances where states have no approved program, OSM directs reclamation in the state. Several states have been pressing in recent years for increases in the AML appropriations, with a particular eye on the unappropriated balances in the state share accounts that now exceed $1 billion. The total unappropriated balance—including both federal and state share accounts in the AML fund—was nearly $1.7 billion by the end of FY2004. Western states are additionally critical of the program because, as coal production has shifted westward, these states are paying more into the fund. They argue that they are shouldering a disproportionate share of the reclamation burden as more of the sites requiring remediation are in the East. The Administration submitted legislation in the 108 th Congress that would have reauthorized fee collections and made a number of changes to the program to address state and regional concerns. Other legislative proposals for reauthorization of AML collections were introduced in the House and Senate. The 108 th Congress was unable to reach a resolution of the issues surrounding the structure of the program. In light of the narrowing prospects that a bill would be enacted, the Senate Committee on Appropriations added a short-term extension to May 31, 2005 during its markup of the Interior appropriations bill. The House version of the bill had no comparable language. Before adjourning, authorization for collection of AML fees was extended nine months to the end of June 2005 by the Consolidated Appropriations Act for 2005 ( P.L. 108-447 ). A significant feature in the Administration reauthorization proposal with significant bearing on the budget request was a ten-year plan to return the unobligated state share balances to the states. The Administration asked for $53.0 million to carry out the plan in the first year. Consequently, the Administration's request for AML was $243.9 million, a large increase (28%) above the $190.6 million enacted in FY2004. Neither the House nor Senate Committees on Appropriations embraced the Administration's plan and the requested $53.0 million increase. The House committee recommended an appropriation of $194.1 million for the AML fund—$49.8 million less than the Administration request but $3.5 million above the FY2004 appropriation. The full House concurred with the Committee's recommendation. The Senate Committee on Appropriations recommended $190.9 million for AML grants distributions—a reduction of $3.2 million from the House level, and $53.0 million from the President's request. For FY2005, Congress enacted an appropriation of $188.2 from the AML fund. "Minimum program states" are states with significant AML problems, but with insufficient levels of current coal production to generate significant fees to the AML fund. Currently, grants to the states from the AML fund are based on states' current and historic coal production. The minimum funding level for each of these states was increased to $2.0 million in 1992. However, over the objection of those states who would have preferred the full authorization, Congress has appropriated $1.5 million to minimum program states since FY1996. As part of its reauthorization plan, the Administration proposed to assure $2.0 million annually to minimum program states, but Congress maintained the $1.5 million level. The other component of the OSM budget is for Regulation and Technology programs. For Regulation and Technology, Congress provided $105.4 million in FY2004, and the Administration requested $108.9 million for FY2005. Included in the FY2005 request was $10.0 million in funding for the Appalachian Clean Streams Initiative (ACSI), the same level as in FY2002-2004, and $10.0 million for the Small Operators Assistance Program (SOAP). The House Appropriations Committee and the full House agreed to these requested levels. The Senate Committee on Appropriations added $1.0 million to the House level for the Regulation and Technology budget, with instruction to OSM to contract with the National Research Council of the National Academy of Sciences to undertake a study of coal reserves and current technologies in mining. For these programs, Congress enacted $108.4 million for FY2005. In total, the Administration requested $352.8 million for OSM, a 19% increase over the FY2004 level of $296.0 million. As detailed above, the House agreed to a total spending level of $303.0 million, and the Senate Committee on Appropriations supported $300.8 million. The FY2005 enacted level is $296.6 million for OSM programs and activities. CRS Report RL32373, Abandoned Mine Land Fund Reauthorization: Selected Issues , by [author name scrubbed] (pdf). For further information on the Office of Surface Mining Reclamation and Enforcement , see its website at http://www.osmre.gov/osm.htm . 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 FY2004 direct appropriations were $2.301 billion. For FY2005, the Administration proposed $2.25 billion, a decrease of $47.0 million (-2%) below FY2004. The House approved $2.33 billion for FY2005, an increase of $34.0 million (1%) over FY2004 and $81.1 million (4%) over the Administration's request. The Senate Appropriations Committee recommended $2.28 billion, or $24.7 million (-1%) below FY2004 and $22.3 million (1%) above the request. The conference recommendation, enacted by Congress for FY2005, is $2.30 billion, or $5.1 million (0.2%) below FY2004 and $41.9 million (2%) above the request. For the BIA, its major budget components, and selected BIA programs (shown in italics), Table 11 below presents FY2004 appropriations; FY2005 figures for the Administration's proposal, the House-passed bill, the Senate Committee recommendations, and the enacted level; and the percentages of change from FY2004 to the enacted FY2005 amounts. Decreases are shown with minuses. Key issues for the BIA, discussed below, include the reorganization of the Bureau, especially its trust asset management functions, and problems in the BIA school system. In April 2003, Secretary of the Interior Norton began implementing a reorganization of the BIA, the office of Assistant Secretary-Indian Affairs (AS-IA), and the Office of Special Trustee for American Indians (OST) in the Office of the Interior Secretary (see "Office of Special Trustee" section below). The reorganization arises from issues and events related to trust funds and trust assets management, and is integrally related to the reform and improvement of trust management. Historically, the BIA has been responsible for managing Indian tribes' and individuals' trust funds and trust assets. Trust assets include trust lands and the lands' surface and subsurface economic resources (e.g., timber, grazing lands, or minerals), and cover about 45 million acres of tribal trust land and 10 million acres of individual Indian trust land. Trust assets management includes real estate services, processing of transactions (e.g., sales and leases), surveys, appraisals, probate functions, land title records activities, and other functions. The BIA, however, has been frequently charged with mismanaging Indian trust funds and trust assets. Investigations and audits in the 1980s and after supported these criticisms, especially in the areas of accounting, linkage of owners to assets, and retention of records. This led to a trust reform act in 1994 and the filing of an extensive court case in 1996 (see " Office of Special Trustee for American Indians " section below). The 1994 act created the OST, assigning it responsibility for oversight of trust management reform. In 1996 trust fund management was transferred to the OST from the BIA, but the BIA retained management of trust assets. Unsuccessful efforts at trust management reform in the 1990s led DOI to contract in 2001 with a management-consultant firm. The firm's recommendations included both improvements in trust management and reorganization of the DOI agencies carrying out trust management and improvement. Following nearly a year of DOI consultation on reorganization with Indian tribes and individuals, DOI announced the reorganization in December 2002, even though the department and tribal leaders had not reached agreement on all aspects of reorganization. DOI, however, faced a deadline in the court case to file a plan for overall trust management reform, and reorganization was part of DOI's plan. The current reorganization plan of BIA, AS-IA, and OST chiefly involves trust management structures and functions. Under the plan, the BIA's trust operations at regional and agency levels will remain in those offices but be split off from other BIA services. The OST will add trust officers to BIA regional and agency offices to oversee trust management and provide information to Indian trust beneficiaries. Certain tribes, however, that had been operating trust management reform pilot projects with their regional BIA offices under self-governance compacts were excluded from the reorganization, under the FY2004 appropriations act. The BIA, OST, and AS-IA, together with the Office of Historical Trust Accounting in the Secretary's office, also are implementing a separate trust management improvement project, announced in March 2003, which includes improvements in trust asset systems, policies, and procedures, historical accounting for trust accounts, reduction of backlogs, modernization of computer technology (the court case led in 2001 to a continuing shutdown of BIA's World-Wide-Web connections), and maintenance of the improved system. Many Indian tribes and tribal organizations, and the plaintiffs in the court case, have been critical of the new reorganization and have urgently asked that it be suspended. Tribes argue that the reorganization is premature, because new trust procedures and policies are still being developed; that it insufficiently defines new OST duties; and that other major BIA service programs are being limited or cut to pay for the reorganization. For FY2005, Congress responded to tribal concerns by continuing the FY2004 provision (dropped in the Administration's proposal) that excludes from BIA reorganization certain tribes that have been operating trust management reform pilot projects with their regional BIA offices. Congress did not, however, suspend or stop the reorganization. The BIA funds 185 elementary and secondary schools and peripheral dormitories, with over 2,000 structures, educating about 48,000 students in 23 states. Tribes and tribal organizations, under self-determination contracts and other grants, operate 120 of these institutions; the BIA operates the remainder. BIA-funded schools' key problems are low student achievement and, especially, a large number of inadequate school facilities. Some observers feel tribal operation of schools will improve student achievement. To encourage tribal boards to take over operation of current BIA-operated schools, for FY2004, Congress created an administrative cost fund of $2.9 million to pay tribal school boards' start-up administrative costs. The Administration proposal deleted this fund for FY2005, arguing that tribes were showing insufficient interest in operating BIA-funded schools. Congress retained the fund but reduced its appropriation to $1 million. Many BIA 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. The BIA has estimated the current backlog in education facility repairs at $942 million, but this figure changes as new repair needs appear each year. Table 11 above shows FY2004 and FY2005 education construction appropriations. The Administration proposed reducing FY2005 appropriations for replacement-school construction by $61.0 million, because a number of school replacement projects funded in previous years are still under construction. The Administration also proposed adding appropriations language authorizing the BIA to reassume management of school construction projects that are under tribal self-determination contracts if the construction does not begin within 18 months of funding availability, arguing that some projects under self-determination contracts have been too slow in commencing. Congress appropriated $263.4 million in total education construction funds for FY2005—$31.6 million (11%) below FY2004 and $34.3 million (15%) over the request—and enacted the language authorizing BIA reassumption of construction projects. Because construction appropriations are, in some tribes' view, not reducing construction needs fast enough, Indian tribes have urged Congress to explore additional sources of construction financing. In the FY2001-FY2004 Interior appropriations acts, Congress authorized a demonstration program that allows tribes to help fund construction of BIA-funded, tribally-controlled schools. The Administration proposed increasing the funding for this program by $4.0 million in FY2005, to a total of $9.9 million. Congress increased the funding even further, to $12.3 million, but earmarked all the funding for three projects. For further information on education programs of the Bureau of Indian Affairs , see its website at http://www.doi.gov/bia/. The Office of Insular Affairs (OIA) provides financial assistance to four insular areas (Guam, American Samoa, the U.S. Virgin Islands, and the Commonwealth of the Northern Mariana Islands), as well as three former insular areas (Republic of the Marshall Islands (RMI), Federated States of Micronesia (FSM), and Palau) formerly included in the Trust Territory of the Pacific Islands. OIA staff also manages relations between these jurisdictions and the federal government and works to build the fiscal and government capacity of units of local government. Funding for the OIA consists of two parts: (1) permanent and indefinite appropriations and (2) discretionary and current mandatory funding subject to the appropriations process. Permanent and indefinite appropriations historically constitute roughly 70% to 80% of the OIA budget and consist of two parts. For FY2005 the Administration estimated that a total of roughly $305 million would be available, as follows: ● $196 million to three freely associated states (RMI, FSM, and Palau) under conditions set forth in the respective Compacts of Free Association; and ● $109 million in fiscal assistance, divided between the U.S. Virgin Islands for estimated rum excise and income tax collections and Guam for income tax collections. These funding levels represent a slight increase over FY2004 levels. Discretionary and current mandatory funds that require annual appropriations constitute the balance (roughly 20% to 30%) of the OIA budget. Two accounts—Assistance to Territories (AT) and the Compact of Free Association (CFA)—comprise discretionary and current mandatory funding. Discretionary funding for FY2004 was set at $82.1 million, with AT funded at $75.7 million and CFA at $6.4 million. This constituted a 15% decrease from the amount appropriated for such payments in FY2003 ($96.8 million). The FY2005 request would have reduced AT funding to $73.0 million, and CFA assistance to $5.9 million, for a total of $78.9 million. The appropriation for AT in FY2005 ($75.6 million) exceeded the Administration proposal by about $2.6 million. The FY2005 appropriation for CFA ($5.5 million) was lower than that requested. In total, OIA discretionary funding for FY2005 is $81.0 million, a 1% decrease from FY2004. Little debate has occurred in recent years on funding for the territories and the OIA. In general, Congress continues to monitor economic development and fiscal management by government officials in the insular areas. For example, the recently negotiated compacts with the FSM and RMI include accountability measures and performance review requirements. For further information on Insular Affairs, see its website at http://www.doi.gov/oia/index.html . For FY2005, Congress enacted $226.8 million for PILT, a $2.1 million (1%) increase over FY2004, and a $0.8 million (0.4%) increase over the Administration's FY2005 request. For FY2005, the Administration had proposed to fund the PILT program at $226.0 million, nearly level funding with the $224.7 million appropriated in FY2004. The House agreed with the President's request. A House floor amendment to add $15.0 million to PILT was defeated. Supporters of the amendment claimed that rural western areas need additional PILT funds to provide the kinds of services that counties with more private land are able to provide. Opposition to the amendment centered on proposed reductions in funding for the Smithsonian Institution and the National Endowment for the Humanities to offset the increase for PILT. The Senate committee-reported bill contained $230.0 million for PILT, an increase of $5.3 million over the FY2004 enacted level and $4.0 million over the Administration's request and House-passed level. The PILT program compensates local governments for federal land within their jurisdictions because federally owned land is not taxed. Since the beginning of the program in 1976, payments of more than $3 billion have been made. However, the program has been controversial because in recent years appropriations have been substantially less than authorized amounts. Beginning in FY2004, the Administration proposed, and Congress agreed, to shift the program from the BLM budget to Departmental Management in DOI because PILT payments are made for lands of the Fish and Wildlife Service, National Park Service, and Forest Service, and certain other federal lands, in addition to BLM lands. For further information on the Payments in Lieu of Taxes program, see the BLM website at http://www.blm.gov/pilt/ . The Office of Special Trustee for American Indians, in the Secretary of the Interior's office, was authorized by Title III of the American Indian Trust Fund Management Reform Act of 1994 ( P.L. 103-412 ). The Office of Special Trustee (OST) generally oversees the reform of Interior Department management of Indian trust assets, the direct management of Indian trust funds, establishment of an adequate trust fund management system, and support of department claims settlement activities related to the trust funds. Indian trust funds formerly were managed by the BIA, but in 1996, at Congress's direction and as authorized by P.L. 103-412 , the Secretary of the Interior transferred trust fund management from the BIA to the OST. (See " Bureau of Indian Affairs " section above.) Indian trust funds managed by the OST comprise two sets of funds: (1) tribal funds owned by about 300 tribes in approximately 1,400 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 260,000 accounts with a current total asset value of about $400 million. (Figures are from the OST FY2005 budget justifications.) 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. The FY2005 budget proposal requested $317.7 million for the OST, $108.7 million (52%) over FY2004. The House approved $238.3 million for OST for FY2005, 14% over FY2004 but 25% below the Administration's proposal. The Senate Appropriations Committee recommended $246.3 million, 18% over FY2004 but 22% below the Administration proposal. The conference committee recommendation, enacted by Congress, was $228.1 million, or $19.0 million (9%) over FY2004 and $89.6 million (28%) below the request. Table 12 below presents figures for FY2004 and FY2005 for the OST. Key issues for the OST are its current reorganization, an historical accounting for tribal and IIM accounts, and litigation involving tribal and IIM accounts. Both OST and BIA began a reorganization in 2003 (see " Bureau of Indian Affairs " section above), one aspect of which is the creation of OST field operations. OST is installing fiduciary trust officers and administrators at the level of BIA agency and regional offices. Many Indian tribes disagree with parts of the OST and BIA reorganization and have asked Congress to put it on hold so that OST and BIA can conduct further consultation with the tribes. 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 may 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. The Interior Department has proposed an extensive, five-year, $335 million project to reconcile IIM accounts. Most of the increase that the Administration proposed for the OST for FY2005 was for historical accounting, which would have increased from $44.4 million in FY2004 to $109.4 million in FY2005. Of the proposed $109.4 million total for historical accounting, $80.0 million was for IIM accounts and $29.4 million for tribal accounts. The House and the Senate Appropriations Committee increased funds for historical accounting but capped the amount at $58.0 million in appropriations language. For FY2005, Congress approved the $58-million cap, which after rescissions in the law is $57.2 million, or $12.7 million (29%) over FY2004 and $52.2 million (48%) below the request. The House Appropriations Committee, in its report on the FY2005 bill, explained that the cap was related to ongoing mediation and settlement discussions in the trust-funds litigation and to the possibility of large future appropriations if these efforts failed. An IIM trust funds class-action lawsuit ( Cobell v. Norton ) 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, but the most significant issue for appropriations concerns the method by which the historical accounting will be conducted to estimate IIM accounts' proper balances. The DOI's proposed method was estimated by the Department to cost $335 million over five years and produce a relatively low total owed to IIM accounts; the plaintiffs' method, whose procedural cost is uncertain, was estimated to produce a figure of $176 billion owed to IIM accounts. In 2003, the court conducted a lengthy trial to decide which historical accounting method to use in estimating the IIM accounts' proper balances. Previously, in the first phase of the Cobell case, in 1999 the court had found that DOI and the Treasury Department had breached trust duties regarding the necessary document retention and data gathering needed for an accounting, and regarding the business systems and staffing to fix trust management. The lawsuit's final phase will determine the amount of money owed to the plaintiffs, based on the historical accounting method chosen. Congress has, for several years, been concerned about the current and potential costs of the Cobell lawsuit, although it has eliminated proposed appropriations language directing settlement of the case. The Appropriations Committees have expressed concern that the IIM lawsuit was jeopardizing DOI trust reform implementation and have required reports from DOI on the costs and benefits of historical accounting methods, including statistical sampling. The court's decision on historical accounting was delivered on September 25, 2003. The court rejected both the plaintiffs' and DOI's proposed historical accounting plans and instead ordered DOI to account for all trust fund and asset transactions since 1887, without using statistical sampling. The Interior Department estimated that the court's choice for historical accounting would cost $6-12 billion. The FY2004 Interior appropriations conference report added a controversial new provision aimed at the court's September 25, 2003, decision. The provision directed that no statute or trust law principle should be construed to require the Interior Department to conduct the historical accounting until either Congress had delineated the department's specific historical accounting obligations or December 31, 2004, whichever was earlier. The conferees asserted in the conference committee report that the court-ordered historical accounting was too expensive, beyond the intent of the 1994 Act, and likely to be appealed, and that Congress needed time to resolve the historical accounting question or settle the suit. Opponents in the House and Senate argued that the provision was of doubtful constitutionality, since it directed courts' interpretation of law and effectively suspended a court order in an ongoing case, and further was unjust to the plaintiffs and might undermine the Interior Department's incentives to negotiate a settlement. The FY2004 conference report with this provision passed both the Senate and, narrowly, the House, and was enacted on November 10, 2003. Based on this provision, the DOI on the same day appealed the court's September 25, 2003, order. On November 12, 2003, the U.S. Court of Appeals for the District of Columbia temporarily stayed the September 25 order. During the stay, on April 5, 2004, the IIM plaintiffs and the federal government announced agreement on two mediators in their case. The House Appropriations Committee's report on the FY2005 appropriations bill expressed encouragement at the mediation and at commitments by the House and Senate authorizing committees to develop a legislative solution. On December 10, 2004, the Appeals Court overturned much of the September 25 order, finding among other things that the congressional provision prevented the district court from requiring DOI to follow its directions for a historical accounting. The Appeals Court noted that the provision expired on December 31, 2004, but did not discuss the district court's possible reissue of the order. Meanwhile, no bill was introduced in the 108 th Congress to delineate the government's historical accounting obligation, the mediation discussions continued, and the district court has not reissued an order on historical accounting. For further information on the Office of Special Trustee for American Indians , see its website at http://www.ost.doi.gov/ . 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 ( P.L. 100-497 , as amended) 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 chief 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. IGRA currently caps NIGC fees at $8 million per year. The NIGC in recent years has requested additional funding because it has experienced increased demand for its oversight resources, especially audits and field investigations. Congress, in the FY2003-FY2004 appropriations acts, increased the NIGC's fee ceiling to $12 million, but only for FY2004-FY2005. In the FY2005 budget, the Administration proposed language amending IGRA to create an adjustable, formula-based ceiling for fees instead of the current fixed ceiling. The Administration argued that a formula-based fee ceiling would allow NIGC funding to grow as the Indian gaming industry grows. Gaming tribes did not support the increased fee ceiling or the proposed amendment of IGRA's fee ceiling, arguing that NIGC's budget should first be reviewed in the context of extensive tribal and state expenditures on regulation of Indian gaming, and that changes in NIGC's fees should be developed in consultation with tribes. The House bill, the Senate Committee recommendation, and the FY2005 law did not include the Administration's proposed amendment to IGRA and instead extended to FY2006 the increase in the NIGC fee ceiling to $12 million. Language in the Senate Committee report allowed the NIGC to use negotiated rulemaking with tribes in developing regulations. During FY1999-FY2004, all NIGC activities were funded from fees, with no direct appropriations. The Administration proposed no direct appropriations for the NIGC for FY2005, and the House, the Senate Appropriations Committee, and the FY2005 law did likewise. The FY2005 appropriations for the Forest Service total $4.75 billion—$4.63 billion in the FY2005 Consolidated Appropriations Act (including $394.4 million in emergency FS wildfire funding that would become available if certain conditions are met), plus $113.1 million in P.L. 108-324 for emergency funding to address damages from natural disasters. This amount is $75.0 million (2%) more than recommended by the Senate Appropriations Committee recommended ($4.67 billion, including $400.0 million in emergency wildfire funding), and $99.8 million (2%) more than the House-passed level ($4.65 billion, including $400.0 million in emergency wildfire funding). The FY2005 funding is $508.1 million (12%) more than the President's request of $4.24 billion (with no emergency wildfire funding), and $193.7 million (4%) less than FY2004 appropriations of $4.98 billion (including supplemental funds). Various legislative provisions relating to the FS were discussed during consideration of Interior appropriations legislation, some of which were enacted. One provision included in the FY2005 law could affect timber harvesting in the Tongass National Forest. It extends a provision in the FY2004 Interior and Related Agencies Appropriations Act ( P.L. 108-108 ) providing standards for timber sale litigation for an additional year's timber sale decisions. Another provision in the FY2005 law pertains to categorical exclusions for grazing. For FY2005 through FY2007, decisions by the Secretary of Agriculture authorizing grazing on FS lands would be categorically excluded from documentation under the National Environmental Policy Act of 1969 (NEPA), under certain circumstances. Supporters of the language contend that it makes the environmental review process more efficient by reducing the documentation and expense required for reviewing grazing allotments where the level of complexity of environmental issues is relatively low. Opponents are concerned that the provision could eliminate NEPA-associated opportunities for public comment and continue grazing at levels that damage the environment. A third provision included in the law pertains to the forest land enhancement program (FLEP). The program was enacted in the 2002 Farm Bill ( P.L. 107-171 , §8002) with $100.0 million in mandatory spending for financial assistance to private landowners for forestry practices. FY2003 funds of $20.0 million were spent on the program. Then, in the summer of 2003, the Administration borrowed $50.0 million of FLEP funds for firefighting, and $10.0 million was repaid in the FY2004 Interior Appropriations Act. For FY2005, the Administration had proposed cancelling the remaining $40.0 million (after the $20.0 million spent and $40.0 million borrowed and not repaid). The House and Senate Appropriations Committees had included language in their bills as reported to cancel the remaining $40.0 million of FLEP, but the provision was removed on the House floor on a point of order. The FY2005 law includes a provision cancelling $20.0 million of FLEP funding, leaving $20.0 million available for FLEP funding through FY2006. Other provisions were considered but not enacted. The House had agreed to the Chabot amendment to prohibit funding for forest development roads to remove timber from the Tongass National Forest (AK). This amendment would have prevented new timber harvesting roads paid by taxpayers, but would not have prevented road building by private timber companies or by the government for other purposes. It would likely have constrained timber harvesting in the Tongass during FY2005, but would not have prevented maintenance of existing roads. The Senate committee-reported bill and the FY2005 law do not include such a provision. In addition, the House rejected a Udall amendment to prevent completion of new NFMA planning regulations. The amendment was supported because the draft regulations would eliminate the NEPA analysis of plans, end population viability standards for native species, and otherwise alter existing planning processes and standards. Opponents contended that the 1982 regulations are outdated and cumbersome and the 2000 Clinton regulations (which have not been implemented) are unworkable. The Bush Administration has since issued new NFMA planning regulations (70 Fed. Reg. 1023, Jan. 5, 2005). Fire funding and fire protection programs have been controversial. The ongoing discussion includes questions about funding levels and locations for various fire protection treatments, such as thinning and prescribed burning to reduce fuel loads and clearing around structures to protect them during fires. Another focus is whether, and to what extent, environmental analysis, public involvement, and challenges to decisions hinder fuel reduction activities. (For historical background and descriptions of funded activities, see CRS Report RL33990, Wildfire Funding , by [author name scrubbed].) The National Fire Plan comprises the FS wildland fire program (including fire programs funded under other line items) and fire fighting on DOI lands; the DOI wildland fire monies are appropriated to the BLM. Congress does not fund the National Fire Plan in any one place in Interior appropriations acts. The total can be derived by combining the several accounts which the agencies identify as National Fire Plan funding. This shows FY2005 appropriations of $2.97 billion, $14.4 million (0.5%) less than recommended by the Senate Appropriations Committee and $51.2 million (2%) less that the House provided. The amount is $500.3 million (20%) above the FY2005 budget request, and $325.3 million (10%) less than FY2004 appropriations. See Table 13 below. The BLM appropriations are $831.3 million for FY2005, $11.8 million (1%) less that the Senate committee recommendation and the House-passed level, $88.2 million (12%) more than the request, and $52.3 million (6%) less than the FY2004 appropriation. The FS level is $2.14 billion, $2.6 million (0.1%) less than the Senate Committee recommended, $39.4 million (2%) less than the House-passed level, $412.1 million (24%) more than the request, and $273.0 million (11%) less than FY2004 funding. The FS and BLM wildland fire 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). For more information on these activities, see CRS Report RL33990, Wildfire Funding , by [author name scrubbed]. The FY2005 appropriations for wildfire suppression are $867.3 million, $12.6 million (1%) less than the Senate committee recommended, $12.2 million (1%) less than the House provided, $39.6 million (4%) less than the budget request, and $77.3 million (10%) more than FY2004 appropriations. The increase above FY2004 is slightly greater for the BLM (13%) than for the FS (9%). The request was based on an average fire year, and contained no contingent or emergency funding ($947.3 million enacted for FY2004). If the fire season is worse than average, the agencies have the authority to borrow unobligated funds from any other account to pay for firefighting. Such borrowings typically are repaid in subsequent appropriations (commonly emergency appropriations bills), although to date, FY2003 borrowings have not been fully repaid. Supplemental emergency firefighting funds for FY2004 were enacted in the FY2005 DOD appropriations ( P.L. 108-287 ). In their FY2005 bills, the House had included, and the Senate committee had recommended, $500.0 million in emergency funding ($100.0 million for the BLM and $400.0 million for the FS), if needed, for FY2005, to preclude borrowing from other accounts to fight wildfires. P.L. 108-324 included $1.0 million of emergency FY2005 FS funds for disaster recovery. The FY2005 appropriations law includes $493.1 million in emergency funding ($98.6 million for the BLM and $394.4 million for the FS), if needed. The FY2005 Consolidated Appropriations Act includes $935.4 million for fire preparedness, $13.2 million (1%) less than the Senate Appropriations Committee recommended, $20.9 million (2%) less than the House, $13.8 million (1%) less than the request, and $10.5 million (1%) less than FY2004. FY2005 funding for other fire operations totals $671.8 million, $17.4 million (3%) more than the Senate Appropriations Committee recommended, and $12.2 million (2%) less than the House-passed level. Other fire operations include fuel reduction funding under the President's Healthy Forests Initiative and the Healthy Forests Restoration Act of 2003 ( P.L. 108-148 ), and other authorities. FY2005 fuel reduction funding totals $463.9 million, $6.6 million (1%) less than the Senate Committee recommended, $11.6 million (2%) less than the House-passed level and the FY2005 request, and $46.6 million (11%) more than in FY2004. The increase from FY2004 is slightly greater for the FS (12%) than for the BLM (10%). In addition, §8098 of P.L. 108-287 , the FY2005 DOD appropriations act, transferred $30.0 million of DOD funds to the FS for fuel reduction, hazard mitigation, and rehabilitation in the San Bernardino NF (CA) and $10.0 million for a wildfire training facility in San Bernardino County (CA). Finally, the House directed $8.0 million from two State and Private Forestry accounts (discussed below)—$5.0 million from state fire assistance and $3.0 million from forest stewardship—to be used to support community wildfire protection planning. The Senate Committee and conference reports are silent on the issue. While funding for wildfires has been the center of debate, many changes have occurred in State and Private Forestry (S&PF)—programs that provide financial and technical assistance to states and to private forest owners. Total S&PF funding enacted in the FY2005 Consolidated Appropriations Act is $292.5 million (excluding $49.1 million enacted for disaster recovery in P.L. 108-324 ). This is $1.3 million (0.5%) more than recommended by the Senate Appropriations Committee, $10.1 million (4%) more than the House passed, $1.8 million (1%) less than the budget request, and $11.8 million (4%) less than FY2004 appropriations (excluding $24.9 million of emergency S&PF funding included under National Fire Plan emergency funding, above). Large shifts in funding within S&PF—in forest health management, in cooperative fire assistance, in cooperative forestry, and in international programs—were proposed and some were included in the FY2005 law. The FY2005 law includes $101.9 million for forest health management (insect and disease control on federal and cooperative [nonfederal] lands), $20.6 million (25%) more than recommended by the Senate committee and requested by the Administration, $1.1 million (1%) less than the House passed, and $3.3 million (3%) more than FY2004 appropriations. The President proposed $10.0 million for a new Emerging Pest and Pathogens Fund to rapidly address invasive species problems, although similar proposals in the previous two budget requests have been rejected by Congress. The House, Senate committee, and FY2005 law again rejected this proposal. In addition, funds for forest health management are included in National Fire Plan Other Operations (see above). For FY2005, these funds total $24.6 million, $12.0 million (95%) more than the Senate Committee recommended and the Administration requested, $0.3 million (1%) less than the House passed, and $39,000 less than FY2004. For S&PF Cooperative Fire Assistance to states and volunteer fire departments, the FY2005 law includes $38.8 million, $2.8 million (8%) more than the Senate Committee recommended, $3.0 million (7%) less than the House passed, $8.7 million (29%) more than the FY2005 request, and $0.4 million (1%) more than FY2004 (excluding the $24.9 million of FY2004 emergency S&PF funding included under National Fire Plan Emergency Funding, above). In addition, funds for cooperative fire assistance are included in National Fire Plan Other Operations (see above). Enacted FY2005 funding for such programs total $48.1 million, $0.7 million (2%) less than the Senate committee recommended, $0.1 million (0.1%) more than the House passed, $5.8 million (14%) more than the FY2005 budget request, and $11.1 million (19%) less than FY2004 funding. The FY2005 law contains $145.4 million for Cooperative Forestry programs (assistance for forestry activities on state and private lands). This is $22.0 million (13%) less than the Senate committee recommended, $14.3 million (11%) more than the House passed, $32.3 million (18%) less than the FY2005 budget request, and $16.0 million (10%) more than FY2004. Most of the differences are in two programs: Forest Legacy, for purchasing title or easements for lands threatened with conversion to nonforest uses, such as for residences; and Economic Action Programs (EAP), for rural community assistance, wood recycling, and Pacific Northwest economic assistance. The enacted level for Forest Legacy is $57.1 million, $14.0 million (33%) more than the House, $19.2 million (25%) less than the Senate Committee recommended, and substantially ($42.9 million, 43%) below the $100.0 million proposed by the Administration for FY2005. The enacted level for EAP is $19.0 million, $0.9 million (5%) less than the Senate Appropriations Committee recommended, nearly double the House-passed level of $10.0 million, and down $6.6 million (26%) from FY2004. The Administration again proposed to terminate funding for this program. Other program changes are more modest. For international programs (technical forestry assistance to other nations), FY2005 appropriations total $6.4 million, slightly ($91,000) less than the Senate committee recommended and the House passed, $1.1 million (20%) more than the FY2005 request, and $0.5 million (8%) more than FY2004 appropriations. In addition, P.L. 108-324 contained $49.1 million in emergency appropriations for FS assistance to private landowners for recovery from natural resource disasters. The FY2005 law includes $514.7 million for FS Capital Improvement and Maintenance, and P.L. 108-324 added $50.8 million in infrastructure funding for disaster recovery. Thus, total FY2005 funding for FS Capital Improvement and Maintenance is $565.5 million. This is $49.3 million (10%) more than the Senate Appropriations Committee recommended, $42.6 million (8%) more than the House passed, $64.5 million (13%) more than requested, and $10.3 million (2%) more than FY2004. The FY2005 funding levels for facilities ($198.8 million), roads ($226.4 million), and trails ($75.7 million) are generally similar to (within 5% of) the requested, House-passed, and Senate committee-recommended levels. The largest differences are for disaster recovery ($50.8 million enacted) and for deferred maintenance and infrastructure improvement. The latter account is to reduce the agency's backlog of deferred maintenance, estimated at $6.54 billion. The FY2005 law includes $13.8 million, $3.8 million (38%) more than recommended by the Senate committee and requested by the Administration, $8.1 million (37%) less than the House-passed level, and $17.8 million (56%) less than FY2004 funding. The FY2005 law includes $61.0 million for FS Land Acquisition from the Land and Water Conservation Fund, with $12.8 million for acquisition management and $48.2 million for land purchases. This is significantly less ($21.5 million, 26%) than the $82.5 million recommended by the Senate Appropriations Committee, but substantially more ($45.5 million, 294%) than the House-passed level of $15.5 million. It is $5.9 million (9%) less than requested and $5.4 million (8%) less than FY2004 appropriations. The differences are almost entirely for land purchases, with modest differences for acquisition management. FY2005 appropriations for FS research are $276.4 million, $3.5 million (1%) less than the Senate committee recommended, $4.3 million (2%) less than the House-passed level and the budget request, and $10.0 million (4%) above FY2004. National Forest System (NFS) appropriations are $1.39 billion (including $12.2 million in P.L. 108-324 for disaster recovery), $5.8 million (0.4%) more than the Senate committee recommended, $6.6 million (0.5%) less than the House-passed level, $3.4 million (0.2%) more than the request—excluding the proposed transfer of fuel reduction from wildfire management to NFS—and $27.1 million (2%) more than FY2004. (Fuel reduction funding is discussed under the National Fire Plan, above.) The House also included $10.0 million for a Centennial of Service Challenge to fund cost-share projects in celebration of the agency's 100 th birthday in February 2005; the FY2005 law provided $9.9 million. For information on the Department of Agriculture, see its website at http://www.usda.gov/ . For further information on the U.S. Forest Service , see its website at http://www.fs.fed.us/ . 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 Issue Brief IB10076. Public (BLM) Lands and National Forests , by [author name scrubbed] and [author name scrubbed], coordinators. CRS Report RL33990, Wildfire Funding , by [author name scrubbed]. CRS Report RS22024, Wildfire Protection in the 108 th Congress , by [author name scrubbed]. CRS Report RS21880, Wildfire Protection in the Wildland-Urban Interface , by [author name scrubbed]. The Bush Administration's FY2005 budget request of $635.8 million for fossil energy research and development was 5% less than the amount enacted for FY2004 ($672.8 million) but 2% higher than the enacted amount for FY2003 ($620.8 million). Major funding categories and amounts included Coal and Other Power Systems ($470.0 million), Natural Gas Technologies ($26.0 million), Petroleum Technology ($15.0 million), and Program Direction and Management Support ($106.0 million). The FY2005 appropriations law which funded fossil energy R&D programs at $571.9 million has significant differences with the Administration's request. For example, within the category of Coal and Other Power Systems, the FY2005 law supported FutureGen at $17.8 million versus $237.0 million contained in the budget request. The FY2005 law supported increases in Advanced Systems, Fuels, and Fuel Cells research over the Administration's request. Natural Gas ($44.8 million) and Petroleum Technologies ($33.9 million) also were funded at higher levels than the Administration's request. A key difference for Natural Gas programs was in infrastructure projects. The Administration sought zero funding in FY2005, while the FY2005 law includes $8.4 million in infrastructure funding. In the Petroleum programs, the Administration sought $3.0 million in Petroleum Exploration and Production while the FY2005 law provides $18.7 million. The Administration's request also would have reduced funding for the fuels program by nearly half, providing $16.0 million for transportation fuels and chemicals and zero funding for solid and advanced fuels research. For FY2005, Congress enacted funding of $32.1 million for these programs, higher than FY2004 funding of $31.2 million. The Administration requested $287.0 million for the Clean Coal Power Initiative (CCPI) for FY2005, as part of a $2 billion, 10-year commitment. The program is designed for "funding advanced research and development and a limited number of joint government-industry-funded demonstrations of new technologies that can enhance the reliability and environmental performance of coal-fired power generators," according to DOE. The Administration wanted to incorporate the FutureGen program within the CCPI and would fund it at $237.0 million. Other CCPI programs would have received $50.0 million. The FutureGen project is a Bush Administration initiative designed to establish the feasibility of producing electricity and hydrogen from a coal-fired plant yielding no emissions. The CCPI is along the lines of the Clean Coal Technology Program (CCTP), which has completed most of its projects and has been subject to rescissions and deferrals since the mid-1990s. The Administration sought $237.0 million in rescissions in the CCTP program for FY2005, which would have offset the request for FutureGen. The FY2005 law deferred spending $257.0 million of remaining Clean Coal Technology funds, previously appropriated, rather than rescind the money as requested by the Administration. The CCTP eventually will be phased out. In addition to the $17.8 million for FutureGen, the FY2005 law provides $49.3 million for the CCPI. Earlier, the House had not supported FutureGen as a separate account or the amount requested, but rather supported it using $18.0 million of previously appropriated CCTP money for FutureGen in FY2005. The House also deferred $237.0 million of CCTP funds for future FutureGen requirements. In its report on the FY2005 bill, the House Appropriations Committee expressed disappointment with the emphasis of the request on funding major, new, long-term energy research efforts, such as FutureGen, at the expense of ongoing energy programs that are expected to yield energy savings and emissions reductions over the next decade ( H.Rept. 108-542 , p. 7). The House approved $105.0 million for the CCPI. In its report, the House Appropriations Committee recommended restoring many of the proposed reductions for research to improve fossil energy technologies. The House Committee stated that it would be "fiscally irresponsible" to discontinue research in which major investments have been made before that research is concluded ( H.Rept. 108-542 , p. 8). The Senate Appropriations Committee agreed with the House in its level of funding for Future Gen ($18.0 million), while providing a separate line item for that purpose. The Committee also deferred (rather than rescinded) $257.0 million for CCTP. The Senate Committee did agree with the Administration in supporting $50.0 million for the CCPI. For further information on the Department of Energy (DOE), see its website at http://www.doe.gov/engine/content.do . For further information on Fossil Energy, see its website at http://www.fe.doe.gov/ . The Strategic Petroleum Reserve (SPR), authorized by the Energy Policy and Conservation Act ( P.L. 94-163 ) in late 1975, consists of caverns formed out of naturally occurring salt domes in Louisiana and Texas in which more than 650 million barrels of crude oil are stored. The purpose of the SPR is to provide an emergency source of crude oil which may be tapped in the event of a presidential finding that an interruption in oil supply, or an interruption threatening adverse economic effects, warrants a drawdown from the reserve. In mid-November 2001, President Bush ordered that the SPR be filled to capacity (700 million barrels) using royalty-in-kind (RIK) oil. This is oil turned over to the federal government as payment for production from federal leases. Acquiring oil for the SPR by RIK avoids the necessity for Congress to make outlays to finance direct purchase of oil; however, it also means a loss of revenues to the Treasury in so far as the royalties are paid in wet barrels rather than in cash. Deliveries of RIK oil began in the spring of 2002 and in early 2005 were scheduled to continue through April. Additional deliveries are highly likely until the SPR is filled. Deliveries that were scheduled for late 2002 and the first months of 2003 were delayed due to tightness in world oil markets. Some policymakers in the 108 th Congress urged the Administration to suspend RIK deliveries once again so that RIK oil could be released to tight markets. The administration argued that the 100,000-200,000 barrels per day of deliveries to the SPR are marginal volumes too small to have any discernible effect on crude and product prices. There were three attempts during the second session of the 108 th Congress to temporarily suspend deliveries of RIK oil to the SPR. On March 11, 2004, during debate on the FY2005 budget resolution, the Senate agreed to another suspension of deliveries of RIK oil, and sale of this oil instead. Several members of the House also have voiced support for deferral of deliveries. During House floor debate on the Interior appropriations bill, Representative Sanders offered an amendment to suspend RIK deliveries and forbid the expenditure of funds in the bill to maintain the SPR above 647 million barrels, the level at which the SPR was when the Senate passed its budget resolution. The amendment was rejected. The most recent attempt to suspend fill occurred on September 14, 2004, during debate on H.R. 4567 , the FY2005 Department of Homeland Security appropriations bill. Senator Byrd proposed suspension of RIK fill in order to provide $470 million in additional funding for homeland security purposes. The amendment fell on a point of order. The current program costs for the SPR are almost exclusively dedicated to maintaining SPR facilities and keeping the SPR in readiness should it be needed. The costs of transporting RIK oil to SPR sites are now borne by the contractors, so no new money was requested for the SPR petroleum account beginning with FY2004. The request for SPR for FY2005 was $177.1 million—$172.1 million for the SPR and $5.0 million for the Northeast Home Heating Oil Reserve (NHOR). Congress agreed to a funding level of $175.9 million for the program in FY2004, including $4.9 million for the NHOR. The NHOR, established by the Clinton Administration, houses 2 million barrels of home heating oil in above-ground facilities in Connecticut, New Jersey, and Rhode Island. The House agreed to the requested levels, as did the Senate Committee on Appropriations. The enacted appropriation for FY2005, including the NHOR, is $174.6 million. Comprehensive energy legislation ( H.R. 6 ) reported from conference during the 108 th Congress would have permanently authorized the SPR and NHOR, and would have required that the SPR be filled to its authorized capacity of 1 billion barrels (its current capacity is roughly 700 million barrels) as soon as practicable. The legislation was not enacted. For further information on the Strategic Petroleum Reserve , see its website at http://fossil.energy.gov/programs/reserves/spr/ . CRS Issue Brief IB87050, The Strategic Petroleum Reserve , by [author name scrubbed]. The National Defense Authorization Act for FY1996 ( P.L. 104-106 ) authorized sale of the federal interest in the oil field at Elk Hills, CA (Naval Petroleum Reserve -1 (NPR-1)). On February 5, 1998, Occidental Petroleum Corporation took title to the site and wired $3.65 billion to the U.S. Treasury. P.L. 104-106 also transferred most of two Naval Oil Shale Reserves (NOSR) to DOI; the balance of the second was transferred to DOI in the spring of 1999. On January 14, 2000, the Department of Energy (DOE) returned the undeveloped Naval Oil Shale Reserve-2 (NOSR-2) to the Ute Indian Tribe; the FY2001 National Defense Authorization ( P.L. 106-398 ) provided for the transfer. The United States retains a 9% royalty interest in NOSR-2, with any proceeds to be applied to the costs of remediating a uranium mill tailings site near Moab, UT. In 1999, NOSR-3 was transferred to the Department of the Interior in 1999). Conditions of the transfer of NOSR-3—and the prior sale of the Elk Hills field—were that DOE remained responsible for environmental remediation activities. This leaves in the Naval Petroleum Reserves program two small oil fields in California and Wyoming, which were estimated to generate revenue to the government of roughly $7.2 million during FY2005. Congress provided $18.0 million to maintain the Naval Petroleum Reserves (NPR) during FY2004. Similarly, the House agreed to the Administration's recommendation to maintain spending at $18.0 million in FY2005. The Senate Committee on Appropriations recommended the same level. The final appropriation for FY2005 is $17.8 million. In settlement of a long-standing dispute between California and the federal government over the state's claim to Elk Hills as "school lands," the California Teachers' Retirement Fund (CTRF) is to receive 9% of the Elk Hills sale proceeds after the costs of sale have been deducted. The agreement between DOE and California provided for five annual payments of $36.0 million beginning in FY1999, with the balance due to be paid in equal installments in FY2004 and FY2005. The FY2004 budget provided $72.0 million, including an advance appropriation of $36.0 million for the Elk Hills School Lands Fund, to be paid on October 1 of the following fiscal year. For FY2005, the Administration also requested $72.0 million, and the House agreed to $72.0 million pending a final determination of how much additional money is due to the CTRF. The Senate Committee on Appropriations also recommended $72.0 million, including an advance appropriation of $36.0 million, payable on October 1, 2005. The FY2005 enacted level is $71.5 million, consisting of a $35.5 million advance appropriation from previous years and a $36.0 million advance appropriation for FY2006. For further information on Naval Petroleum and Oil Shale Reserves , see its website at http://fossil.energy.gov/programs/reserves/npr/ . The FY2005 budget request ( Budget Appendix , p. 397) notes that the "Administration's energy efficiency programs have the potential to produce substantial benefits for the Nation—both now and in the future—in terms of economic growth, increased energy security and a cleaner environment." In particular, the request "continues the Hydrogen Fuel Initiative to accelerate the worldwide availability and affordability of hydrogen-powered fuel cell vehicles." The Administration's request sought $875.9 million ($584.7 million, excluding Weatherization) for energy efficiency, which is $2.1 million, or 0.2%, less than the FY2004 appropriation. Compared with the FY2004 appropriation, the request would have cut R&D funding from $606.9 million to $543.9 million, a decrease of $62.9 million, or 10%. The request originally included $291.2 million for Weatherization, which is $64.0 million more than the FY2004 appropriation. See Table 15 below. The House Appropriations Committee's report (p. 123) stated that "the jurisdiction for the Weatherization Program has been moved to the Subcommittee on Labor, Health and Human Services, Education, and Related Agencies (LHE), which has jurisdiction for the Low Income Home Energy Assistance Program (LIHEAP) that also includes funding for weatherization." The House-passed LHE bill ( H.R. 5006 , H.Rept. 108-636 ) had $238.0 million for Weatherization, which included $11.0 million added by H.Amdt. 721 . This is $10.8 million more than the FY2004 appropriation and is $53.2 million less than the DOE request. Also, the report (p. 128) "encourages" DOE to conduct "an up-to-date assessment" of the Weatherization program comparable to the benefit-cost evaluation conducted by Oak Ridge National Laboratory in 1994. In the Interior bill, the House approved $656.1 million for DOE energy conservation funding in FY2005, excluding the Weatherization program. Combined with $238.0 million for Weatherization funding in the LHE bill, the House approved a total of $894.0 million for FY2005. Thus, compared with the Administration's request, the House sought an increase of $18.1 million, or 2%. This is comprised of $67.1 million more for R&D and $48.9 million less for grants. The House Appropriations Committee's report (p. 7) noted "disappointment" that the request emphasized funding for "long-term" efforts such as FreedomCAR, at the expense of ongoing programs that will yield energy and emissions savings "over the next ten years." Thus, the report recommended (p. 8) "restoring many of the reductions proposed in the budget request for energy conservation research ... [because] it would be fiscally irresponsible to discontinue research in which we have made major investments without bringing that research to a logical conclusion." Also, the report explained (p. 7) that R&D funding needs to be higher than the request to "... achieve the goals of energy independence, dramatically lower energy consumption, and significantly reduced emissions." To this end, the House Committee recommended, and the House approved, an R&D increase of $67.0 million over the request. (For more information, see CRS Issue Brief IB10020, Energy Efficiency: Budget, Oil Conservation, and Electricity Conservation Issues, by [author name scrubbed].) The House Appropriations Committee's report contained a number of provisions affecting energy conservation. They are: (1) DOE should implement all recommendations by the National Academy for Public Administration to eliminate positions and achieve administrative cost savings; (2) the DOE budget document for FY2006 should include sub-activities in the program table; (3) DOE should invest more in stationary fuel cells; (4) research on fuel cell start-ups in freezing weather should get "sufficient" funding; (5) DOE should do a new solicitation for off-highway research; (6) the Vulcan Beam Line shall receive a $1.0 million earmark; (7) performance assessments should be conducted for the Building America program; (8) staffing and program funding for Industries of the Future should not be reduced further; (9) competitive grants for the metal casting industry should go to consortia focused on small business participation; (10) DOE should supplement funding for the State Technologies Advancement Collaborative (STAC) program; (11) the Cooperative Program with States should be closely coordinated with DOE's Fossil Energy Program; (12) funding for the review of programs by the National Academy of Science should be fixed as a permanent annual expense line; and (13) DOE is encouraged to contract with Oak Ridge National Laboratory to perform another in-depth evaluation of the Weatherization Program. The Senate Appropriations Committee reported the FY2005 Interior Appropriations bill with $854.3 million for DOE's Energy Efficiency Program. It included $580.5 million for R&D, which is $30.4 million less than the House bill. Also, the Senate committee-reported bill includes $230.0 million for Weatherization grants, which is $8.0 million less than the House approved in the LHE bill. (For more information, see CRS Issue Brief IB10020, Energy Efficiency: Budget, Oil Conservation, and Electricity Conservation Issues, by [author name scrubbed].) Congress enacted $640.1 million for DOE's Energy Efficiency Program. Compared with the FY2004 appropriation, the FY2005 law has $13.3 million less for R&D. This difference includes $17.7 million less for Industrial Technologies and $11.1 million less for Vehicle Technologies, but also $9.8 million more for Fuel Cells and $7.3 million more for Buildings. The LHE appropriation law has $228.2 million for Weatherization grants, which is $1.0 million more than the FY2004 appropriation. (For more information, see CRS Issue Brief IB10020, Energy Efficiency: Budget, Oil Conservation, and Electricity Conservation Issues, by [author name scrubbed].) For further information on energy conservation , see the DOE website at http://www.eere.energy.gov/ . CRS Issue Brief IB10020. Energy Efficiency: Budget, Oil Conservation, and Electricity Conservation Issues , by [author name scrubbed]. CRS Report RS21442, Hydrogen and Fuel Cell Vehicle R&D: FreedomCAR and the President's Hydrogen Fuel Initiative , by [author name scrubbed]. CRS Report RL32543, Energy Savings Performance Contracts: Reauthorization Issues , by [author name scrubbed]. The Indian Health Service (IHS) is responsible for providing comprehensive medical and environmental health services for approximately 1.5 million to 1.7 million American Indians and Alaska Natives who belong to 562 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 36 hospitals, 59 health centers, 2 school health centers, 49 health stations, and 5 residential treatment centers. Tribes and tribal groups, through IHS contracts and compacts, operate another 13 hospitals, 172 health centers, 3 school health centers, 260 health stations (including 176 Alaska Native village clinics), and 28 residential treatment centers. IHS, tribes, and tribal groups also operate 9 regional youth substance abuse treatment centers and 2,252 units of residential quarters for staff working in the clinics. IHS funding is separated into two Indian Health budget categories: Health Services, and Facilities. The enacted IHS appropriation for FY2005 is $2.99 billion, $17.8 million or 0.6% increase from the President's FY2005 request for $2.97 billion, and a 2% increase from the FY2004 final appropriation of $2.92 billion. The IHS FY2005 appropriation is 2% below the House-passed total of $3.03 billion, and 0.4% below from the Senate Appropriations Committee reported amount of $3.0 billion (see Table 16 below). Of the total IHS appropriation enacted for FY2005, 87% will be used for health services and 13% for the health facilities program. 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). The final estimated total reimbursement in FY2005 is $598.7 million, an increase of about $31.0 million or 5% over the FY2004 estimate of $567.6 million. The IHS Health Services appropriation for FY2005 is $2.60 billion, 0.6% below the President's request of $2.61 billion, but 3% above the FY2004 final appropriation of $2.53 billion. The Services budget has several subcategories: clinical services, preventive health services, and other services. The Clinical Services budget includes by far the most program funding. The enacted Clinical Services budget of $2.09 billion is $9.7 million less than the requested budget of $2.10 billion, but $65.6 million over the FY2004 appropriation of $2.02 billion. Clinical Services include primary care at IHS and tribally run hospitals and clinics. Hospital and health clinic programs make up the bulk or 62% of the Clinical Services budget. For FY2005, the hospitals and clinic programs will receive $1.29 billion, about 0.5% less than the President's request but 3% more than the appropriation of $1.25 billion for FY2004. For other programs within Clinical Services, dental programs will get $108.7 million, mental health programs $55.0 million, alcohol and substance abuse programs $139.7 million, and the catastrophic emergency fund $17.8 million. Contract care, another Clinical Services budget item, refers to health services purchased from local and community health care providers when IHS cannot provide medical care and specific services through its own system. The enacted appropriation for FY2005 for contract care is $480.3 million, up $1.2 million from FY2004 and the President's request of $479.1 million. For Preventive Health Services, the final FY2005 appropriation is $110.6 million, a reduction of $1.6 million from the President's request of $112.2 million, but an increase of $3.7 million, or 3%, from the $106.9 million appropriated in FY2004. Funding for each program within preventive health services will increase over FY2004 levels. Program totals will be $44.9 million for public health nursing, $12.5 million for health education in schools and communities, $1.6 million for immunizations in Alaska, and $51.7 million for the tribally administered community health representatives program that supports tribal community members who work to prevent illness and disease in their communities. For other health services, the enacted appropriation for FY2005 is $395.4 million, a decrease of $3.1 million from the FY2004 appropriation of $398.5 million. Programs with decreased appropriations include $30.4 million for scholarships to health care professionals (down $399,000), $2.3 million for tribal management grants to tribes (down $33,000), and $263.7 million for contract support costs (down $3.7 million). Contract support costs are awarded to tribes for administering programs under contracts or compacts authorized by the Indian Self-Determination Act ( P.L. 93-638 , as amended). They pay for costs tribes incur for financial management, accounting, training, and program start up. Most tribes and tribal organizations are participating in new and expanded self-determination contracts and self-governing compacts. The appropriation increased slightly ($340,000) to $32.0 million for health-related activities in off-reservation urban health projects from an FY2004 total of $31.6 million. Funding for IHS administration and management costs for programs IHS operates directly increased by $714,000 to $61.4 million. According to IHS, the increase is to pay for IHS headquarters staffing because staff decreases over the past several years have hampered the agency's capability to perform oversight and outreach activities. The final appropriation includes $5.6 million for self-governance, the same as in FY2004. The IHS's Facilities category includes money for the construction, maintenance, and improvement of both health and sanitation facilities. The total FY2005 appropriation is $388.6 million, an increase of $34.1 million (10%) over the President's request of $354.4 million, but a $2.8 million (0.7%) decrease from the FY2004 appropriation of $391.4 million. In the Balanced Budget Act of 1997 ( P.L. 105-33 ), Congress created two programs for diabetes: the IHS Special Diabetes Program for Indians, and the National Institutes of Health (NIH) Special Research Program for Type 1 Diabetes. The law required that the SCHIP appropriation for FY1998 through FY2002 be reduced by $60 million each year, with $30 million going to the NIH Type 1 research program and $30 million allocated to the IHS diabetes program. In 2000, the Benefits Improvement and Protection Act (part of P.L. 106-534 ) increased funding for each of these diabetes programs and extended authority for grants to be made under both. For each grant program, total funding was increased to $100 million for FY2001, FY2002, and FY2003. For FY2001 and FY2002, $30 million of the $100 million came from the SCHIP program appropriation and $70 million came from the general Treasury. In FY2003, the whole $100 million was drawn from the general Treasury out of funds not otherwise appropriated. In December 2002, Congress extended the funding for these special diabetes programs, through amendments to the Public Health Service Act ( P.L. 107-360 ), authorizing $150 million for each of the programs each year for FY2004 through FY2008. This funding from the general Treasury is separate from regular IHS and NIH appropriations. For further information on the Indian Health Service, see its website at http://www.ihs.gov/ . 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. Congress has been concerned, at times, about the speed of the relocation process and about avoiding forced relocations or evictions. For FY2004, ONHIR received an appropriation of $13.4 million. For FY2005, the Administration proposed $11.0 million, an 18% decrease, to which the House agreed. The Senate Appropriations Committee recommended $5 million, a reduction of 63% from the FY2004 appropriation, arguing that carryover funds from previous fiscal years would offset the reduction. The conference committee agreed with the Senate, so the FY2005 appropriation for ONHIR was $4.9 million, a 63% reduction from FY2004. Relocation began in 1977 and is not yet complete. 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—an estimated 3,485 Navajo families had resided on land partitioned (or judicially confirmed) to the Hopi, while 27 Hopi families had lived on Navajo partitioned land, according to ONHIR data. While 95% of the Navajo families have been relocated to replacement homes, ONHIR estimates that 163 Navajo families as of the end of FY2003 have yet to complete relocation. Most of these remaining 163 Navajo families are not currently living on Hopi partitioned land, but a majority have not reached the stage of seeking a replacement home. Fourteen of the 163 Navajo families are still residing on Hopi partitioned land, according to ONHIR, and some of them refuse to relocate. All but one of the 27 Hopi families on Navajo partitioned land had completed relocation by the end of FY2003, according to ONHIR. ONHIR estimated in its FY2004 strategic plan that it would complete relocation moves by the end of FY2006 and post-move assistance by the end of FY2008, but stated that this schedule depended on infrastructure needs and relocatees' decisions. Congressional committees have in the past expressed impatience with the speed of relocation but have not recently criticized the current pace. A long-standing proviso in ONHIR appropriations language, retained in the FY2005 act, 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 in the near future, 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 refuse relocation and if the Hopi Tribe were to exercise a right under P.L. 104-301 (a 1996 settlement of related Hopi-U.S. issues) to begin legal action against the United States for failure to give the Hopi "quiet possession" of all Hopi partitioned lands. The Smithsonian Institution (SI) is a museum, education, and research complex of 17 museums and galleries, the National Zoo, and research facilities throughout the United States and around the world. Nine of its museums and galleries are located on the National Mall between the U.S. Capitol and the Washington Monument. The SI is responsible for over 400 buildings with approximately 8 million square feet of space. It is estimated to be 70% federally funded, and also is supported by various types of trust funds. A federal commitment to fund the Smithsonian Institution had been established by legislation in 1846. The Bush Administration proposed $628.0 million for the Smithsonian, a 5.0% increase over the enacted FY2004 level ($596.3 million). See Table 17 below. For Salaries and Expenses, the Smithsonian would have received $499.1 million, a 2.0% increase over the FY2004 amount of $488.7 million. Salaries and Expenses cover administration of all of the museums and research institutions that are part of the Smithsonian Institution. In addition, it includes program support and outreach, and facilities services (security and maintenance). The House-passed appropriation for the Smithsonian ($619.8 million) reflected a 4% increase over the FY2004 law with a 1% decrease from the Administration's request. The Smithsonian Institution's Salaries and Expenses account would have received $496.9 million, an increase of $8.3 million over the FY2004 law but a decrease of $2.2 million from the Administration's request. The Senate committee-reported appropriations bill for the Smithsonian Institutions (627.0 million) reflected an increase of $7.2 million over the House level and of $30.7 million over the FY2004 level. The Smithsonian's Salaries and Expenses account would received $490.1 million, a decrease of $9.0 million from the Administration's request and a decrease of $6.8 million from the House-passed level. The FY2005 final appropriation provides $615.2 million for the Smithsonian, reflecting a decrease of $4.7 million from the House-passed bill and $11.9 million from the Senate committee-reported bill. The Smithsonian's Salaries and Expenses account will receive $489.0 million, a $1.1 million decrease from the Senate committee-reported bill, and a $7.9 million decrease from the House-passed bill. Beginning in FY2004, a new account title—Facilities Capital—"is being used; it is comprised of revitalization, construction, and facilities planning and design. The FY2004 law provided $107.6 million and the FY2005 budget would have provided $128.9 million for Facilities Capital. The House-passed FY2005 bill would have provided $122.9 million, and the Senate committee reported bill would have provided $136.9 million for Facilities Capital. For FY2005, Congress enacted $126.1 million for Facilities Capital, $110.4 million for revitalization, $7.9 million for construction, and $7.9 million for facilities planning and design. Revitalization funds are for addressing advanced deterioration in SI buildings, helping with routine maintenance and repair in Smithsonian Institution facilities, and making critical repairs. The Administration request, the House-passed bill, and the Senate committee-reported bill would have provided $32.2 million for operating expenses for the NMAI, a decrease from the FY2004 law of $38.1 million. For FY2005, Congress enacted $31.7 million for NMAI. In the past the NMAI was controversial. Opponents of constructing a new museum argued that the current Smithsonian Institution museums needed renovation, repair, and maintenance more than the public needed another museum on the National Mall. Proponents argued that there had been too long a delay in providing a museum in Washington to house the Indian collection. Based on an estimate of $219.3 million for construction of the Indian museum, the Smithsonian Institution indicated that some of its trust funds in addition to SI's Salaries and Expenses funds could be used to cover opening costs. The groundbreaking ceremony for the NMAI took place September 28, 1999 and the grand opening ceremony was September 21, 2004, beginning with a celebration called the "First Americans Festival." The direction of SI's research priorities is of concern to Congress. A past controversy involved the proposed closing of the Smithsonian Institution Center for Materials Research and Education (SCMRE), which the Smithsonian Institution decided to retain. The FY2002 Interior Appropriations law provided that an independent, "blue ribbon" science commission be established to deal with this and other decisions. The commission's report of January 2003 noted that science programs of the Smithsonian Institution have eroded over time due to a "long-term trend in declining support for mandatory annual salary increases." Of the 76 recommendations in the Science Commission report, according to the SI, more than three quarters of them have been addressed in their attempts to revitalize science. The FY2004 law provided $3.5 million for the SCMRE, and the FY2005 appropriation provides $3.5 million. A new National Museum of African American History and culture (NMAAHC) has been established within the Smithsonian Institution through P.L. 108-184 . The museum will collect, preserve, study and exhibit African American historical and cultural material and will focus on periods of history including the time of slavery, Reconstruction, the Harlem Renaissance, and the civil rights movement. The FY2005 budget and the Senate committee-reported bill would have provided $5.0 million whereas the House-passed bill would have provided $4.0 million for the NMAAHC for selection of personnel for planning, site selection, and capital fund raising. The FY2005 appropriation provides $3.9 million for the NMAAHC. The opening of the National Museum of the American Indian brings with it the question of space left on the Mall for the NMAAHC, and whether or not another space will be offered and approved by the National Capital Planning Commission (NCPC), the Commission of Fine Arts, and the National Capital Memorial Commission. The FY2005 request, the House-passed bill, and the Senate committee-reported bill would have provided $17.8 million for salaries and expenses at the National Zoo. The final FY2005 appropriation provides $17.6 million for the National Zoo. Recently, Congress and the public have been concerned about the National Zoo's facilities and the care and health of its animals. The Smithsonian Institution has a plan to revitalize the zoo, making the facilities safer for the public and healthier for the animals. The Administration's request specified an estimated $19 million (under the Facilities Capital account) to begin the National Zoo's revitalization, to include construction of a new elephant facility to be completed by 2007. According to SI, the National Zoo is 110 years old and the physical environment is deteriorating—many of the largest animals (e.g., lions, tigers, and elephants) are housed in the oldest areas. Space is a major health concern. The new construction, designed to provide ample space for elephants and other animals, will put the National Zoo in compliance with the U.S. Department of Agriculture and American Zoo and Aquarium Association standards, and will help to correct the "infrastructure deficiencies" found throughout the National Zoo. The estimated total cost of the National Zoo revitalization is $68.3 million, including future years' funding for completing construction in FY2006. This figure does not include an estimated $12 million expected to be raised from private funds. In addition to federal appropriations, the Smithsonian Institution receives income from trust funds to expand its programs. The SI trust fund includes general trust funds, contributions from private sources, and government grants and contracts from other agencies. General trust funds include investment income and revenue from "business ventures" such as the Smithsonian magazine, and retail shops. There are also trust funds that are private donor-designated funds that specify and direct the purpose of funds. Finally, government grants and contracts are provided by various government agencies for projects specific to the Smithsonian Institution, and they were estimated to total $104.1 million in FY2004. Of concern to Congress is the extent to which the Smithsonian Institution has control when donor and sponsor designated funds put restrictions on the use of that funding. Designated funds in FY2004 were estimated to total $84.5 million. There is concern that donor designated funding may require a building to be renamed for that individual or corporate donor, even if an appropriate name is already being used. In addition, there is debate over whether companies who are allowed to advertise at cultural events might in some way compromise the integrity of the Smithsonian Institution. The Congress has been considering these issues as part of the fiscal year appropriations debates for the past few years in order to help maintain the strength of the Smithsonian Institution. 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 (NFAH), composed of the National Endowment for the Arts (NEA); the National Endowment for the Humanities (NEH); and the Institute of Museum Services (IMS), now constituted as the Institute of Museum and Library Services (IMLS) with an Office of Museum Services (OMS). The NEA and NEH authorization expired at the end of FY1993, but they have been operating on temporary authority through appropriations law. The Institute of Museum and Library Services and the Office of Museum Services were created by P.L. 104-208 , and reauthorized by P.L. 108-81 . Among the questions Congress continually considers is whether funding for the arts and humanities is an appropriate federal role and responsibility. Some opponents of federal arts funding argue that NEA and NEH should be abolished altogether. Other opponents argue that culture can and does flourish on its own through private support. Proponents of federal support for arts and humanities contend that the federal government has a long tradition of support for culture and that abolishing NEA and NEH could curtail or eliminate programs that have national significance and purpose (such as national touring theater and dance companies). Some representatives of the private sector say that they are unable to make up the gap that would be left by the loss of federal funds for the arts. NEA's direct grant program for the arts currently supports approximately 1,600 grants. State arts agencies are now receiving over 40% of grant funds, with 1,000 communities participating nationwide, particularly from under-represented areas that lack cultural facilities and programs. For FY2005, Congress enacted $121.3 million for NEA, $9.7 million less than the House-passed bill ($131.0 million), slightly higher than the Senate committee-reported bill and FY2004 appropriation ($121.0 million), but a decrease of 13% from the Administration's budget ($139.4 million). See Table 18 below. The FY2005 House-passed bill contained a floor amendment that added $10.0 million to the American Masterpieces program for NEA and $3.5 million to NEH's We the People program, while offsetting these amounts through cuts to DOI's departmental management. The FY2005 budget had proposed the American Masterpieces program to be funded under NEA grants and state partnerships. This national initiative would include touring programs, local presentations and arts education in the fields of dance, visual, arts and music. The Senate committee-reported bill did not provide additional funds for the American Masterpieces program, although the Committee, stated that the program "has merit"( S.Rept. 108-341 , p. 77). During consideration of the bill in committee, some members of the Senate Appropriations Committee urged that when the bill went to the floor or to conference, that the House-passed level for NEA be accepted—$131.0 million. For FY2005, Congress enacted $2.0 million for American Masterpieces and $121.3 million for NEA. The FY2005 law provides $21.4 million to the Challenge America Arts fund, a program of matching grants for arts education, outreach, and community arts activities for rural and under-served areas. The NEA is required to submit a detailed report to the House and Senate Appropriations Committees describing the use of funds for the Challenge America program. Although there appears to be an increase in congressional support for the NEA, debate often recurs on previous questionable NEA grants when appropriations are considered. Congress continues to restate the language of NEA reforms in appropriations laws. For example, both the FY2004 and FY2005 appropriations laws retain language on funding priorities and restrictions on grants, including that no grant may be used generally for seasonal support to a group, and no grants may be for individuals except for literature fellowships, National Heritage fellowships, or American Jazz Master fellowships. 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. NEH also supports a Challenge Grant program to stimulate and match private donations in support of humanities institutions. For FY2005, Congress enacted $138.1 million for NEH, a decrease of (3%) from the House-passed bill ($142.0 million) and of 15% from the FY2005 budget ($162.0 million), but an increase of 2% over the FY2004 appropriation and the Senate committee-reported bill (both $135.3 million). The FY2005 appropriation includes $15.9 million for NEH matching grants and $122.2 million for grants and administration. A floor amendment to the House-passed bill increased funding for the We the People initiative. The final appropriation for FY2005 provides $11.2 million for the We the People initiative, an increase over the FY2004 appropriation and Senate committee-reported amount of $9.9 million, but a significant decrease (66%) from the Administration's request of $33.0 million. These grants include model curriculum projects for schools to improve course offerings in the humanities—American history, culture, and civics. The Office of Museum Services provides grants-in-aid to museums in the form of leadership grants, museum conservation, conservation project support, museum assessment, and General Operating Support (GOS) to help over 400 museums annually to improve the quality of their services to the public. Effective with FY2003, the appropriation for the Office of Museum Services (OMS) was moved from the Interior and related agencies appropriations bill to the appropriations bill for the Departments of Labor, Health and Human Services, and Education, and related agencies. For further information on FY2005 appropriations, see CRS Report RL32303, Appropriations for FY2005: Labor, Health and Human Services, and Education , by [author name scrubbed]. 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/ . For further information on the Institute of Museum and Library Services , see its website at http://www.imls.gov/ . CRS Report RS20287, Arts and Humanities: Background on Funding , by [author name scrubbed]. The LWCF 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 those agencies earlier in this report identify funding levels 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. Third, Presidents have requested, and Congress has appropriated, money from the LWCF to fund some related activities that do not involve land acquisition. This third use is a recent addition, starting with the FY1998 appropriation. Programs funded have varied from year to year. Most of the appropriations for federal acquisitions generally are earmarked to management units, such as a specific National Wildlife Refuge, while the state grant program rarely is earmarked. Through FY2005, the total authorized amount that could have been appropriated from the LWCF since its inception was $28.1 billion. Actual appropriations have been $14.2 billion. Table 19 shows appropriations since FY2002 and the Administration request and congressional actions for FY2005. For the five years ending in FY2001, appropriators had provided generally increasing amounts from the fund for federal land acquisition. The total had more than quadrupled, rising from a low of $138.0 million in FY1996 to $453.2 million in FY2001. However, since then appropriations have declined significantly. Reductions of the magnitude that occurred in FY2003 and again in FY2004 for federal land acquisition and state grants were last seen in the early and mid 1990s as part of efforts to address the federal budget deficit. Not only did the total for federal land acquisition and grants to states (excluding other programs) decline in FY2003 and again in FY2004, but each of the five component accounts also declined each year. Currently, the federal budget deficit has drawn increased attention, as it did during the early and mid 1990s. Also, there has been enhanced interest in funding other priorities, mostly tied to the war on terrorism. The Administration requested a total of $900.2 million for FY2005, of which a total of $314.0 million would have gone to federal land acquisition and state grants. The remainder, $586.2 million, was the largest amount requested in the program's history for purposes other than land acquisition and stateside grants. The programs and amounts, listed on page DH-48 of the FY2005 Interior Budget in Brief, included Forest Service's Forest Stewardship Program ($40.7 million), Forest Legacy Program ($100.0 million), and Urban and Community Forestry Program ($32.0 million); and the Fish and Wildlife Service's State and Tribal Wildlife Grants ($80.0 million), Landowner Incentive Grants ($50.0 million), Private Stewardship Grants ($10.0 million), Cooperative Endangered Species Grants ($90.0 million), and North American Wetlands Conservation Fund Grants ($54.0 million). The House-passed legislation provided no new funding for earmarked acquisitions. The report of the House Committee on Appropriations characterizes these acquisitions as "a low priority" ( H.Rept. 108-542 , p. 5). Funds in the House bill either mirrored, or were reductions from, the Administration's request and would have gone largely to acquisition management. State grants would have remained almost unchanged from FY2004. The largest change was that the House-passed bill would have provided $92.5 million for only two other programs—the Forest Legacy Program and the Habitat Conservation Program portion of the Cooperative Endangered Species Conservation Fund. This was nearly $500 million less than the Administration's request for funding for other programs. In the minority views attached to the report, Representatives Obey and Dicks stated that they "disagree with the illogically-driven opposition to land acquisition," but did not comment on LWCF funding for other programs ( H.Rept. 108-542 , p. 180). The total for LWCF in Senate legislation was $549.0 million, which would have been less of a reduction from funding in past years than the House-passed bill. This legislation provided almost the same total as the Administration requested for federal land acquisition, although the amount for the NPS was more than $22 million less than the request, while the amount for the FS more than $15 million than the Administration request. More specifically, the Senate legislation earmarked $17.9 million for 11 BLM sites, $34.7 million for 36 FWS sites, $45.3 million for 19 NPS sites, and $66.5 million for 37 FS sites. State grants were almost the same as the House bill. The Senate bill provided more than $237 million to 5 other programs, 4 of which are administered by the Fish and Wildlife Service. The FY2005 law provides more than the House had allocated, but less than the Senate for each of the four federal land management agencies for acquisition. The total for state grants is little changed from the request and the amounts in the House and Senate bills. The FY2005 appropriation for other purposes totals $203.4 million for four FWS programs and one FS program, which is less than half the Administration request but more than double the amount that the House bill would have provided. The enacted levels and overall consideration of LWCF funding appeared to be somewhat less contentious this year. Congress created the Conservation Spending Category (CSC), as an amendment to the Balanced Budget and Emergency Deficit Control Act of 1985, in the FY2001 Interior appropriations law. The CSC, which is also being called the Conservation Trust Fund by some, combines funding for more than two dozen resource protection programs including the LWCF. (It also includes some coastal and marine programs funded through Commerce appropriations). This action was in response to both the Clinton Administration request for substantial funding increases in these programs under its Lands Legacy Initiative, and congressional interest in increasing conservation funding through legislation known as the Conservation and Reinvestment Act (CARA), which passed the House in the 106 th Congress. The FY2001 Interior appropriations law authorized that total spending for CSC would grow each year by $160.0 million, from $1.6 billion in FY2001 (of which $1.2 billion would be through Interior Appropriations laws) to $2.4 billion in FY2006. All CSC funding is subject to the appropriations process. (Also, how programs are categorized, or "scored," matters—the Administration and the Appropriations Committees disagree on whether all or portions of funding for some programs should be credited to the CSC.) The appropriations history through FY2005 is as follows. The FY2001 laws exceeded the target of $1.6 billion by appropriating a total of $1.68 billion; $1.20 billion for Interior appropriations programs and $0.48 billion for Commerce appropriations programs. (Totals for Interior and Commerce funding were both increases from the preceding year of $566 and $160 million, respectively.) The FY2002 request totaled $1.54 billion for this group of programs, and Congress appropriated $1.75 billion, thus almost reaching the target of $1.76 billion. The appropriation for the Interior portion was $1.32 billion, reaching the authorized target amount. The FY2003 request totaled $1.67 billion for this group of programs, a decrease from FY2002 funding, and below the target of $1.92 billion. Congress appropriated a total of $1.51 billion. For the Interior portion, Congress provided $1.03 billion, about $410 million less than the authorized target of $1.44 billion. The FY2004 request totaled $1.33 billion, according to estimates compiled by Interior and Commerce Appropriations subcommittee staffs. This amount is below the target of $2.08 billion. For the Interior portion, the request was $1.00 billion, and the target is $1.56 billion. (The Administration had an alternative estimate that increases the total FY2004 request to $1.22 billion for Interior programs, but it is based on some different assumptions about which programs to include.) The total appropriated is not specified in congressional documents. The FY2005 request from the Department of the Interior included $1.05 billion for the CSC, an increase of $140 million over the FY2004 appropriation for the same group of programs, according to the Department. However, this total did not include requests from the Forest Service or Department of Commerce. Neither the Forest Service nor the Department of Commerce used the CSC as a structure for organizing or tabulating their requests. In any case, these requests, in total, are likely to be well below the target of $2.24 billion. The total appropriated is unclear. None of the FY2005 bills or accompanying committee reports identified funding levels for the CSC, with one exception. The House Appropriations Committee's report accompanying the FY2005 House-passed bill mentions the CSC only in the minority views, where Representatives Obey and Dicks state that the bill would fund the CSC at $850 million below the $1.7 billion target for FY2005. The report does not include other funding levels or broader discussions of the CSC. The Senate Appropriations Committee's report accompanying the FY2005 appropriations bill did not mention the CSC by name in a discussion of conservation funding ( S.Rept. 108-341 , p.5). It stated that the committee "remains concerned" about proposals to create "direct entitlement funding" for selected conservation programs, thereby removing them from the annual oversight of the appropriations process. It noted that the Committee continues to provide funding for many of these programs. CRS Report RL30444, Conservation and Reinvestment Act (CARA) (H.R. 701) and a Related Initiative in the 106 th Congress , by [author name scrubbed] and [author name scrubbed] (pdf). CRS Report RS20471. The Conservation Spending Category: Funding for Natural Resource Protection , by Jeffrey Zinn. CRS Report RL33531, Land and Water Conservation Fund: Overview, Funding History, and Current Issues , by [author name scrubbed]. The alterations of the natural flow 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 the South Florida ecosystem. In 1996, Congress authorized the U.S. Army Corps of Engineers 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), completed in 1999, provides for federal involvement in the restoration of 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. Based on CERP and other previously authorized restoration projects, the federal government, along with state, local, and tribal entities, is currently engaged in a collaborative effort to restore the South Florida ecosystem. The principal objective of CERP is to redirect and store "excess" freshwater currently being discharged to the ocean via canals, and use it to restore the natural hydrological functions of the South Florida ecosystem. CERP seeks to deliver sufficient water to the natural system without impinging on the water needs of agricultural and urban areas. The federal government is responsible for half the cost of implementing CERP, and the other half is borne by the State of Florida, and to a lesser extent, local tribes and other stakeholders. CERP consists of 68 projects that are expected to be implemented over approximately 36 years, with an estimated total cost of $7.8 billion; the total federal share is estimated at $3.9 billion. Appropriations for restoration projects in the South Florida ecosystem have been provided as part of several annual appropriations bills. The Department of the Interior 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, U.S. Fish and Wildlife Service, U.S. Geological Survey, and Bureau of Indian Affairs. Appropriations for other restoration projects in the South Florida ecosystem have been provided to the Corps (Energy and Water Development Appropriations); National Oceanic and Atmospheric Administration (NOAA), (Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations); U.S. Environmental Protection Agency (EPA), (VA, HUD, and Related Agencies Appropriations); and U.S. Department of Agriculture (Department of Agriculture and Related Agencies Appropriations). (For information on other Everglades funding, see CRS Report RS22048, Everglades Restoration: The Federal Role in Funding , by [author name scrubbed] and [author name scrubbed].) From FY1993 to FY2004, federal appropriations for projects and services related to the restoration of the South Florida ecosystem exceeded $2.3 billion dollars, and state funding topped $3.6 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 FY2005, the Administration requested $231.0 million for the Department of the Interior and the Army Corps of Engineers for restoration efforts in the Everglades. Of this total, $67.0 million was for the implementation of CERP. For FY2005, the DOI was appropriated $65.5 million for CERP and non-CERP restoration activities, over $40 million less than the requested amount of $105.9 million, and $3.6 million less than the enacted level of $69.1 million in FY2004. For the implementation of CERP, the DOI was appropriated $8.5 million. See Table 20 . Of the FY2005 enacted funding level of $65.5 million, the NPS received $45.1 million for land acquisition, construction, and research activities; the FWS received $12.1 million for land acquisition, refuges, ecological services, and other activities; the USGS received $7.7 million for research, planning, and modeling; and the BIA received $0.5 million for water projects and restoration on tribal lands. See Table 20 below. The FY2005 enacted level of funding was less than the FY2005 Administration's request due to the omission of one proposed land acquisition project under the NPS. The request for $40.0 million to acquire mineral rights underlying Big Cypress National Preserve was not granted. The Collier Resources Company has mineral rights in the preserve and reached an agreement in principle to sell them to the DOI. Forty million dollars would have covered a portion of the cost of the mineral rights, estimated at $120 million. Appropriators did not include this funding in FY2004 appropriations because the agreement had not been formally approved and a DOI inquiry assessing the value of the mineral rights had been initiated. The House-passed and the Senate committee-reported bills do not explicitly provide funds for these mineral rights. In its report on the FY2005 bill, the House Appropriations Committee expressed concerns over the coordination and research towards restoring the South Florida ecosystem. The House Committee directed DOI to submit, by November 2004, a report describing the research projects to be funded by the NPS and USGS with FY2005 appropriations. Further, the Committee directed DOI to submit a report describing how it is implementing recommendations made by the General Accounting Office and National Academy of Sciences regarding coordination and management of Everglades research. The Senate committee report did not explicitly state this concern. However, a provision in the Senate committee bill provided that NPS construction funds for implementation of modified water deliveries to ENP are to be spent in accordance with the FY2004 Interior Appropriations law, which placed conditions on appropriations based on the monitoring of phosphorus pollution. This provision was enacted; see below for details. The enacted FY2005 appropriations provides $8.0 million for the Modified Water Deliveries Project, which is $4.8 million below the FY2004 enacted level of $12.8 million. According to the FY2005 law, funds appropriated in this act and any prior acts for this project will 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 (to be filed annually until December 31, 2006) 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 also were included in the House-passed and Senate committee-reported bills for FY2005 appropriations. 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 alteration in the Everglades. Provisions conditioning funds on the achievement of water quality standards were not requested in the Administration's budget for FY2005. (For more information see CRS Report RL32131, Phosphorus Mitigation in the Everglades , by [author name scrubbed] and [author name scrubbed].) 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 RL31621, Florida Everglades Restoration: Background on Implementation and Early Lessons , by [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]. CRS Report RL32131, Phosphorus Mitigation in the Everglades , by [author name scrubbed] and [author name scrubbed]. The Bush Administration's Competitive Sourcing Initiative would subject diverse commercial activities to public-private competition. The goal of this government-wide effort, first outlined in 2001, is to save money through competition between government and private businesses in areas where private businesses might provide better commercial services, for instance, law enforcement, maintenance, and administration. The initiative has been controversial, with concerns including whether it would save the government money and whether the private sector could provide the same quality of service in certain areas. For agencies funded by the Interior appropriations bill, concern has centered on the National Park Service, the Forest Service, and agencies and activities in the Department of Energy (DOE) that are funded through the bill. The Consolidated Appropriations Act for FY2005 placed spending limits on DOI and DOE competitive sourcing studies during FY2005, unless Congress approves the reprogramming of additional funds under revised reprogramming guidelines printed in H.Rept. 108-330 . For DOI, the cap is $3.25 million, and DOE agencies in the bill are limited to $0.5 million. Forest Service spending is limited to no more than $2.0 million. The law also specifies that agencies include, in any reports to Congress on competitive sourcing, information on the full costs associated with sourcing studies and related activities. The FY2005 House-passed bill sought to require the Secretaries of DOI, DOE, and Agriculture (for the Forest Service) to report annually to the House and Senate Appropriations Committees on competitive sourcing activities during the previous year. This language was not enacted. The FY2004 Interior appropriations law ( P.L. 108-108 ) also contained spending limits for competitive sourcing studies of agencies and required agencies to report annually to Congress on their competitive sourcing activities. These reporting requirements were repealed by P.L. 108-447 . P.L. 108-108 further required agencies to specify in their annual budget submissions the level of funding requested for such studies. In adopting the language, conferees expressed support for the "underlying principle" of the Administration's initiative, but concern that the effort was being conducted too fast for its costs and implications to be understood and "in violation" of guidelines on reprogramming funds. In particular, there was concern that the Forest Service was reprogramming money without approval. Language in the FY2004 House-passed bill sought to bar agencies from using funds in the bill to begin new competitive sourcing studies. The President threatened to veto the bill if this language was included, and it was not enacted. (For more information on competitive sourcing generally, see CRS Report RL32017, Office of Management and Budget Circular A-76: Selected Issues , by [author name scrubbed], and CRS Report RL32079, Federal Contracting of Commercial Activities: Competitive Sourcing Targets , by [author name scrubbed].) An ongoing controversy over conflicting water levels for upper and lower Missouri River Basin states was an issue during the markup of the Senate Committee on Appropriations of the FY2005 Interior appropriations bill. A provision to change a trigger that requires the U.S. Army Corps of Engineers (Corps) to implement drought conservation measures on the Missouri River remained in S. 2804 after a debate to have it removed during committee markup, but was not enacted into law. No similar language had been included in the House-passed bill. The drought conservation measures would suspend navigational releases from Missouri River reservoirs if storage at the reservoirs falls below a defined level. For the last few years, upper basin reservoirs have experienced low water levels during an ongoing drought in the basin, and navigation has continued in the lower basin although at a minimum service level and with a shortened navigation season. The current trigger to implement drought conservation measures established by the Corps' 2004 Missouri River Master Water Control Manual is 31 million acre-feet (MAF) of storage at a March 15 storage check. The trigger in S. 2804 was for the suspension of navigation if the system storage level was at or below 40 MAF at any time during the year (not just on March 15). The current storage level is 35.7 MAF; storage on March 15, 2005 is estimated to be between 34.9 MAF and 36.5 MAF. For more information on the Missouri River management debate, see CRS Issue Brief IB10120, Army Corps of Engineers Civil Works Program: Issues for the 109 th Congress , by [author name scrubbed] and [author name scrubbed]. CRS Report RL32373, Abandoned Mine Land Fund Reauthorization: Selected Issues , by [author name scrubbed] (pdf). CRS Report RL30444, Conservation and Reinvestment Act (CARA) (H.R. 701) and a Related Initiative in the 106 th Congress , by [author name scrubbed] and [author name scrubbed] (pdf). CRS Report RS21331, Everglades Restoration: Modified Water Deliveries Project , by [author name scrubbed] (pdf). CRS Report RS21402, Federal Lands, R.S. 2477, and " Disclaimers of Interest " , by [author name scrubbed]. CRS Report RL31621, Florida Everglades Restoration: Background on Implementation and Early Lessons , by [author name scrubbed]. CRS Report RL32244, Grazing Regulations: Changes by the Bureau of Land Management , by [author name scrubbed]. CRS Report 96-123. Historic Preservation: Background and Funding , by [author name scrubbed]. CRS Report RL33531, Land and Water Conservation Fund: Overview, Funding History, and Current Issues , by [author name scrubbed]. CRS Issue Brief IB89130. Mining on Federal Lands , by [author name scrubbed]. CRS Report RS21157, Multinational Species Conservation Fund , by [author name scrubbed] and [author name scrubbed]. CRS Report RS20902, National Monument Issues , by [author name scrubbed]. CRS Issue Brief IB10145, National Park Management , coordinated by [author name scrubbed]. CRS Report RL33806, Natural Resources Policy: Management, Institutions, and Issues , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. CRS Report RL31392, PILT (Payme nts in Lieu of Taxes): Somewhat Simplified , by [author name scrubbed]. CRS Report RS20702, South Florida Ecosystem Restoration and the Comprehensive Everglades Restoration Plan , by [author name scrubbed] and [author name scrubbed]. CRS Report RS20471. The Conservation Spending Category: Funding for Natural Resource Protection , by [author name scrubbed]. CRS Report RS20002, Federal Land and Resource Management: A Primer , by [author name scrubbed] (pdf). CRS Report R40225, Federal Land Management Agencies: Background on Land and Resources Management , coordinated by [author name scrubbed]. CRS Report RL30335, Federal Land Management Agencies ' Permanently Appropriated Accounts , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. CRS Report RL34273, Federal Land Ownership: Current Acquisition and Disposal Authorities , by [author name scrubbed] and [author name scrubbed]. CRS Issue Brief IB10076. Bureau of Land Management (BLM) Lands and National Forests , by [author name scrubbed] and [author name scrubbed], coordinators. CRS Report RL32131, Phosphorus Mitigation in the Everglades , by [author name scrubbed] and [author name scrubbed]. CRS Report RS20287, Arts and Humanities: Background on Funding , by [author name scrubbed]. CRS Issue Brief IB10020. Energy Efficiency: Budget, Oil Conservation, and Electricity Conservation Issues , by [author name scrubbed]. CRS Report RL30755, Forest Fire/Wildfire Protection , by [author name scrubbed]. CRS Report RS21442, Hydrogen and Fuel Cell Vehicle R&D: FreedomCAR and the President's Hydrogen Fuel Initiative , by [author name scrubbed]. CRS Report RL30647, National Forest System Roadless Area Initiatives , by [author name scrubbed] and [author name scrubbed]. CRS Report RS20852, The Partnership for a New Generation of Vehicles: Status and Issues , by [author name scrubbed] (pdf). CRS Issue Brief IB87050. The Strategic Petroleum Reserve , by [author name scrubbed]. CRS Report RL33990, Wildfire Funding , by [author name scrubbed]. Information regarding the budget, supporting documents, and related departments, agencies and programs is available at the following web or gopher sites. House Committee on Appropriations http://appropriations.house.gov/ Senate Committee on Appropriations http://appropriations.senate.gov/ CRS Appropriations Products Guide http://www.crs.gov/products/appropriations/apppage.shtml Congressional Budget Office http://www.cbo.gov/ General Accounting Office http://www.gao.gov House Democratic Caucus http://www.dems.gov/ House Republican Conference http://www.gop.gov/ Office of Management and Budget http://www.whitehouse.gov/omb/ Senate Democratic Conference http://www.democrats.senate.gov/ Senate Republican Policy Committee http://rpc.senate.gov/ Department of the Interior (DOI) http://www.doi.gov/ Bureau of Land Management (BLM) http://www.blm.gov/nhp/index.htm Fish and Wildlife Service (FWS) http://www.fws.gov/ Historic Preservation http://www2.cr.nps.gov/ Insular Affairs http://www.doi.gov/oia/index.html Minerals Management Service (MMS) http://www.mms.gov/ National Park Service (NPS) http://www.nps.gov/ Office of Surface Mining Reclamation and Enforcement (OSM) http://www.osmre.gov/osm.htm Office of Special Trustee for American Indians http://www.ost.doi.gov/ U.S. Geological Survey (USGS) http://www.usgs.gov/ Agriculture, Department of (USDA) http://www.usda.gov/ Department of Agriculture: U.S. Forest Service http://www.fs.fed.us/ Energy, Department of (DOE) http://www.doe.gov/engine/content.do Energy Budget http://www.mbe.doe.gov/budget/05budget/ Energy Conservation Programs http://www.eere.energy.gov/ Fossil Energy http://www.fe.doe.gov/ Naval Petroleum Reserves http://fossil.energy.gov/programs/reserves/npr/ Strategic Petroleum Reserve http://fossil.energy.gov/programs/reserves/spr/ Health and Human Services, Department of (HHS) http://www.dhhs.gov/ Indian Health Service (IHS) http://www.ihs.gov/ Advisory Council on Historic Preservation http://www.achp.gov Institute of American Indian and Alaska Native Culture and Arts Development http://www.iaiancad.org/ Institute of Museum and Library Services http://www.imls.gov/ John F. Kennedy Center for the Performing Arts http://Kennedy-Center.org/ National Capital Planning Commission http://www.ncpc.gov National Endowment for the Arts http://arts.endow.gov/ National Endowment for the Humanities http://www.neh.gov/ National Gallery of Art http://www.nga.gov/ Smithsonian Institution http://www.si.edu/ U.S. Holocaust Memorial Council and U.S. Holocaust Memorial Museum http://www.ushmm.org/ Woodrow Wilson International Center for Scholars http://wwics.si.edu/ | The Interior and related agencies appropriations bill includes funds for the Department of the Interior (DOI), except for the Bureau of Reclamation, and for some agencies or programs within three other departments—Agriculture, Energy, and Health and Human Services. It also funds numerous related agencies. H.R. 4568, the Interior and Related Agencies Appropriations bill for FY2005, was passed by the House (334-86) on June 17, 2004. The bill contained $20.03 billion. The Senate companion bill, S. 2804, was reported by the Senate Committee on Appropriations (S.Rept. 108-341) on September 14, 2004 and would have provided $20.26 billion. Both the House passed and Senate committee-reported bills reflected an increase over the President's FY2005 request ($19.69 billion), but a decrease from the FY2004 enacted level ($20.51 billion). Both FY2005 bills included $500 million for emergency firefighting for FY2005, with emergency funds available if certain conditions are met. FY2005 appropriations for Interior and related agencies ultimately were included in the Consolidated Appropriations Act for FY2005 (P.L. 108-447; December 8, 2004). The law contains a total of $20.09 billion for Interior and related agencies, including $493.1 million for emergency firefighting if certain conditions are met. These figures reflect two across-the-board rescissions in the law, of 0.594% and 0.80%. The FY2005 total is a decrease of $424.6 million (2%) from the FY2004 level, but an increase of $403.3 million (2%) over the FY2005 request. Also, the FY2005 total is more than ($59.4 million, 0.3%) the House passed level, but less than ($167.3 million, 0.8%) the amount reported by the Senate Committee on Appropriations. Prior to enactment of P.L. 108-447, a series of continuing resolutions were enacted to provide temporary funding for FY2005 for Interior and related agencies. The House, Senate, and conference committee debated many controversial policy issues during consideration of FY2005 funding. They included the appropriate funding level for wildland fire fighting, land acquisition, and the arts; agency competitive sourcing activities; agency maintenance backlogs; Indian trust fund management; Outer Continental Shelf leasing; filling the Strategic Petroleum Reserve (SPR); alteration of the Abandoned Mine Lands fund; snowmobiling in Yellowstone National Park; management of wild horses and burros on federal lands; categorical exclusions for grazing on Forest Service lands; and Missouri River management. Other contentious provisions related to lands and resources in Alaska, such as development of roads in the Tongass National Forest (AK); challenges to logging projects in Alaska; and an exchange of lands in the Yukon Flats National Wildlife Refuge (AK). Some of the controversial provisions (both general and Alaska related) were not enacted into law. |
The current tax system, with its graduated tax on individual incomes, its separate tax on corporate profits, its gift and estate taxes on the transfer of wealth, and its separate wage tax to fund the Social Security and Medicare systems, has many critics. It is said to cost the country in lost time, economic efficiency, trade, and contentment. Reform proposals have proliferated, ranging from a broader-based, flatter-rate income tax to scrapping the system altogether in favor of a national sales tax or some other form of national consumption tax. This report surveys some of the issues to be considered in debating such drastic tax changes, considering not only a broader based income tax but also three basic forms of consumption taxes: the Hall-Rabushka "flat tax," the value-added tax (VAT), and the national retail sales tax. After a brief overview of some of the current proposals, the sections that follow discuss economic efficiency issues, foreign trade issues, effects on different economic sectors, short-run adjustment costs, compliance and administration, and revenue and distributional implications. The idea of replacing our current income tax system has been a topic of perennial congressional interest. Although many recent proposals are referred to as "flat taxes," most actually go much further than merely adopting a flat-rate tax structure and would change the tax base from income to consumption. More recently, the President has indicated some interest in such fundamental tax reform, and his advisory commission has proposed a modified flat tax. Theoretically, one could construct a tax system using one or a combination of three main tax bases: income, wages, or consumption. Income-and wage-based taxes are familiar and relatively easy to understand. Under a comprehensive income tax, all income, whether from labor or capital, would be included in the tax base. A wage-based tax would be levied only on income from labor; income from capital would be excluded from the base. Obviously, wages provide a smaller tax base than income and would therefore require higher tax rates to raise the same revenue as a tax based on all income. With the exception of sales taxes, the American people are not very familiar with other forms of broad-based consumption taxes and so there is some confusion about how they might be measured and levied. The easiest way to understand the basis of consumption taxes is to first define and understand the economic concept of income. In its broadest sense, income is a measure of the command of resources that an individual acquires during a given time period. Conceptually, an individual has two options with respect to his income; he can consume it or save it. This relationship means that by definition income must equal consumption plus saving. This relationship helps in understanding how a comprehensive consumption-based tax might be levied at the individual level. An individual would add up all his income as he does under the current tax system but would then subtract out his net saving (saving minus borrowing) or add net borrowing. The result would produce a tax based on consumption at the individual level. A consumption tax could also be collected at the retail level as a retail sales tax on final consumption. (A retail sales tax exempts, in theory, the sale of intermediate goods including capital goods to be used in a business). Or it could be collected at each stage of the production process in the form of a value-added-tax (VAT). With the VAT, firms face a tax on gross receipts less purchases of materials, goods for resale and capital to be used in the business. A VAT can be implemented using either a credit-invoice method or a subtraction method. Another way of collecting the tax, the Hall-Rabushka flat tax, would split the VAT base between firms and individuals. Firms would deduct wages from their tax base and individuals would pay a tax directly on their wages. Although the point of collection differs (individual level, retail level, or firm level), when defined comprehensively, the tax base is the same: consumption. Regardless of the point or form of collection, however, a consumption tax is ultimately paid by the individual consumer. Because consumption is smaller than income, a comprehensive consumption tax would require higher tax rates than a comprehensive income tax to raise the same revenue, although with a low savings rate, the bases (and thus tax rates) are very close. Other developed nations have VATs (of the credit-invoice type), but also have income taxes. Their VATs do not replace income taxes, but rather finance a higher level of government spending. Most of these nations do not have a retail sales tax, which is an important subnational tax in the United States. There is currently no serious proposal to shift the entire tax system to a wage-based tax as such. The current proposals are almost all based on a switch to some form of consumption taxation, either a national sales tax or some form of value-added tax. They differ principally in their point of collection rather than their tax base. These proposals include several versions of the value-added tax widely used in Europe, a national sales tax such as those used in the states, and more exotic variations, such as the "Flat Tax" devised by economists Robert Hall and Alvin Rabushka and the Unlimited Savings Account or "USA" tax originally introduced in the 104 th Congress by Senators Dominici and Nunn. There is also some interest (and at least one serious proposal) in a broader-based, flatter rate income tax. No bill for this type of fundamental tax reform has had sufficient detail to be operational, and no such bill has ever received a floor vote. The President indicated that fundamental tax reform would be a major priority of his second term, although the shape of that reform is uncertain at this point. His advisory commission has included a modified flat tax (which included a tax on financial income) as one of the recommended options along with an income tax reform. Many of the issues discussed in this paper, especially sectoral effects on currently favored industries would also apply to a broader based income tax. Probably the most often repeated argument in favor of switching to a flat-rate consumption tax is that it will make the economy more efficient and will increase private savings. When evaluating this argument, however, comparisons should not be made between the current income tax system and an ideal consumption tax. Compared to a theoretically ideal tax (whether the base is consumption or income), the existing tax system will always appear flawed. For policy evaluation, therefore, a more appropriate comparison is between a theoretically pure consumption tax and a theoretically pure income-based tax. The economic efficiency or inefficiency of a tax system may be judged by its effects on behavior. To the degree that the tax system distorts economic behavior (from what it would be in the absence of the tax), it is economically inefficient. The distortion prevents the efficient allocation of resources. Basically, with the exception of lump-sum or head taxes, all taxes, regardless of whether they are based on income or consumption, distort behavior and affect the allocation of resources. Both an income and a consumption tax distort the choice between labor and leisure. For example, under either tax, the price of leisure is reduced relative to the consumption an individual could finance with an extra hour of labor. An income tax also distorts the choice between present and future consumption (saving). Under an income tax, the return to savings is subject to tax. This reduces the resources an individual will have available for consumption in the future, and hence raises the price of future consumption relative to the price of present consumption. In contrast, a tax on consumption is neutral with respect to the choice between present and future consumption. The relative price of future consumption in terms of present consumption is the same as if there were no taxes. In theory, adopting a consumption tax may or may not increase overall economic efficiency. Under a consumption tax which yielded revenue equal to an income tax, the tax rates would have to be higher than the tax rates on the income tax base because consumption is smaller than income. The higher tax rates under a consumption tax would increase the distortion between work and leisure choices. The efficiency gain from removing the present/future consumption distortions, therefore, might be offset by the efficiency loss inherent in the larger distortion between work and leisure decisions. Many economists have argued, however, that a consumption tax is superior in achieving economic efficiency (i.e., in leading individuals to consume and work in a more optimal fashion) because of the elimination of the distortion between present and future consumption. They base this argument on the simulated outcomes of inter-temporal models, which virtually always predict a gain in efficiency from the shift from flat rate income to flat rate consumption taxes. One reason for this predicted efficiency gain—which often does not occur with a shift from an income to a wage tax base—is that a consumption tax is the equivalent of a tax on wages and a lump sum tax on existing wealth. The lump sum tax allows tax rates to be much lower with a consumption base than with a wage base, even though neither tax the return to new investment. In fact, when an economy's saving rate is very low, the consumption tax base is quite close to the income tax base. (There are distributional consequences to this feature that will be discussed subsequently). Thus, even though tax rates may be higher under a consumption tax than under an income tax and increase the distortion between work and leisure, this increase is a relatively small effect—the lump sum tax on old wealth has made this efficiency gain possible. The existence, and even the magnitude, of this efficiency gain, however, is not entirely clear under a less abstract modeling of the tax. First, under current law the income tax imposes higher marginal tax rates on capital income than on labor income (primarily because of the corporate income tax). To replace both corporate and individual revenues by a flat consumption tax would require a higher consumption tax rate and the tradeoff between the labor leisure distortion and the present and future consumption distortion is less clear. There may be potential gain from moving from graduated tax rates to flat rates, but such gains could be accomplished within an income tax reform; moreover many consumption tax proposals include some form of relief for lower income individuals. Perhaps more importantly, there is a good deal of uncertainty about whether these intertemporal models actually reflect how people behave. The presumed sophistication and information requirements of such models is high and there is evidence and reason to believe that most individuals decide their savings behavior based on fairly straightforward rules of thumb that suggest savings does not respond positively to higher rates of return (although it could decline). There is even less evidence that individuals are able to shift their leisure (and therefore their working hours) over time, a behavior that is an important feature of many of these intertemporal models. If the behavioral responses are small, then the efficiency gains are small. There are certain practical aspects of consumption taxes, however, that may give them some advantages over income taxes. For example, the problems and complexities of measuring income from capital are eliminated under a consumption tax. Eliminating the current law differential in the tax treatment of different forms of capital could improve resource allocation and economic efficiency. In practice, of course, there may be pressure for differential taxes on different types of consumption goods, a differential that is quite feasible with the retail sales tax and with some forms of the VAT, but much less likely under a tax on consumed income. Moreover, in some types of taxes (particularly the retail sales tax) it is very difficult to separate out intermediate purchases from final purchases and administer such rules. As a result, some final goods are likely to escape the tax and some intermediate goods and capital goods are likely to be subject to the tax. It appears that, on the whole, switching from an income to a consumption tax would probably not produce great improvements in economic efficiency. Nonetheless, even small efficiency gains may be important because they continue year after year. However, similar gains might also be achieved though income tax reform. Intertemporal models also tend to predict an increase in savings in switching from income to consumption taxes and this effect is often viewed to be a positive result of a consumption tax (separate from the efficiency gains described above). An increase in the savings rate, however, cannot be determined to be necessarily desirable, since it trades off current consumption for future consumption. Moreover, under a consumption tax the old (retirees who are dissavers because they are drawing down their accumulated capital to finance consumption) would pay higher taxes and the young would pay lower taxes. Because of their higher tax liabilities, retired workers would have to reduce their consumption (or return to the work force). Since some of the increase in savings, at least in these models, is the result of a windfall tax on assets of the old, it is even more difficult to determine the extent to which the savings effects are desirable. For the young, a consumption tax is the equivalent of exempting the rate of return on savings from tax. Normally, the effect on savings of increasing the rate of return (via a tax cut) is ambiguous. There is a substitution effect—because the return is higher, one has to give up less consumption today in order to consume a given amount in the future. This lower "price" of future consumption encourages more of it. At the same time, there is an income effect—because the rate of return is higher one can actually consume more in the future, while saving less, allowing more consumption today. The net effect of these two forces is uncertain. A consumption tax has another important feature, however, that overwhelms this income effect. Unlike a mere exclusion of tax on the return, the consumption tax allows an up-front deduction for savings, but requires the payment of tax on both principal and return when consumption occurs in the future. Thus, individuals need to save today to pay these taxes due in the future; they can do so while still consuming more today because of their large tax cuts. Thus, while the young may consume some part of their tax cut, the old reduce their consumption by much more, and the overall effect is to increase aggregate savings in the economy. As with the case of efficiency gains, some of the results regarding the effects of a consumption tax on savings are based on intertemporal models which rely on somewhat idealized assumptions. For instance, they assume that all taxpayers have perfect information, and the sophistication to map out their consumption choices over a long period of time, and that they are certain that the tax system will not change during their lifetimes. If these idealized assumptions are relaxed, then the results are not conclusive that switching from an income tax to a consumption tax would increase savings. In addition, the empirical evidence regarding the effect of tax incentives on savings is inconclusive. For example, the Economic Recovery Tax Act of 1981 significantly reduced marginal income tax rates, expanded the availability of individual retirement accounts (IRAs), and accelerated depreciation deductions. Life-cycle models would predict that these changes should dramatically increase private savings, but that did not happen. Finally, it is critical to note that any transition rules that are enacted to mitigate the increased taxes on the elderly at the time of transition to a consumption tax would tend to reduce the stimulus to new saving. A crucial part of the savings effect is the reduced consumption of the old; moreover, any increase in taxes on the young would be more likely to come partly at the expense of savings. Indeed, if enough transitional relief were given to the elderly, the income effect could be reduced to a point where there may be no effect, or even a negative effect, on new saving, at least in the short run. In addition, the elderly, particularly those with high incomes, often do not exhibit the dissaving associated with life cycle model savings, and it then becomes crucial to determine their motive for leaving bequests. Because of these ambiguities and the lack of conclusive empirical evidence, it cannot be determined definitively that a consumption tax would significantly increase the level of saving in the economy. Among the arguments for switching from an income tax to a consumption tax is the assertion that a consumption tax would make U.S. industries more competitive and help the U.S. balance of trade. When analyzing the effects of tax policy changes on international trade it is important to differentiate between a nation's perspective and a firm's perspective. A nation engages in trade because through trade it can obtain the goods and services its people want or need at a smaller resource cost than if it were to produce those goods and services itself. A nation exports its products as a means of paying for what it imports. On the other hand, a firm's ultimate goals are to sell its products and maximize its profits. Exports provide a means to achieve these goals. Popular perceptions about trade tend to reflect a firm's perspective on trade. Most people believe that if the United States could produce goods at costs comparable to or lower than those abroad, our exports would increase and our imports decrease. This in turn would improve our trade performance and reduce our trade deficit. In the aggregate, however, the United States is not like a firm that can continually capture larger shares of the world market by producing output at lower costs than foreign firms. A nation engaging in trade cannot be a market winner in all products. Indeed, without borrowing and lending (international capital flows), trade between nations would always be balanced. The only way trade can be out of balance is if one nation lends another nation the resources to pay for the extra goods it imports but does not pay for with its current exports. Capital flows and trade balances are always mirror images of one another; a capital inflow produces a trade deficit while a capital outflow produces a trade surplus. Hence, tax policy designed to reduce the cost of traded U.S. goods and services will have little effect on trade performance or the balance of trade. For example, consider the argument that if the United States were to replace its income tax with a border-adjustable VAT, then U.S. trade performance would improve and the trade deficit would diminish. Under the World Trade Organization (WTO) rules, indirect taxes such as a VAT may be rebated on exports and imposed on imports. Direct taxes, such as income taxes, however, cannot be adjusted at the border. The existence of these border tax adjustments has led some to conclude that nations with VATs have a trade advantage over the United States. On the surface, this appears to be a plausible argument; reduce the price of U.S. goods and exports will rise, increase the price of foreign goods and imports will fall. Trade, it is said, will move into balance. A simple response to this argument is that most European countries with VATs also have income tax structures similar to the United States. Their VATs are not displacing income taxes; they are permitting a higher level of government spending. But, at a more fundamental level, border tax adjustments don't matter, other than in the composition of trade (and in this case, they serve to preserve relative prices in each country in accord with that country's own consumption taxes). This is because the balance of trade is a function of international capital flows, not the flow of traded goods and services. Therefore, in the absence of changes to the underlying macroeconomic variables affecting capital flows (for example, interest rates), any changes in the product prices of traded goods and services brought about by border tax adjustments are ultimately offset by exchange-rate adjustments. Border-tax adjustments would have no effect on a nation's balance of trade or its basic competitiveness. That is not to say that changes in the tax structure could not influence trade levels or patterns. Changes in tax policy which affect the underlying macroeconomic variables that govern capital flows (for instance, by increasing either public or private savings, which in turn would lower interest rates, or by making investment in the United States more attractive) could affect the balance of trade. For example, if a tax policy change caused domestic savings to rise, then a likely outcome would be a fall in interest rates and a reduction in the net inflow of capital, which would reduce the level of imports relative to exports. This effect of capital flows is transitory, however. As foreigners adjust their portfolios these effects would reverse, as the smaller stock of capital would result in smaller earnings and an increase in the net inflow of payments (outside of trade). These last effects would be small but permanent and offset in present value the initial short run effect. In addition, tax reforms which increase the overall efficiency of the U.S. economy will ultimately have a positive effect on this nation's terms of trade. Defined simply, terms of trade reflect the amount of domestic resources that have to be given up in order to acquire a given quantity of imported goods. If a nation's terms of trade improve, it gives up fewer domestic resources to acquire the same level of imports. If its terms of trade deteriorate, then it gives up more domestic resources to acquire the same level of imports. Taxes distort the allocation of resources in the economy. If tax reforms reduce the distorting effects of the tax system, then resource allocation will become more efficient which will increase domestic economic welfare. When the allocation of domestic resources is less distorted, domestic goods can be produced at a lower total resource cost than they could before the tax reforms. So, to acquire the same amount of imported goods, the nation gives up fewer domestic resources, which represents an improvement in the U.S. terms of trade. The gain, however, is likely to be small. Finally, tax policy can and does affect the composition of trade. For example, if the tax change increased the tax burden of some firms relative to others, then those firms with an increased tax burden might see their market share and their exports decline. On the other hand, those firms that experienced a relative decline in their tax burden might see their market share and their exports increase. These relative shifts in the inter-firm tax burdens, and the resultant shift in market output, could affect the composition of both exports and imports. Indeed, the purpose of allowing rebates of value added taxes is to prevent one country's pattern of differential consumption taxes from being imposed on another by stripping out the relative taxes on exports and allowing the importing country to impose their own pattern of taxes. The proposed tax reforms would affect the allocation of economic resources. Some sectors, generally those that are capital intensive and growing, will gain. Slower growing firms will lose. Other sectors that might be adversely affected by broadening the base to more fully reflect income and by removing itemized deductions are the non-profit sector, the state and local sector, the residential real estate industry, and the health care sector. These are sectors that receive special benefits under the income tax. Proposals to shift the tax base from an income base to a consumption base (most proposals), while generally increasing business investment, would differentially affect firms, depending on their growth rate, capital structure, and employee benefit structure. They would also make investment in pensions, insurance policies, owner-occupied housing, and tax-exempt bonds relatively less attractive, and investments in ordinary stocks and bonds more attractive. Firms and sectors that would be adversely affected by tax change may face a difficult transition period, which could lead to some economic disruption. Moreover, for certain types of tax structures, there would be a need for a major one-time price inflation to avoid an economic contraction. Some tax revisions present design challenges regarding the treatment of some industries, such as financial institutions. These firms and sectors are likely to be opposed to this type of tax shift: Most states rely on the federal government for income tax administration and compliance, and to some extent conform to the federal tax base. States would either face increased enforcement costs and lost revenues if they retained current rules, or they would have to adapt their systems to the federal system. Also, for the reform proposals that do not tax capital income, tax-exempt bonds would become less attractive, and borrowing by states and municipalities more costly. Also, proposals that disallow the deductibility of state and local taxes would make increases in these taxes more costly to taxpayers. Finally, for some proposals state and local governments would need to remit taxes on employee fringe benefits. Generally, businesses include receipts in income and deduct costs. Owner-occupants of housing do not include the imputed income (rental value of living in the house), while mortgage interest and property taxes remain deductible. Thus, the federal income tax favors owner-occupied housing. Changes in the tax structure that restrict deductions of interest and taxes or that exempt income from new investments from tax would divert investment out of this sector and into the business sector. The likely magnitude of this effect is uncertain. Proposals that would eliminate the charitable contributions deduction could decrease charitable giving to some degree. The incentive for higher-income individuals (and, hence, charitable giving to the recipients of their contributions) would be most affected, since they are the ones who itemize. Non-profit institutions might also need to remit taxes paid on fringe benefits for their employees under some proposals. Health insurance fringe benefits are favored under current tax law, which allows firms a deduction for contributions but does not include benefits in employees' income. Flat-tax proposals that would eliminate the employer deduction might discourage firms from offering health insurance. Indeed, proposals that provide wage exemptions would make health plans overtaxed relative to wages for low-income individuals who have not exhausted a wage exemption. Sales tax and VAT structures might, however, exempt medical care from the base, lowering its relative price. It is extremely difficult, however, to exempt a product under a subtraction-method VAT. A subtraction method VAT taxes income minus intermediate goods, so that any tax paid in the intermediate states of production would still affect the tax on the final product. Credit-invoice methods, where firms pay a tax (which could be zero) on total receipts and get a credit for previous taxes can be used to vary tax rates and exempt goods and services. The VAT proposals have been for subtraction method approaches. Pensions are favored under current tax law because they are effectively tax exempt (treated on a consumption-tax basis). While firms would still have reasons to provide pensions, proposals that would extend this treatment to all investments would make pensions relatively less attractive, and might discourage their use. If some individuals now save more through a pension plan than they would on their own, overall savings could be adversely affected as well. Currently tax-favored insurance policies (e.g., whole life insurance) would also become relatively less attractive. A consumption tax would encourage investments in business equity capital. In the case of the flat tax, or a VAT, the firms would not be allowed interest deductions and new investments would be expensed rather than depreciated. Firms that are growing slowly, or contracting, would find expensing of new investment to be of little benefit over annual depreciation deductions. Firms that rely more heavily on debt would also find their tax bills rising. Investment would be favored under a sales tax because investment goods are exempt. Some proposals would tax certain employee fringe benefits, which would increase the relative cost of compensation for firms that have a large share of these fringe benefits in their benefit package. Growing firms that rely heavily on equity and offer few fringe benefits would be the beneficiaries of these tax revisions. The financial sector (banks, insurance companies, investment brokers), currently accounting for substantial corporate tax, is difficult to tax under a consumption base. Owner-occupied housing cannot be taxed directly, but can be accommodated easily by leaving it out of the system. One of the most difficult issues to address in considering a shift to consumption taxes is the transition from the current system to the new tax regime. While all shifts to a consumption tax cause some common transitional disturbances and windfall gains and losses, the most serious problems arise from a shift to a national retail sales tax or to a value added tax. In these cases, a tax formerly largely collected from individuals is now collected at the firm level—either from retailers on total sales or from both final and intermediate producers' value added. Flat taxes avoid this problem but can result in confiscatory taxes on existing assets. Holding prices fixed, these firms would need to reduce payments to workers to retain profit levels. In fact, many firms would not have enough of a profit margin to pay the tax without something else—either prices or wages—adjusting. Consider, for example, a grocery retailer that may have a 1% or 2% profit margin now owing a tax equal to 20% of receipts. This firm simply does not have the cash to pay the tax. If it is difficult to lower wages (and presumably it would be), a significant one-time price inflation, to allow these costs to be passed forward in prices instead, would be required to avoid a potentially serious economic contraction. Note that the price increase, were it possible to implement correctly and precisely, would solve the transition problem because although prices would rise, individuals would have more income to purchase the higher priced goods—and demand would not fall. It is difficult, however, for the monetary authorities to engineer such a large price change. Moreover, even with the monetary expansion in place to do so, the imposition of such a tax would be disruptive if firms are reluctant to immediately raise prices, again leading to an economic contraction. That is, firms could contract their business, or even close down, until output had contracted enough to raise prices. These disruptions are not minor in nature—imagine the difficulties of engineering and absorbing a one-time price increase that is likely to be close to 20% (the level, approximately, that might realistically be needed to replace the income tax). Even if such an inflation could be managed, there are always concerns that any large inflation could create inflationary expectations—it's hard to manage a single one-year price increase. In fact, economists who judge a consumption tax to be superior to an income tax may nevertheless be skeptical about the advisability of making the change because of these transition effects. Despite the extensive analysis of the economic effects of fundamental tax reform, however, little attention has been devoted to potential short-run contractionary effects, particularly of proposals that would shift the liability for tax payments from individuals to businesses. One may note, however, that when a major macroeconomic forecaster (Roger Brinner from DRI/McGraw-Hill) modeled a VAT replacement in a Joint Committee on Taxation study, he found output falling over the first five years, reaching a height of 12.5 % in the fourth year. (The other forecaster did not simulate a VAT, but only a flat tax which does not require this price accommodation; the remaining modelers had full employment models). Although the short run disruption from the retail sales tax and the VAT is most pronounced, any shift to a consumption tax will likely cause short term economic contraction due to sectoral shifts. In the Joint Committee on Taxation study, both macroeconomic modelers who used cyclical models (that permitted unemployment) projected the flat tax, which continues to tax individuals on their wages, to cause contractions (albeit smaller) in the short run. The flat tax also produces some transitional effects on cash flow that can be quite severe for owners of assets because it does not require a price accommodation. A consumption tax can also be characterized as a wage tax plus a lump sum tax on old capital. That is, it taxes the sources of income used, sooner or later, for consumption purposes. (Individuals will eventually consume out of new assets but the cost of those new assets will also have been deducted from income when acquired.) One explicit manifestation of this effect is that businesses that have already purchased assets and inventories, in the expectation of being able to deduct their costs over a period of time (under a fixed depreciation schedule for plant and equipment and when sold for inventories), will no longer be able to take such deductions. If a firm is constantly growing, then the ability to deduct new investments in full will more than compensate for this loss of old deductions, on a cash flow basis (although the value of the firm will still fall). But for a firm that is not growing, or is liquidating, or for an investor who wishes to shift from a physical ownership (such as real estate) to financial asset, tax liability could rise dramatically. Consider the following example. Suppose an investor purchases a building for $450,000, with a mortgage of 95% ($427,500). Two years later, the price has increased to $500,000 and he has taken $23,000 of depreciation deductions; to simplify suppose he has refinanced to maintain the same mortgage. He decides to sell and use the proceeds to buy a financial asset (such as a corporate stock). Under current law, he would measure gain subject to tax as the sales price of $500,000 less the basis (original cost of $450,000 less $23,000 in depreciation, or $427,000). This gain would amount to $73,000 which is the sum of the appreciation in the property of $50,000 and the depreciation he has already taken. Assuming for simplicity a 20% tax rate, he would pay capital gains tax of $14,600. He pays the mortgage of $427,500, and is left with net cash of $57,900. Suppose, however, that a flat tax (consumption tax) had been enacted in the interim at the same rate. Under the flat tax, he would pay a 20% tax on $500,000, or $100,000. One can see that this tax is more than confiscatory: after repaying the mortgage of $427,500 and paying the tax of $100,000 he has a loss in cash flow of $27,500. Why does this happen? It happens because the flat tax is collected in a way that does not require a price increase and the lump sum tax on assets falls solely on the equity claim to an asset. The holder of the mortgage has had no loss in value. With either a retail sales tax or a VAT and price accommodation, the investor would be left with $73,000 in cash, whose purchasing power has decreased by 20%. The mortgage holder's asset would also lose 20% in value. Thus, the lump sum tax is allocated to both debt holders and equity holders. The problem with the flat tax would not occur under another form of consumption tax that does not require a price accommodation—a direct tax on consumed income. Under this approach, individuals would begin with the income tax base, and deduct net investment or add net withdrawals of investments to income. With this type of tax, both financial and physical investments would be included in the calculation, and the individual would be able to deduct the mortgage repayment as an investment. The direct tax on consumed income has not proven to be very popular, however, as it would complicate rather than simplify tax calculations for the individual and require unfamiliar and probably unpopular tax rules, such as including loans in taxable income. One could avoid this cash flow problem under the flat tax by allowing the recovery of depreciation, inventory and basis. Such revisions would be costly to include, and would require much higher tax rates, perhaps for a long period of time. They would also zero out the tax for many firms. The lump sum tax on old capital is an important contributor to the projected efficiency gains for switching to consumption taxes, the major reason that so many economists favor a consumption base. Note also that these physical effects on capital, and their variations across types of assets, should also be transmitted to stock prices. If a tax is levied at a 20% rate, with inflation to fully accommodate, all consumption prices would rise by 25%. A dollar of financial (or physical) assets can purchase only 80% of the real consumption goods it could purchase in the past. If there is no inflation, the nominal price of consumption goods should be constant and debt retains its purchasing power, but since new assets can be purchased at a 20% discount, the value of a firm's old capital would fall by 20%. If the firm has no debt, the stock should fall by 20%; if a third of its assets are financed by debt (typical of the economy) the stock should fall by 30%; if half is debt, the stock should fall by 40%. Individuals who have borrowed to buy stock could be significantly affected. The complexity and cost of the current tax system is one of the most potent arguments used by the tax reform advocates. Each of the proposals discussed in this paper is advertised to be simpler and less costly to comply with and to administer than the current income tax. Even tax evasion is sometimes blamed on the complexity of the income tax. Easing the burdens of taxpayers in complying with the tax system is one of the biggest selling points for the "flat tax" and other tax simplification proposals. The current system is said to be a nightmare of complexity, requiring taxpayers to read and understand volumes of tax law, regulations, and instructions, and to complete page upon page of complicated forms. The Internal Revenue Service (IRS) itself says it takes taxpayers an average of 13 hours and 29 minutes to prepare an individual income tax return (Form 1040). The cost in taxpayer time and expenditures for the individual income tax has been estimated at $67 billion to $99 billion. Costs to big business have been estimated at $2 billion. The complexity is accused of contributing to the perception of unfairness, since the rich are seen as able to hire experts to help them escape their fair share. Two issues immediately present themselves: (1) how much of a burden is the current system, and (2) to what extent would the tax reforms currently contemplated relieve this burden? Certainly the current system is complex. The Internal Revenue Code is thousands of pages long, and the regulations interpreting it run to tens of thousands of pages. The taxpaying public must file hundreds of different types of forms and schedules; time spent on taxes has been estimated at 2-8 billion hours for individuals and 800 million hours for businesses. These kinds of numbers are a bit misleading, however, because they do not apply to most taxpayers. Most of the complex issues are of no concern to most taxpayers. Fewer than 35% of individual taxpayers itemize deductions. (The "very popular" mortgage interest deduction is claimed on less than 29% of returns and the charitable contribution deduction on about 31%.) Fewer than 16% of individual returns report business or farm income or loss, fewer than 8% rental income or loss, and fewer than 5% partnership or S-corporation income or loss. (These percentages overlap.) Businesses do face more complexity and compliance burden under the tax system than do most individuals, but it is hard to know its real extent. A national sales tax or value-added tax that collected all taxes from businesses would obviously relieve the compliance problems of individual taxpayers, since they would need to file no returns at all. Business taxpayers would not necessarily have compliance costs reduced by a VAT, however; depending on how the taxes were structured, businesses might find themselves facing two largely incompatible accounting systems. For financial purposes, creditors and stockholders would still require net income calculations, with depreciation, inventories, and all the other accrual accounting conventions. At the same time, the tax system would require value-added computations on a cash-flow basis. A flat tax with a single rate would not, by itself, do much to simplify things for most individual taxpayers. In fact, for many individuals, the current system is a flat tax with a single rate and a large exemption. Almost 41% of all individual income tax returns currently either owe no tax or are taxed at a 10% rate. The flat tax, therefore, would not represent much of a simplification for many individual taxpayers, who are already subject to a similar system, nor for larger businesses, which would be relieved of only the marginal accounting costs associated specifically with the income tax. Its simplifications would mostly benefit smaller businesses and individuals with more complex income tax filings. Individuals with businesses, however, would be required to file two returns, one for the business and one for their wage income. If a VAT or retail sales tax were to provide a mechanism to relieve the burden for the poor, though a credit system, as many propose, individuals would still have to file returns to claim the credit. The current tax system relies heavily on the uncompensated ("voluntary") labor of the taxpaying public, which reduces the government's administrative costs considerably. In FY2003, IRS collected around $1.9 trillion with a budget of about $9.8 billion, or a cost of less than ½ cent per dollar collected (not counting costs to taxpayers). Most of the proposed tax reforms appear to rely even more heavily on "voluntary" taxpayer efforts. Many proposals contemplate a reduced IRS presence in taxpayers' lives, and some even suggest abolishing the IRS altogether. Except for the national sales tax proposals that would be collected by the states, no proposal has specified how collection and enforcement activity is to be reduced. Many of the problems that create administrative costs in the income tax system, such as verifying inventory or depreciation accounting, would be reduced or eliminated under most proposals, but major ones would still exist. A VAT or partial VAT would involve every business entity, and businesses are the source of most of IRS's current enforcement costs. Administrative costs often arise from taxpayers' attempts to avoid paying taxes, and no tax reform will produce a system in which people do not wish to avoid taxes. Another hope for the tax reform proposals is that a new tax structure would reduce transactions taking place outside the tax system. This may depend on what part of the "underground" economy is meant. The "informal" economy, which involves evading taxes on legal activities, is partly a function of tax rates. Reducing rates would reduce the rewards of evasion and thus the incentive to cheat (but some proposals would result in a higher marginal rate for most smaller taxpayers, 17% instead of 10%, for example). For the illegal economy, where tax evasion is normally a minor part of the criminal activity, there is no reason to expect any outcome except continued evasion, although a different tax structure would alter the way in and degree to which income avoids tax, and, depending on behavioral responses, the actual burdens. For example, under an income tax, producers in an underground market pay no taxes, while their customers who operate in the legal market do. Under a sales tax, producers effectively pay taxes on income when it is spent in the market; their customers pay no tax on the segment of income that reflects value added by the illegal part of the market (although tax is paid on intermediate inputs). In many ways certain forms of value added taxes and, to a greater extent, retail sales taxes increase the incentive for firms to avoid tax. For a retailer with, say, a 2% profit margin, the benefit of avoiding a profits tax is less than one percent of profits. If the retailer stands to save 20% of each dollar, the incentive to avoid tax is much greater. That is the reason that many tax administrators would recommend the invoice credit form of the VAT used by Europeans (so that firms present evidence on their intermediate purchases which helps to monitor the behavior of the seller) rather than the subtraction method, where firms subtract from intermediate purchases from their tax base. It is also a reason that many tax scholars doubt that a high retail sales tax is feasible, and indeed no such high rate of the retail sales tax exists anywhere. Many of the tax reform proposals have not been subject to detailed analysis. Based on those analyses that have been done, however, a number of the flat-tax proposals could, in their current form, lose revenue, perhaps substantial amounts. They would also reduce the progressivity of the tax. Most proposals have been designed to be revenue neutral, but have not been evaluated by official revenue estimators. The Treasury Department, however, has analyzed a version of the flat tax with a proposed rate of 17%, finding a revenue shortfall. (This estimate, however, was made in 1995 before the major tax cuts were enacted.) The Treasury found that the revenue-neutral flat-tax rate in the proposal, given the level of exemptions (ranging from about $10,000 for a single individual to about $30,000 for a family of four), would be around 21% (20.8%), about four percentage points above the proposed permanent rate of 17%. Alternatively, the 17% rate could be maintained and the exemptions cut by over half to maintain revenue neutrality. With neither revision, Treasury estimated the proposal would lose $138 billion annually. There has been considerable dispute about whether the 23% tax rate proposed for the Fair Tax, a national retail sales tax with a rebate for low income families would be adequate to replace the income tax (and payroll tax). Reasons for the dispute include technical questions about the requirements to keep government spending fixed in real terms, the degree of evasion, the effects on economic growth, and whether the tax is replacing the current level of tax revenues following the recent tax cuts or the level after these tax cuts expire. Other proposals with lower rates and/or more exemptions would presumably lead to larger revenue losses. Adding deductions, such as the payroll tax deduction, or restoring itemized deductions, such as those for mortgage interest and charitable contributions, would cause larger revenue losses. Value-added taxes or sales taxes (which are equivalent to the flat tax except that they have no exemptions) could presumably raise adequate revenue at lower rates if the base were kept broad. The required rates in other proposals will depend on the base. Any revenue losses would either lead to higher deficits and debt or require spending cuts; generally the latter option has been proposed. Some proponents have incorporated in their plans the presumption that tax rates can be lowered in the future due to economic growth. It is important to note that a number of these taxes have a consumption base; thus any growth that arises from increased savings would contract, rather than expand, the tax base in the short run. Increases in labor supply would increase the tax base. Our knowledge of the likely effects on labor supply and savings is very limited, however. Any flattening of the tax rates would have distributional consequences across income classes. In addition, a switch from an income to a consumption base for taxation could cause large changes in the distribution of taxes across generations and family types as well as income classes. Holding revenue constant, flat-tax proposals would reduce tax burdens on higher-income individuals; if the earned income tax credit (EITC) is repealed, the burden would rise on low-income individuals, as well as the middle class. Based on the 21% tax rate, and using percentage change in disposable income as a measure, poor individuals would experience decreases of 6%-7% under the flat tax and middle income individuals decreases about 3% to 5%, while the highest income class will gain about 9%, according to the Treasury analysis (again based on estimates before the recent tax cuts). These effects would be more pronounced if revenue neutrality were achieved through lower exemptions rather than a higher tax rate. There are, however, conceptual problems in assessing distribution of consumption taxes. Value-added and sales taxes would reduce tax progressivity further because they do not permit exemptions, unless a credit mechanism were introduced. Proposals with a graduated rate structure would be more progressive than other proposals, but they have not been closely examined by the Treasury or the Joint Committee on Taxation. Proposals to shift the tax base from an income to a consumption base (most proposals) would shift the tax burden substantially across generations. The flat tax, for example, has a consumption base, although it appears to be a wage tax for individuals. The burden of tax would be shifted from wages and capital income to consumption, which is equivalent to wages and old capital (both principal and return). Since older individuals own capital, the burden would tend to be shifted to those individuals. The ways in which a consumption tax burdens old capital are complex, and the incorporation of generations as well as income in distributional analysis is limited at this time. In general, however, younger individuals who are in taxable status and who will save substantial sums over their lifetimes would benefit relatively from the tax, while middle and higher income older individuals consuming assets would bear a greater burden. Wealthy individuals would have their tax burdens reduced over their lifetime if they maintain and increase their assets. Poor individuals with little savings over their lifetime would be relatively unaffected by the change in the base, as long as transfer payments are indexed to changes in the price level needed by a tax revision. The rate structure is more important for these low-income individuals. The marriage neutrality of the tax system is a function of the tax structure, not the choice of tax base -income or consumption. Hence, both an income and a consumption based tax can be marriage neutral if the accompanying tax structure is designed appropriately. Marriage penalties and/or bonuses can be avoided if taxes are levied on individual rather than family income or consumption and if standard deductions and tax rate brackets for married couples are twice the size of those for single taxpayers. Under the current income tax when married couples are compared to single filers, marriage tax penalties are confined to very low-income married couples who claim the earned income tax credit and to high-income married couples above the 25% marginal income tax threshold. All other married taxpayers receive marriage tax bonuses, or at worst, a neutral tax treatment when compared to two singles with the same combined income. A flat-rate consumption tax, with two filing statuses -married and single, and with a standard deduction for married couples that is twice the size of the standard deduction for a single individual would eliminate all marriage tax penalties and bonuses. The same result, however, could also be achieved under an income tax by adopting a single tax rate and standard deductions that are twice as large for married couples as for single individuals. There are no marriage bonuses or penalties with a sales or value added tax. | The current income tax system is criticized for costly complexity and damage to economic efficiency. Reform suggestions have proliferated, including a national retail sales tax, several versions of a value-added tax (VAT), the much-discussed "Flat Tax" on consumption (the "Hall-Rabushka" tax), the "USA" proposal for a direct consumption tax, and revisions of the income tax. The President has indicated that major tax reform will be a priority item in his second term, and his tax reform commission has included a modified flat tax as one of its options. Most reform proposals are based on the notion that switching to a consumption tax base or exempting savings from tax would increase the savings rate and improve economic efficiency. Although theoretical inter-temporal models predict that saving and efficiency would increase, evidence from past tax cuts does not bear out this prediction. Any effect on savings would depend crucially on the transition provisions. It is also argued that these taxes could improve the country's trade balance. Trade balances, however, depend on capital flows and would be affected by these tax changes only if they do bring about an increase in the U.S. savings rate. There is no reason to expect trade benefits from any of the tax changes per se. A broader tax base would have diverse effects on economic sectors. Sectors that might be adversely affected include the non-profit sector (loss of charitable contributions deductions), the state and local sector (loss of state tax deductions, change in their own tax structures), and the health care sector (taxation of fringe benefits). Shifting the tax base from income to consumption, while generally increasing business investment, would differentially affect firms, depending on their growth rate, capital structure, and employee benefit structure. Such a shift would also make investment in pensions, insurance policies, owner-occupied housing, and tax-exempt bonds relatively less attractive. There are macroeconomic problems with a transition to a consumption tax, and these problems are extremely serious for transiting to a system that collects all revenue from business (VAT or retail sales tax). For these tax shifts, avoiding a serious economic contraction would be quite difficult. The flat tax would not have these problems but it can cause significant windfall losses in asset values. A flat-rate tax is also intended to simplify the system and reduce compliance and administration costs. Many of the proposals, if kept simple while being enacted, would reduce costs; however, many individual taxpayers are currently under a flat-rate income tax, so their lot would not be much improved. An enacted law, however, might not be as simple as the proposals. Consumption taxes also change the distribution of tax burdens, especially on generations. The old consume more of their incomes, and their burden would increase; younger people save more, and their burdens would fall. Higher income individuals would see a reduction in taxes. This report does not track current legislation and will not be updated. |
Short selling was best described by Daniel Drew, the Gilded Age speculator and robber baron: "He that sells what isn't his'n, must buy it back or go to prison." Short sellers borrow shares from a broker, sell them, and make a profit if the share price subsequently drops, allowing them to buy back the same number of shares for less money. In other words, short selling is a bet that the price of a stock will fall. Short sellers have always been unpopular on Wall Street. Like skeletons at the feast, they seem to stand against rising share values, expanding wealth, and national prosperity. However, most market participants recognize that they provide a valuable service to the extent that they identify companies and industries that are overvalued by investors in the grip of irrational exuberance. They may also provide a curb against manipulators who spread false news or otherwise attempt to artificially boost a stock price. By bringing such valuations down to earth, short selling can prevent economically wasteful over-allocation of resources to firms and sectors. Another persistent complaint against short sellers is that they cause artificial price volatility. A form of manipulation common in the 19 th century was the "bear raid"—a gang of speculators would sell a stock short, causing the price to drop. They would follow with another wave of short sales, depressing the price still further, and so on, until the stock's price was driven to the floor. In the 1930s, the Securities and Exchange Commission (SEC) adopted a regulation to prevent bear raiding. The "uptick rule" stated that a short sale may occur only if the last price movement in a stock's price was upward. This prevents short sellers from piling onto a falling stock and setting off a downward price spiral. In the words of a standard securities law textbook, the tick test (and related rules) "seem pretty well to have taken the caffeine out of the short sale." In 2007, the SEC concluded that growth in the market made the rule unnecessary, and it was repealed. However, in recent years, complaints about manipulative short selling have reappeared. Many shareholders and officers of smaller firms have identified "naked" short selling as a source of price manipulation and have criticized the SEC's enforcement record. At the same time, the SEC has identified short selling in connection with spreading rumors as an abuse that may raise fears about the solvency of the target firm and cut off its access to credit, potentially leading to the destruction of the firm, as was the case with Bear Stearns in March 2008. A short sale always involves the sale of shares that the seller does not own. The buyer, however, expects to receive real shares. Where do those shares come from? Normally, they are borrowed by the broker from another investor or from a brokerage's own account. This is usually not difficult to do if the shares are issued by a large company, where millions of shares change hands daily and where many shares are not registered to the actual owners, but are held in "street name," that is, in the broker's account. With smaller corporations, however, the number of shares in circulation may be limited, and brokers may find it difficult to locate shares to deliver to the buyer in a short sale transaction. When shares are not located to "cover" a short sale, the short position is said to be naked. If shares are not found by the time the transaction must be settled, there is a "failure to deliver" shares to the buyer. If it occurs sporadically and on a small scale, naked short selling does not raise serious manipulation concerns. However, when the number of shares sold short represents a significant fraction of all shares outstanding, there may be a strong impact on the share price. In such cases, when naked short selling creates a virtually unlimited quantity of shares, a market based on supply and demand can be seriously distorted. The SEC notes that "naked short sellers enjoy greater leverage than if they were required to borrow securities and deliver within a reasonable time period, and they may use this additional leverage to engage in trading activities that deliberately depress the price of a security." Opponents of naked short selling also charge that by permitting short sales to occur when there is no possibility of actually delivering shares to the buyers, brokers and dealers accommodate manipulation. When naked short selling drives prices down, holders of the stock understandably feel cheated. They do not believe the stock is overvalued; they are not selling; but the price drops anyway. It is important to note that naked short selling is not always evidence of intent to manipulate prices. Under certain circumstances, a market maker may engage in naked short selling to stabilize the market. For example, assume that there is a sudden flurry of buy orders for a stock. The market maker may judge the buying interest to be temporary and not justified by any real news about the company's prospects. It may be the result of a questionable press release or a rumor in an Internet chat room. The market maker may choose to sell short to avoid what in its view would be an unjustified run-up in the stock's price. In this situation, naked short selling by the market maker may protect investors against manipulation. It is also worth noting that while restrictions on short selling discourage certain forms of manipulation, they may encourage or facilitate others. Manipulations that involve artificially inflating stock prices are probably more common than techniques (like naked shorting) that seek to depress them. Rumors, false press releases, and unexpected purchases may all cause sudden run-ups of stock prices, which may be followed (in the classic "pump-and-dump" fraud) by sudden collapse, as the manipulators sell their shares to the unwary. Without short selling as a counterweight, the magnitude and duration of such fraudulent run-ups are likely to be greater Until July 2008, the SEC viewed the problem of naked shorting as largely confined to smaller firms, particularly small-capitalization "penny" stocks listed on the Nasdaq bulletin board market (OTCBB). In these companies, the bulk of outstanding shares may be owned by corporate insiders or by securities dealers who act as market makers, so that relatively few shares are available for purchase on the open market. This means that transactions have a proportionately greater impact on the stock price than do trades of the same size in the shares of a larger company, making manipulation easier. In addition to OTCBB stocks, however, smaller companies listed on the exchanges or the Nasdaq national market were also seen as vulnerable to short selling abuse. After several years of deliberation, the SEC in 2004 adopted rules designed to control abusive naked short selling. Regulation SHO took effect on January 3, 2005. The new regulation replaced existing exchange and Nasdaq rules with a uniform national standard. Under Regulation SHO, a broker may not accept a short sale order from a customer, or effect a short sale for its own account, unless it has either borrowed the security, or made a bona fide arrangement to borrow it; or has reasonable grounds to believe that it can locate the security, borrow it, and deliver it to the buyer by the date delivery is due; and has documented compliance with the above. The appearance of a stock on an exchange's "easy to borrow" list constituted reasonable grounds for believing that the stock can be located. Stocks on such lists tend to be highly capitalized, with large numbers of shares in circulation. If a broker executes a short sale, and then fails to deliver shares to the purchaser, further restrictions on short selling may come into force. If the "fail to deliver" position is 10,000 shares or more, for five consecutive trading days, and the position amounts to at least 0.5% of total shares outstanding, the stock becomes a threshold security . The exchanges and Nasdaq are now required to publish daily lists of threshold securities. Regulation SHO specifies that if a fail to deliver position in a threshold security persists for 13 trading days, the broker (or the broker's clearing house) must close the short position by purchasing securities of like kind and quantity. After the 13 days have elapsed, the broker may not accept any more short sale orders until the fail to deliver position is closed by purchasing securities. The rules include exemptions for market makers engaged in bona fide market-making activities, and for certain transactions between brokers. The adoption of Regulation SHO did not put an end to investor complaints about naked short selling. Complaints were heard that the SEC did not enforce the rules vigorously enough and that some brokers evaded the 13-day requirement by passing fail-to-deliver positions from one firm to another. The SEC staff has monitored the incidence of fail to delivers after the effective date of Regulation SHO, and, in July 2006, Chairman Cox reported that the rule "appears to be significantly reducing fails to deliver without disruption to the markets." Nevertheless, some further amendments to Regulation SHO were considered. In July 2006, the SEC proposed rules to close two "loopholes" in Regulation SHO, which it called responsible for the persistence of fail to deliver positions in certain stocks. Under the proposed rules, the current exemption for options market makers would be restricted. Second, a "grandfather" provision in the original rule—which exempted short positions that had been established before a stock was placed on the threshold securities list from the requirement that fail to deliver positions be closed out after 13 consecutive trading days—would be eliminated. In August 2007, the SEC adopted the proposed rule abolishing the grandfather provision. When a stock goes onto the threshold list, all short positions in the stock will be subject to the 13-day close-out requirement. The SEC did not adopt the proposal relating to options market makers. As financial companies came under pressure from tight credit markets in late 2007 and 2008, concerns emerged about manipulative short sellers spreading rumors about firms' creditworthiness and liquidity. Despite regulators' assurances that Bear Stearns, a leading investment bank, had adequate capital and liquidity reserves, the firm was destroyed in March 2008 by the equivalent of a bank run: market participants, fearing that the firm might not be able to meet its obligations, refused to extend credit on any terms. The Federal Reserve was forced to arrange a hasty merger with JP Morgan Chase, which acquired Bear Stearns on condition that the Fed purchase $29 billion of risky mortgage assets. All large financial firms finance their operations by issuing short-term debt, which must be continually refinanced, or rolled over. Thus, they are vulnerable to "nonbank runs"—they cannot survive long if markets lose confidence and become unwilling to provide new funds. In July 2008, share prices of Fannie Mae and Freddie Mac, the two giant government-sponsored enterprises that hold about $1.5 trillion in mortgage-backed assets, plunged, and fears arose that they might go the way of Bear Stearns. On July 15, the SEC issued an emergency order banning naked short sales of the shares of Fannie, Freddie, and 17 other large financial institutions. Under the terms of the order, no short sale of the stock of any of the 19 listed firms may occur unless the seller has actually borrowed (or arranged to borrow) the stock and delivers the stock to the buyer on the regular settlement date. The SEC explained the rationale for its unusual action: False rumors can lead to a loss of confidence in our markets. Such loss of confidence can lead to panic selling, which may be further exacerbated by "naked" short selling. As a result, the prices of securities may artificially and unnecessarily decline well below the price level that would have resulted from the normal price discovery process. If significant financial institutions are involved, this chain of events can threaten disruption of our markets. The events preceding the sale of The Bear Stearns Companies Inc. are illustrative of the market impact of rumors. During the week of March 10, 2008, rumors spread about liquidity problems at Bear Stearns, which eroded investor confidence in the firm. As Bear Stearns' stock price fell, its counterparties became concerned, and a crisis of confidence occurred late in the week. In particular, counterparties to Bear Stearns were unwilling to make secured funding available to Bear Stearns on customary terms. In light of the potentially systemic consequences of a failure of Bear Stearns, the Federal Reserve took emergency action. The SEC's intervention has been criticized by some who believe that financial stocks had been battered not by false rumors, but by realistic assessments of firms' underlying financial weakness. Short selling, in this view, is simply market discipline at work. One view is that the SEC's objective of raising financial stock prices itself amounts to market manipulation. The SEC's original order, issued on July 15, was extended through August 12, 2008. On September 18, 2008, as financial stocks continued to plunge, the SEC issued another, much more sweeping emergency order. All short selling (naked or not) of the shares of more than 700 financial firms was banned. The rationale was the same as for the earlier action: whatever benefits short selling might provide in terms of price efficiency were far outweighed by the possible damage to the financial system and the economy if major firms were swept away by panic. The emergency order expired October 8, 2008. On October 1, 2008, in addition to extending the short sale ban announced on September 18, the SEC adopted a "interim final" rule that in effect banned naked short selling in all stocks. This order, in the form of an interim final rule, requires that when a failure to deliver shares within the normal three-day settlement period occurs, the seller's broker must immediately purchase or borrow securities and close out the fail to deliver position by no later than the beginning of trading on the next business day. Failure to comply means that the broker cannot sell that stock short either for its own account or for customers, unless the shares are not only located but also pre-borrowed. Failure to deliver shares also exposes brokers to fines and other sanctions. The SEC also adopted Rule 10b-21, a naked short selling anti-fraud rule, covering short sellers who deceive broker-dealers or any other market participants about their intention or ability to deliver securities in time for settlement. The rule makes clear that such persons are violating the law when they fail to deliver. On July 27, 2009, the SEC made the interim rule permanent. In addition, the SEC announced that it was working with the stock markets to improve disclosure about short selling. Information on the amount of short selling of individual stock will be made public on a daily basis. After one month, details of specific short trades will be made public, but without identifying the individual short sellers. | Short sellers borrow stock, sell it, and hope to profit if they can buy back the same number of shares later at a lower price. A short sale is a bet that a stock's price will fall. A short sale is said to be "naked" if the broker does not in fact borrow shares to deliver to the buyer. When executed on a large scale, naked short sales can constitute a large portion of total shares outstanding, and can put serious downward pressure on a stock's price. Critics of the practice characterize it as a form of illegal price manipulation. The Securities and Exchange Commission (SEC) in 2004 adopted Regulation SHO, a set of rules designed to control short selling abuses, focusing on small-capitalization stocks where the number of shares held by the public was relatively small. Until the current financial crisis, the SEC did not view short selling of large, blue-chip stocks as a problem. In July 2008, however, the SEC temporarily banned naked short sales of the stock of Fannie Mae, Freddie Mac, and 17 other large financial institutions. On September 18, 2008, the SEC banned all short selling of the shares of more than 700 financial companies in an emergency action that expired on October 8, 2008. On October 1, 2008, the SEC adopted an interim rule requiring short sellers' brokers to actually borrow shares to deliver to buyers, within one day after the expiration the normal three-day settlement time frame. The rule was made permanent on July 27, 2009, and it applies to all stocks. This report will be updated as events warrant. |
When an individual attempts to sue a state under federal law, an argument can be raised bythe state that it is immune to such a suit under the doctrine of sovereign immunity. The starting pointfor such a discussion is usually the Eleventh Amendment, which provides that "The Judicial powerof the United States shall not be construed to extend to any suit in law or equity, commenced orprosecuted against one of the United States by Citizens of another State." The actual text of theAmendment appears to be limited to preventing citizens from bringing diversity cases against statesin federal courts. However, the Supreme Court has expanded the concept of state sovereignimmunity to reach much further than the text of the Amendment. The Eleventh Amendment was passed as a response to the case of Chisholm v. Georgia , (5) which allowed a private citizenof one state to sue another state in federal court without that state's consent. (6) Almost immediately after thedecision in Chisholm , resolutions were introduced in Congress to overturn it, the end result beingthe Eleventh Amendment. (7) The Amendment assured that a citizen of one state could not sueanother state in federal court -- in other words, a citizen could not sue under federal diversityjurisdiction without a state's permission. In Hans v. Louisiana , the Court provided for an even more expansive interpretation of theEleventh Amendment (8) which banned suits by citizens against states regardless of whether or not the citizen was a residentof another state. (9) Latercases established that Congress could not generally abrogate this immunity under its Article Ilegislative powers. (10) The Supreme Court has held, however, that Congress can abrogate state sovereignty under the §5of the Fourteenth Amendment, which authorized Congress to pass laws to enforce the protectionsof that Amendment. (11) While the logic behind this distinction is unclear, (12) it means that in many cases litigants suing states will have to finda Fourteenth Amendment basis for federal legislation in order to defeat an Eleventh Amendmentdefense. Recent Supreme Court cases, however, make it more difficult for a court to find that theFourteenth Amendment is the constitutional basis for legislation. In the case of Flores v. City ofBoerne, (13) the Courtstruck down the Religious Freedom Restoration Act (RFRA) as beyond the authority of Congressunder §5 of the Fourteenth Amendment. The case arose when the City of Boerne denied a churcha building permit to expand, because the church was in a designated historical district. The churchchallenged the zoning decision under RFRA. The Supreme Court reiterated that §5 of theFourteenth Amendment gave the Congress the power to enforce existing constitutional protections,but found that this did not automatically include the power to pass any legislation to protect theserights. Instead, the Court held that there must be a "congruence and proportionality" between theinjury to be remedied and the law adopted to that end. (14) Based on the City of Boerne test, the Court has struck down a variety of laws which weredesigned to deal with the issue of discrimination. For instance, in Kimel v. Florida Board ofRegents , (15) the Courtevaluated whether the Age Discrimination in Employment Act of 1967 was a valid exercise ofCongress's commerce power and §5 power, and thus could be applied against the states. The Kimel Court held, however, that age is not a suspect class, and that the provisions of the ADEA farsurpassed the kind of protections that would be afforded such a class under the FourteenthAmendment. Further, the Court found, based on City of Boerne , that an analysis of the Congress's abilityto legislate prophylactically under section §5 required an examination of the legislative record todetermine whether the remedies provided were proportional and congruent to the problem. A reviewby the Court of the ADEA legislative record found no evidence of a pattern of state governmentsunconstitutionally discriminating against employees on the basis of age. Consequently, the Courtheld that a state could not be liable for damages under the ADEA. The application of the Americans with Disabilities Act (ADA) to states was also consideredin the case of the Board of Trustees v. Garrett , (16) with similar result. In Garrett , the Court evaluated whether twoplaintiffs could bring claims for money damages against a state university for failing to makereasonable accommodations for their disabilities; one plaintiff was under treatment for cancer, theother for asthma and sleep apnea. Although disability is not a suspect class and thus discriminationis evaluated under a rational basis test, the Court had previously shown a heightened sensitivity toarbitrary discrimination against the disabled. (17) Further, Congress had made substantial findings regarding thepervasiveness of such discrimination. However, the Supreme Court declined to consider evidence of discrimination by either theprivate sector or local government, and dismissed the examples that did relate to the states asunlikely to rise to the level of constitutionally "irrational" discrimination. Ultimately, the Court foundthat no pattern of unconstitutional state discrimination against the disabled had been established, andthat the application of the ADA was not a proportionate response to any pattern of discriminationthat might exist. As noted, Kimel and Garrett involved the evaluation of congressional statutes addressingdiscrimination against non-suspect classes. When the class which is the focus of legislation has ahigher level of constitutional protection, however, the Court has seemed to use a more lenientstandard. In the case of Nevada Department of Human Resources v. Hibbs , (18) an employee of the NevadaDepartment of Human Resources had a dispute with the Department regarding how much leave timehe had available under the FMLA. The FMLA requires, among other things, that employers provideemployees up to twelve weeks of unpaid leave to care for a close relative with a "serious healthcondition." (19) In Hibbs , the Court held that Congress had the power to abrogate a state's EleventhAmendment immunity under the FMLA, so that a state employee could recover money damages. The Court found that Congress had established significant evidence of a long and extensive historyof sex discrimination with respect to the administration of leave benefits by the states, and thathistory was sufficient to justify the enactment of the legislation under §5. The standard fordemonstrating the constitutionality of a gender-based classification is more difficult to meet than therational-basis test, which was at issue in Kimel and Garrett , so it was easier for Congress to showa pattern of state constitutional violations. Judge Alito wrote the opinion for a unanimous court in the case of Chittister v. Departmentof Community and Economic Development , (20) which also considered if Congress had validly abrogated states'Eleventh Amendment immunity when it enacted the Family and Medical Leave Act of 1993. (21) However, unlike thelater-decided Hibbs case, which considered the provision of leave to care for family members, Chittister concerned the provision of personal sick leave "because of a serious health condition thatmakes the employee unable to perform the functions of the position of such employee." (22) In a relatively briefopinion, Judge Alito found that Congress had not abrogated the state's sovereign immunity for causesof action cited by the plaintiff. Although the Chittister case preceded the Court's opinion in Hibbs , some have suggested thatthe opinion should have anticipated the result in that case. (23) As noted, however, theopinion in Chittister dealt with a different provision of the Family Medical Leave Act. The Courtin Hibbs did not decide the constitutionality of the personal sick leave provision considered in Chittister , and there are arguments to be made that distinguish these cases. The Court's decision in Hibbs was based to a large extent on the congressional finding that"denial or curtailment of women's employment opportunities has been traceable directly to thepervasive presumption that women are mothers first, and workers second. This prevailing ideologyabout women's roles has in turn justified discrimination against women when they are mothers ormothers-to-be." (24) Further, because employers assumed that women were primary caretakers, they would deny menleave for such purposes. Thus, both of these stereotypes tended to discourage the hiring ofwomen, (25) and therequirement that employers provide family care leave would alleviate this disparity. This reasoning, however, does not seem applicable to the case of personal sick leave. In Chittister , the Judge Alito noted that Congress's findings that the "the primary responsibility forfamily caretaking often falls on women" would be relevant for evaluation of the family care leaveprovisions. Judge Alito found, however, that there did not appear to be similar findings concerningthe existence of intentional discrimination by employers against women in the provision of personalsick leave practices. (26) Nor did the court think that such practices would be likely to have a disparate impact on men andwomen. Even if such evidence existed, Judge Alito questioned whether the FMLA would be acongruent and proportional response, since it did not require nondiscriminatory sick leave practices,but merely created a minimum level of leave entitlement. Chittister seems to be consistent with the decisions of other federal courts which consideredthis issue before Hibbs was decided. (27) For instance, in the case of Kazmier v. Widmann , (28) the FifthCircuit consideredwhether the personal leave provision of the FMLA could be applied against the states. The courtfirst noted that Congress's express intent in enacting this provision was to prevent employers fromdiscriminating on the basis of temporary disability, (29) not gender. The court did note suggestions in the legislativerecord that Congress also meant for this provision to prevent discrimination against women on thebasis of pregnancy-related disability. (30) The Fifth Circuit, however, rejected an argument that thepersonal sick leave provision was intended to target sex discrimination. First, the court noted that the FMLA contained a separate provision regarding maternityleave, which was arguably more closely related to concerns about pregnancy discrimination. (31) Second, the court notedthat the Supreme Court has held that discrimination on the basis of pregnancy does not violate theEqual Protection Clause, (32) which would make it difficult to show that the provision wasintended to remedy a pattern and history of unconstitutional gender discrimination. Finally, the courtfound that the effect of expressly mandating leave for pregnancy (among other serious healthconditions) would not make employers more likely to hire women, but would actually make womenless attractive employees. Ultimately, the Fifth Circuit decided that the provision at issue was in fact directed solely atdiscrimination based on temporary disability. Unlike discrimination on the basis of sex, however,discrimination on the basis of disability is subject to minimal scrutiny under the Equal ProtectionClause. (33) As such, themost relevant case decided at the time would appear to be the Kimel case, which evaluated anattempt by Congress to remedy discrimination based on age, which is another category with fewerconstitutional protections. Relying on Kimel , the Kazmier court found that the FMLA "prohibitssubstantially more state employment decisions and practices than would likely be heldunconstitutional under the applicable equal protection, rational basis standard." (34) Even after the decision of the Supreme Court in Hibbs , federal courts seemed to followreasoning similar to Chittister and Kazmier . The Sixth Circuit, in Touvell v. Ohio Department ofMental Retardation & Developmental Disability , (35) relied on the Hibbs case to reach essentially the sameconclusion. (36) In fact,the Sixth Circuit specifically suggested that Hibbs did not undermine the reasoning of the variouscases from other circuits that had reached this conclusion previously. In Touvell , the Sixth Circuit made many of the same points as were made in Kazmier and Chittister regarding the legislative record for the FMLA. As in Kazmier , the gender discriminationof concern to the Congress related to the care of family members, and not to personal sickleave. (37) The Court in Touvell found no evidence of gender discrimination with regard to personal medical leave, (38) nor were the requirementsfor providing such leave seen as having any remedial or prophylactic effect on such discrimination. As with the previous cases, the Court found little evidence that gender discrimination was even atissue in the FMLA personal sick leave provisions. Like Kazmier , the Sixth Circuit found that the sick leave provision was more likely intendedto affect disability discrimination, and as such, it would be more difficult to establish a pattern andhistory of constitutional violation. (39) After considering the legislative record regarding disabilitydiscrimination and the nature of the legislation, the Touvell Court concluded that the FMLA personalsick leave provisions were not congruent and proportional responses to any alleged violations. Asdid Chittister and Kazmier , the Sixth Circuit concluded that the personal sick leave provisions couldnot be applied against the state under the Eleventh Amendment. The Commerce Clause provides that "The Congress shall have Power ... To regulateCommerce with foreign Nations, and among the several States, and with the Indian Tribes." (40) Generally speaking,Congress's power under the Commerce Clause can be divided into three categories: (1) regulationof channels of commerce; (2) regulation of instrumentalities of commerce; and (3) regulation ofeconomic activities which "affect" commerce. (41) In the 1995 case, United States v. Lopez , (42) the Supreme Court brought into question the extent to which theCongress can rely on the Commerce Clause as a basis for federal jurisdiction. Under the Gun-FreeSchool Zones Act of 1990, Congress made it a federal offense for "any individual knowingly topossess a firearm at a place that the individual knows, or has reasonable cause to believe, is a schoolzone." (43) In Lopez , theCourt held that, because the act neither regulated a commercial activity nor contained a requirementthat the possession be connected to interstate commerce, the act exceeded the authority of Congressunder the Commerce Clause. Although the Court did not explicitly overrule any previous rulingsupholding federal statutes passed under the authority of the Commerce Clause, the decision appearedto suggest new limits to Congress's legislative authority. Subsequently, the lower federal courts wereleft to determine the precise scope of the limits imposed by the Court in Lopez as applied to otherfederal statutes. One statute that has received a significant amount of post- Lopez attention is 18 U.S.C. §922(o), which states that "it shall be unlawful for any person to transfer or possess a machine gun"unless one of two exceptions applied. (44) By 1996, when the Third Circuit decided United States v. Rybar ,several other circuits had already determined that section 922(o) was not a violation the CommerceClause. There was, however, little consensus with respect to the reasoning employed. (45) According to the majority in Rybar , several circuits had held that section 922(o) was aregulation of the channels of interstate commerce, therefore, bringing the statute under the firstcategory of commerce power. (46) Moreover, the Seventh Circuit had held section 922(o)constitutional as "an essential part of a larger regulation of economic activity, in which the regulatoryscheme could be undercut unless the intrastate activity were regulated." (47) Finally, the majority notedthat the Tenth Circuit had upheld section 922(o) as a constitutional regulation of the instrumentalitiesof interstate commerce, thus utilizing the second category for permissible regulation of interstatecommerce. (48) The majority opinion in Rybar adds little original analysis to this discussion and did notattempt to resolve the reasoning dispute between the other circuits. Rather, the majority traced thelegislative history of federal firearms statutes and concluded that by the time Congress enactedsection 922(o), "it had already passed three firearm statutes under its commerce power based on itsexplicit connection of the interstate flow of firearms to the increasing serious violent crime in thiscountry, which Congress saw as creating a problem of 'national concern.'" (49) Specifically, with respectto section 922(o), the majority relied on supporting language in committee reports as well as floorstatements during consideration of the legislation. (50) With respect to the constitutional analysis, the majority simplyrecounted the various methods employed by their sister circuits and concluded that section 922(o)was constitutional as a valid exercise of Congress's power under the Commerce Clause. (51) Judge Alito's dissent, however, started by asking whether Lopez was a "constitutional freak,"or whether it represented recognition that the Constitution still provides meaningful limits oncongressional power. (52) In short, Judge Alito concluded that the statute could be saved in one of two ways. If Congress hadprovided the necessary jurisdictional element, thereby limiting the statute to purely interstate activity,or if "Congress made findings that the purely intrastate possession of machine guns has a substantialeffect on interstate commerce...." (53) Since, in Judge Alito's opinion, neither of these tworequirements was satisfied, the statute, as written, should have been held unconstitutional. Given that the majority opted not to assert a unique rationale for its conclusion, Judge Alito'sdissent refuted all three established grounds for holding Section 922(o) constitutional. First, hechallenged the position of the Fifth, Sixth, and Ninth Circuits that the statute is a regulation of thechannels of interstate commerce. According to Judge Alito, those circuits reasoned that underSection 922(o) there could be no unlawful possession without an unlawful transfer, because thestatute exempted lawful possessions prior to its enactment. Further, the circuits argued that therestriction was a necessary and proper way to assist law enforcement in tracking and detecting illegalmachine gun transfers. (54) In Judge Alito's opinion, this reasoning was flawed for threereasons: First, it relied on faulty facts, namely, that every unlawful possession is the result of anunlawful transfer. In fact, as Judge Alito posited, an unlawful possession could result from theconversion of a lawful weapon, or from the expiration of the requisite government authority thatmade possession lawful; (55) second, the rationale "seems to confuse an unlawful transfer withan interstate transfer" (56) ;and finally, the circuits' reliance on the ability of Congress to suppress an interstate market byregulating intrastate behavior is an argument in support of the substantial effects test, not thechannels of interstate commerce. (57) Next, Judge Alito's dissent challenged the assertion by the Sixth and Tenth Circuits thatSection 922(o) can be justified as a regulation of activities that threaten the instrumentalities ofinterstate commerce. Judge Alito argued that this would be true, if, say, Congress enacted the statuteto prevent machine guns from being used to "damage vehicles traveling interstate, to carry outrobberies of goods moving in interstate commerce, or to threaten or harm interstate travelers." (58) Congress, however, madeno such findings, and the reasoning of the Sixth and Tenth Circuits was described by Judge Alito as"elusive" and, in his opinion, better suited to arguing for constitutionality under the substantialeffects prong of the Commerce Clause. (59) Finally, Judge Alito undertook an analysis of the statute under the "substantial effects" prongof the Court's Commerce Clause jurisprudence. Judge Alito's theory was that to bring this case within the third Lopez category, it isnot enough to observe that violent criminals, racketeers, and drug traffickers occasionally usemachine guns in committing their crimes and that these crimes have interstate effects. Rather, theremust be a reasonable basis for concluding that the regulated activity (the purely intrastate possessionof machine guns) facilitates the commission of these crimes to such a degree as to have a substantialeffect on interstate commerce. (60) While not dismissing this theory as irrational, Judge Alito rejected the majority's reasoning for lackof empirical proof of its validity. In other words, according to Judge Alito, there was no substantialevidence that Congress rationally concluded that which was necessary to sustain the statute underthe substantial effects prong. For Judge Alito it appeared that neither the combing of the legislativehistory of federal firearms law, nor the majority's reliance on the committee reports and floorstatements was sufficient to establish that Congress believed that "the purely intrastate possessionof machine guns, by facilitating the commission of certain crimes, has a substantial effect oninterstate commerce." (61) In sum, Judge Alito concluded by stating that out of respect for the principles of federalism, "weshould require at least some empirical support before we sustain a novel law that effects 'a significantchange in the sensitive relation between federal and state criminal jurisdiction.'" (62) A recent opinion by the Supreme Court subsequent to Judge Alito's dissent in Rybar putsmuch of his reasoning in doubt. In Gonzales v. Raich , the United States Supreme Court granted certiorari specifically on the question of whether the power vested in Congress by both the"Necessary and Proper Clause," and the "Commerce Clause" of Article I includes the power toprohibit the local growth, possession, and use of marijuana permissible as a result of California'slaw. (63) Justice Stevens,writing for the majority, reversed the Ninth Circuit's decision and held that Congress's power toregulate commerce extends to purely local activities that are "part of an economic class of activitiesthat have a substantial effect on interstate commerce." (64) In reaching its conclusions, the Court relied heavily on its 1942 decision in Wickard v.Filburn , which held that the Agricultural Adjustment Act's federal quota system applied to bushelsof wheat that were homegrown and personally consumed. Wickard stands for the proposition thatCongress can rationally combine the effects that individual producers have on a commercial marketto find substantial impacts on interstate commerce. (65) The Court pointed to numerous similarities between the factspresented in Raich and those in Wickard . Initially, the Court noted that because the commoditiesbeing cultivated in both cases are fungible and that well-established interstate markets exist, bothmarkets are susceptible to fluctuations in supply and demand based on production intended forhome-consumption being introduced into the national market. (66) According to the Court, just as there was no difference between the wheat Mr. Wickardproduced for personal consumption and the wheat cultivated for sale on the open market, there is nodiscernable difference between personal home-grown medicinal marijuana and marijuana grown forthe express purpose of being sold in the interstate market. (67) Thus, the Court concluded that Congress had a rational basis forconcluding that "leaving home-consumed marijuana outside federal control would similarly affectprice and market conditions." (68) Despite having concluded that under the "rational basis test" Congress had acted within itsconstitutional authority when it enacted the Controlled Substances Act and applied it to intrastatepossession of marijuana, the Court nevertheless had to distinguish Lopez and Morrison , the Court'smore recent Commerce Clause decisions. The Court concluded that the Controlled Substances Act,unlike the statutes in either Lopez (Gun Free School Zones Act) or Morrison (Violence AgainstWomen Act), regulated activity that is "quintessentially economic"; therefore, neither Lopez or Morrison cast any doubts on the constitutionality of the statute. (69) The Court specificallyrejected the reasoning used by the Ninth Circuit, concluding that "Congress acted rationally indetermining that none of the characteristics making up the purported class, whether viewedindividually or in the aggregate, compelled an exemption from the CSA; rather, the subdivided classof activities defined by the Court of Appeals was an essential part of the larger regulatoryscheme." (70) In supporting its conclusions, the Court noted that, by characterizing marijuana as a"Schedule I" narcotic, Congress was implicitly finding that it had no medicinal value at all. Inaddition, the Court returned to the fact that medicinal marijuana was a fungible good, thus makingit indistinguishable from the recreational versions that Congress had clearly intended to regulate. According to the Court, to carve out medicinal use as a distinct class of activity, as the Ninth Circuithad done, would effectively make " any federal regulation (including quality, prescription, or quantitycontrols) of any locally cultivated and possessed controlled substance for any purpose beyond the'outer limits' of Congress'[s] Commerce Clause authority." (71) Moreover, the Court heldthat California's state law permitting the use of marijuana for medicinal purposes cannot be the basisfor placing the respondent's class of activity beyond the reach of the federal government, due to theSupremacy Clause, which requires that, in the event of a conflict between state and federal law, thefederal law shall prevail. (72) Finally, the Court responded to the respondent's argument that its activities are not an"essential part of a larger regulatory scheme" because they are both isolated and policed by the Stateof California and they are completely separate and distinct from the interstate market. (73) The Court held that notonly could Congress have rationally rejected this argument, but also that it "seem[ed] obvious" thatdoctors, patients, and caregivers will increase the supply and demand for the substance on the openmarket. (74) In sum, theCourt concluded that the case for exemption can be distilled down to an argument that a locallygrown product used domestically is immune from federal regulation, which has already beenprecluded by the Court's decision in Wickard v. Filburn . (75) It is difficult to conclude from Judge Alito's opinion in the Chittister case whether or not theJudge has a more restrictive view of the 11th and 14th Amendment than a majority of Justices on theSupreme Court. In general, it appears that Judge Alito's opinion in the Chittister case was consistentwith Supreme Court precedent at the time. Although Judge Alito has been criticized because hisopinion did not anticipate the result in the subsequent case of Nevada Department of HumanResources v Hibbs , the Hibbs case actually addressed a separate provision of the FMLA. The Chittister case is arguably distinguishable from the Hibbs case, a conclusion which has been reachedby other federal circuits. Judge Alito's dissent in the Rybar case, however, seems to have anticipated a more expansiveapplication of the Lopez and Morrison decisions than was adopted by most other circuits at the time. Further, his reasoning in Rybar may have been largely repudiated in the subsequent Supreme Courtcase of Gonzales v. Raich . Consequently, it would appear that Judge Alito's dissent was an argumentfor a more limited interpretation of the Commerce Clause than is consistent with current case law. | During his 15 years as a federal appellate judge on the Third Circuit, Judge Samuel Alito haswritten several opinions related to federalism. Two of these cases appear to be of particularsignificance. In Chittister v. Department of Community and Economic Development , Judge Alitoauthored a unanimous opinion which held that an individual could not sue a state under the FamilyMedical Leave Act (FMLA). This opinion addressed an issue which has been controversial in recentyears -- the parameters of the 11th Amendment and Section 5 of the 14th Amendment. The decisionheld that a provision of the Family Medical Leave Act which mandates the provision of sick leavefor employees with serious health conditions could not be enforced by employees against statesagencies or instrumentalities. In United States v. Rybar , Judge Alito authored a dissent to a decision that upheld a lawproviding that "it shall be unlawful for any person to transfer or possess a machine gun" as withinthe authority of the Congress under the Commerce Clause. Judge Alito, noting that the statute lackedboth a requirement for a specific connection to interstate commerce and findings that the purelyintrastate possession of machine guns had a substantial effect on interstate commerce, would havestruck the law down. In general, it appears that Judge Alito's opinion in the Chittister case was consistent withSupreme Court precedent at the time. Although Judge Alito has been criticized because his opiniondid not anticipate the result in the subsequent case of Nevada Department of Human Resources v.Hibbs , the Hibbs case actually addressed a separate provision of the FMLA. The Chittister case isarguably distinguishable from the Hibbs case, a conclusion which has been reached by other federalcircuits. Judge Alito's dissent in the Rybar case, however, seems to have anticipated a more expansiveapplication of the Supreme Court decisions in Lopez and Morrison than was being utilized by mostother circuits at the time. Further, his reasoning in Rybar may have been repudiated by the SupremeCourt in Gonzales v. Raich . Consequently, it would appear that Judge Alito's dissent was anargument for a more limited interpretation of the Commerce Clause than is consistent with currentcase law. |
H.R. 6 was introduced by the House Democratic Leadership to revise certain tax and royalty policies for oil and natural gas and use the resulting revenue to support a reserve for energy efficiency and renewable energy. The bill is one of several introduced on behalf of the Democratic Leadership in the House as part of its "100 hours" package of legislative initiatives conducted early in the 110 th Congress. Title I proposes to reduce certain oil and natural gas tax subsidies to create a revenue stream to support energy efficiency and renewable energy. Title II would modify certain aspects of royalty relief for offshore oil and natural gas development to create a second stream of revenue to support energy efficiency and renewable energy. Title III of H.R. 6 creates a budget procedure for the creation and use of a Strategic Energy Efficiency and Renewable Energy Reserve, under which additional spending for energy efficiency and renewable energy programs can be accommodated without violating enforcement procedures in the Congressional Budget Act of 1974, as amended. The stated purpose of the bill is to "reduce our nation's dependency on foreign oil" by investing in renewable energy and energy efficiency. Specifically, Section 301 (a) of the bill would make the revenue in the Reserve available to "offset the cost of subsequent legislation" that may be introduced "(1) to accelerate the use of domestic renewable energy resources and alternative fuels, (2) to promote the utilization of energy-efficient products and practices and conservation, and (3) to increase research, development, and deployment of clean renewable energy and efficiency technologies." The budget adjustment procedure for use of the Reserve is set out in Section 301 (b). The procedure is similar to reserve fund procedures included in annual budget resolutions. It would require the chairman of the House or Senate Budget Committee, as appropriate, to adjust certain spending levels in the budget resolution, and the committee spending allocations made thereunder, to accommodate a spending increase (beyond FY2007 levels) in a reported bill, an amendment thereto, or a conference report thereon that would address the three allowed uses of the Reserve noted above. The adjustments for increased spending for a fiscal year could not exceed the amount of increased receipts for that fiscal year, as estimated by the Congressional Budget Office, attributable to H.R. 6 . According to the Congressional Budget Office (CBO), the proposed repeal of selected tax incentives for oil and natural gas would make about $7.7 billion available over 10 years, 2008 through 2017. The proposed changes to the royalty system for oil and natural gas are estimated to generate an additional $6.3 billion. This would yield a combined total of $14 billion for the Reserve over a 10-year period. The CBO estimates show that the total annual revenue flow would vary annually over the 10-year period, ranging from a low of about $900 million to a high of about $1.8 billion per year. H.R. 6 came to the House floor for debate on January 18, 2007. In the floor debate, opponents argued that the reduction in oil and natural gas incentives would dampen production, cause job losses, and lead to higher prices for gasoline and other fuels. Opponents also complained that the proposal for the Reserve does not identify specific policies and programs that would receive funding. Proponents of the bill countered that record profits show that the oil and natural gas incentives were not needed. They also contended that the language that would create the Reserve would allow it to be used to support a variety of R&D, deployment, tax incentives, and other measures for renewables and energy efficiency, and that the specifics would evolve as legislative proposals come forth for to draw resources from the Reserve. The bill passed the House on January 18 by a vote of 264-163. In general, the budget resolution would revise the congressional budget for FY2007. It would also establish the budget for FY2008 and set budgetary levels for FY2009 through FY2012. In particular, the House resolution ( H.Con.Res. 99 ) would create a single deficit-neutral reserve fund for energy efficiency and renewable energy that is virtually identical to the reserve described in H.R. 6 . In contrast, the Senate resolution ( S.Con.Res. 21 ) would create three reserve funds, which identify more specific efficiency and renewables measures and would allow support for "responsible development" of oil and natural gas. On March 28, the House passed H.Con.Res. 99 by a vote of 216-210. For FY2007, it would allow for additional funding for energy (Function 270) above the President's request that "could be used for research, development, and deployment of renewable and alternative energy." Section 207 would create a deficit-neutral reserve fund that fulfills the purposes of H.R. 6 to "facilitate the development of conservation and energy efficiency technologies, clean domestic renewable energy resources, and alternative fuels that will reduce our reliance on foreign oil." On March 23, the Senate passed S.Con.Res. 21 , its version of the budget resolution. In parallel to the House resolution, Section 307 of S.Con.Res. 21 would create a deficit-neutral reserve fund that could be used for renewable energy, energy efficiency, and "responsible development" of oil and natural gas. In addition, Section 332 would create a deficit-neutral reserve fund for extension through 2015 of certain energy tax incentives, including the renewable energy electricity production tax credit (PTC), Clean Renewable Energy Bonds, and provisions for energy efficient buildings, products, and power plants. Further, Section 338 would create a deficit-neutral reserve fund for manufacturing initiatives that could include tax and research and development (R&D) measures that support alternative fuels, automotive and energy technologies, and the infrastructure to support those technologies. | H.R. 6 would use revenue from certain oil and natural gas policy revisions to create an Energy Efficiency and Renewables Reserve. The actual uses of the Reserve would be determined by ensuing legislation. A variety of tax, spending, or regulatory bills could draw funding from the Reserve to support liquid fuels or electricity policies. The House budget resolution (H.Con.Res. 99) would create a deficit-neutral reserve fund nearly identical to that proposed in H.R. 6. The Senate budget resolution (S.Con.Res. 21) would create three reserve funds with purposes related to those in H.R. 6. However, the Senate version has more specifics about efficiency and renewables measures, and it would allow reserve fund use for "responsible development" of oil and natural gas. |
Carbon capture and sequestration (or storage)—known as CCS—is a physical process that involves capturing manmade carbon dioxide (CO 2 ) at its source and storing it before its release to the atmosphere. CCS could reduce the amount of CO 2 emitted to the atmosphere from the continued use of fossil fuels at power plants and other large, industrial facilities. An integrated CCS system would include three main steps: (1) capturing CO 2 at its source and separating it from other gases; (2) purifying, compressing, and transporting the captured CO 2 to the sequestration site; and (3) injecting the CO 2 into subsurface geological reservoirs. Following its injection into a subsurface reservoir, the CO 2 would need to be monitored for leakage and to verify that it remains in the target geological reservoir. Once injection operations cease, a responsible party would need to take title to the injected CO 2 and ensure that it stays underground in perpetuity. The U.S. Department of Energy (DOE) has pursued research and development of aspects of the three main steps leading to an integrated CCS system since 1997. Congress has appropriated nearly $7 billion in total since FY2008 for CCS research, development, and demonstration (RD&D) at DOE's Office of Fossil Energy: nearly $3.5 billion in total annual appropriations (including FY2015) and $3.4 billion from the American Recovery and Reinvestment Act ( P.L. 111-5 ; enacted February 17, 2009, hereinafter referred to as the Recovery Act). The large and rapid influx of funding for industrial-scale CCS projects from the Recovery Act was intended to accelerate development and demonstration of CCS in the United States. The Recovery Act funding also was likely intended to help DOE achieve its RD&D goals as outlined in the department's 2010 RD&D CCS Roadmap . (In part, the roadmap was intended to lay out a path for rapid technological development of CCS so that the United States could continue to use fossil fuels despite potential carbon restrictions.) However, the future deployment of CCS may take a different course if the major components of the DOE program follow a path similar to DOE's FutureGen project. FutureGen had experienced delays and multiple changes of scope and design since its inception in 2003, and on February 3, 2015, DOE announced that it was suspending the project. (For more details, see sections below on " FutureGen—A Special Case? " and " Lessons from FutureGen: A Similar Path for Other Demonstration Projects? ") This report aims to provide a snapshot of the DOE CCS program, including its current funding levels, together with some discussion of the program's achievements and prospects for success in meeting its stated goals. Other CRS reports provide substantial detail on the technological and policy aspects of CCS. U.S. Environmental Protection Agency (EPA) proposed rules and guidelines for reducing greenhouse gas (GHG) emissions from new and existing coal-fired power plants have been a focal point of discussion in Congress about CCS. How the demise of FutureGen will affect that debate is yet to be seen. Legislation regarding CCS in the last Congress mainly focused on two issues: stopping or slowing implementation of the EPA GHG rules and guidelines and providing federal incentives to accelerate the demonstration and development of CCS at commercial scales. In 2014, EPA proposed emission standards for new and existing fossil-fueled electric generating units under Section 111 of the Clean Air Act. EPA's regulatory proposal stems from the Obama Administration's stated goal to take action on climate change in the absence of congressional action to reduce GHG emissions through legislation. In June 2013, President Obama directed EPA to propose standards for GHG emissions from new fossil-fueled power plants by September 20, 2013, and to propose guidelines for existing power plants by June 1, 2014. EPA met both deadlines and may finalize the power plant rules by mid-summer 2015. According to EPA, new natural gas-fired stationary power plants should be able to meet the proposed standard without additional cost and without the need for add-on control technology. However, the only apparent technical way for new coal-fired plants to meet the standard would be to install CCS technology to capture about 40% of the CO 2 they typically produce. The proposed standard allows for a seven-year compliance period for coal-fired plants but would demand a more stringent standard for those plants that comply over seven years; CO 2 emissions for these plants would be limited to an average of 1,000-1,050 pounds per megawatt-hour. The prospects for building new coal-fired electricity generating plants depend on many factors, such as costs of competing fuel sources (e.g., natural gas), electricity demand, regulatory costs, infrastructure (including rail), and electric grid development. However, the EPA proposed rule clearly identifies CCS as the essential technology required if new coal-fired power plants are to be built in the United States. The re-proposed standard places a new focus on DOE's CCS RD&D program—whether it will achieve its vision of "having an advanced CCS technology portfolio ready by 2020 for large-scale CCS demonstration that provides for the safe, cost-effective carbon management that will meet our Nation's goals for reducing [greenhouse gas] emissions." One analysis concluded that the debate over EPA's proposed rule for new power plants is largely symbolic and that its real significance is that without the promulgation of a rule for new sources, EPA could not proceed to regulate existing power plants under the Clean Air Act. The proposed guidelines for existing plants would establish different goals for each state based on four factors: improved efficiency at coal-fired plants; substitution of natural gas combined cycle generation for coal-fired power; zero-emission generation from renewables and nuclear power; and demand-side efficiency. Although CCS was not specifically included as a factor, or as part of the four factors listed above, the rule would not preclude CSS as an option for reducing emissions to help states meet their emissions target. Given the pending EPA rule, congressional interest in the future of coal as a domestic energy source also appears to be linked to the future of CCS. The debate has been mixed as to whether the proposed rule for new plants would spur development and deployment of CCS for new coal-fired power plants or have the opposite effect. Multiple analyses indicate that there will be retirements of U.S. coal-fired capacity; however, virtually all analyses agree that coal will continue to play a substantial role in electricity generation for decades. How many retirements will take place and what role EPA regulations will play in causing them are matters of dispute. Part of the argument over the proposed rule for new plants has focused on whether CCS is the best system of emissions reduction (BSER) for coal plants and whether it has been "adequately demonstrated" as required under the Clean Air Act. In its re-proposed rule, EPA cites the "existence and apparent ongoing viability" of several ongoing CCS demonstration projects as examples that justify a separate determination of BSER for coal-fired plants and integrated gasification combined-cycle plants. (The second BSER determination is for gas-fired power plants.) EPA noted that these projects had reached advanced stages of construction and development, "which suggests that proposing a separate standard for coal-fired units is appropriate." The huge increases in the U.S. domestic supply of natural gas in recent years, due largely to the exploitation of unconventional shale gas reservoirs through the use of hydraulic fracturing, has also led to a shift to natural gas for electricity production. The shift appears to be largely due to the cheaper and increasingly abundant fuel—natural gas—compared to coal for electricity production. The EPA re-proposed rule noted that "power companies often choose the lowest cost form of generation when determining what type of new generation to build. Based on [Energy Information Administration] modeling and utility [Integrated Resource Plans], there appears to be a general acceptance that the lowest cost form of new power generation is [natural gas combined-cycle]." Cheap gas, due to the rapid increase in the domestic natural gas supply as an alternative to coal, in combination with regulations that curtail CO 2 emissions may lead electric power producers to invest in natural gas-fired plants, which emit approximately half the amount of CO 2 per unit of electricity produced compared to coal-fired plants. Regulations and abundant cheap gas may raise questions about the rationale for funding CCS demonstration projects (e.g., see " Lessons from FutureGen: A Similar Path for Other Demonstration Projects? "). Alternatively, and despite increasingly abundant domestic natural gas supplies, EPA regulations could provide the necessary incentives for the industry to accelerate CCS development and deployment for coal-fired power plants. As part of its re-proposed ruling for new power plants, EPA cited technology as one of four factors that it considers in making a BSER determination. Specifically, EPA stated that it "considers whether the system promotes the implementation and further development of technology," in this case referring to CCS technology. It appears that EPA asserted that its rule would likely promote CCS development and deployment rather than hinder it. Those arguing against the re-proposed rule do so on the basis that CCS technology has not been adequately demonstrated, and that it violates provisions in P.L. 109-58 , the Energy Policy Act of 2005, that prohibit EPA from setting a performance standard based on the use of technology from certain DOE-funded projects, such as the three projects cited in the EPA re-proposal, among other reasons. On February 27, 2003, President George W. Bush proposed a 10-year, $1 billion project known as FutureGen to build a coal-fired power plant that would integrate carbon sequestration and hydrogen production at a 275 megawatt-capacity plant, enough to power about 150,000 average U.S. homes. As originally conceived, the plant would have been a coal-gasification facility and would have produced and sequestered between 1 million and 2 million tons of CO 2 annually. On January 30, 2008, DOE announced that it was "restructuring" the FutureGen program away from a single, state-of-the-art "living laboratory" of integrated R&D technologies—a single plant—to pursue instead a new strategy of multiple commercial demonstration projects. In the restructured program, DOE announced that it would support up to two or three demonstration projects of at least 300 megawatts that would sequester at least 1 million tons of CO 2 per year. In the Bush Administration's FY2009 budget, DOE requested $156 million for the restructured FutureGen program and specified that the federal cost share would cover only the CCS portions of the demonstration projects, not the entire power system. However, after the Recovery Act was enacted on February 17, 2009, Secretary of Energy Chu announced an agreement with the FutureGen Alliance—an industry consortium—to advance construction of the FutureGen plant built in Mattoon, Illinois, the site selected by the FutureGen Alliance in 2007. Further, DOE anticipated that $1 billion of funding from the Recovery Act would be used to support the project. On August 5, 2010, Secretary Chu announced the $1 billion award, from Recovery Act funds, to the FutureGen Alliance, Ameren Energy Resources, Babcock & Wilcox, and Air Liquide Process & Construction, Inc., to build FutureGen 2.0. FutureGen 2.0 differed from the original concept for the plant because it aimed to retrofit Ameren's existing power plant in Meridosia, Illinois, with oxy-combustion technology at a 202 megawatt oil-fired unit, rather than build a new, state-of-the-art plant in Mattoon. On February 3, 2015, DOE announced it was canceling funding for the FutureGen project. The most pressing reason for the program's suspension is the September 30, 2015, deadline for spending the Recovery Act funding and the likelihood that the FutureGen Alliance would not be able to commit the funds by that date, which, in turn, led to uncertainty about the alliance's ability to secure private-sector funding to make up the rest of the project costs after Recovery Act funding was exhausted. The FutureGen Alliance had spent approximately $200 million of the nearly $1 billion in Recovery Act funding appropriated and allocated to FutureGen. Other factors also may have played a role in DOE's decision. Following the announcement that DOE was suspending the FutureGen project, one question for Congress is whether FutureGen represented a unique case of a first mover in a complex, expensive, and technically challenging endeavor. Another is whether some of the challenges that ultimately stopped FutureGen also apply to other large DOE-funded CCS demonstration projects once they move past the planning stage. DOE committed approximately $3.3 billion of Recovery Act funding to large demonstration projects (approximately $800 million less now, with the demise of FutureGen). One rationale for committing such a substantial level of funding was to scale up and quicken the pace of CCS RD&D. Some argue that FutureGen was unique from its original conception. None of the other large-scale demonstration projects in the United States share the same original ambitious vision to create a new, one-of-a-kind, near-zero emission CCS plant from the ground up. Even though the individual components of FutureGen as it was originally conceived were not themselves new innovations, combining the capture, transportation, and storage components into a 250-megawatt functioning power plant could be considered unprecedented and therefore likely to experience delays at each step in development. Scholars have described the stages of technological change in different schemes, such as invention, innovation, adoption, diffusion; or technology readiness levels (TRLs) ranging from TRL 1 (basic technology research) to TRL 9 (system test, launch, and operations); or conceptual design, laboratory/bench scale, pilot plant scale, full-scale demonstration plant, and commercial process. FutureGen was difficult to categorize within these schemes, in part because the project spanned a range of technology development levels irrespective of the particular scheme. The original conception of the FutureGen project arguably had aspects of conceptual design through commercial processes—all five components of the scheme listed as the third bullet above—which meant the project was intended to march through all stages in a linear fashion. As some scholars have noted, however, the stages of technological change are highly interactive, requiring learning by doing and learning by using, once the project progresses past its innovative stage into larger-scale demonstration and deployment. The task of tackling all the stages of technology development in one project—the original FutureGen—might have been too daunting and, in addition to other factors, contributed to the project's erratic progress since 2003. It remains to be seen whether the remaining large-scale demonstration projects funded by DOE under the Clean Coal Power Initiative (CCPI) Round 3 follow the path of FutureGen or achieve their technological development goals on time and within their current budgets. Presumably, lessons learned during the planning, construction, and operation of these demonstration projects will be shared with the broader electric power industry. Although DOE has pursued aspects of CCS RD&D since 1997, the Energy Policy Act of 2005 ( P.L. 109-58 ) provided a 10-year authorization for the basic framework of CCS research and development at DOE. The Energy Independence and Security Act of 2007 (EISA, P.L. 110-140 ) amended the Energy Policy Act of 2005 to include, among other provisions, authorization for seven large-scale CCS demonstration projects (in addition to FutureGen) that would integrate the carbon capture, transportation, and sequestration steps. (Large-scale demonstration programs and their potential significance are discussed below.) It can be argued that, since enactment of EISA, the focus and funding within the CCS RD&D program has shifted toward large-scale capture technology development through these and other demonstration projects. In addition to the annual appropriations provided for CCS RD&D, the Recovery Act ( P.L. 111-5 ) has been the most significant legislation that promotes and supports federal CCS RD&D program activities since passage of EISA. As discussed below, $3.4 billion in funding from the Recovery Act was intended to expand and accelerate the commercial deployment of CCS technologies to allow for commercial-scale demonstration in both new and retrofitted power plants and industrial facilities by 2020. On February 26, 2015, Senators Heitkamp and Kaine introduced S. 601 , the Advanced Clean Technology Investment in Our Nation Act of 2015, which would promote CCS for coal-fired utilities by a combination of loan guarantees, tax credits, and support for the DOE R&D effort in its coal program, among other things. The bill closely resembles legislation introduced by Senator Heitkamp in the 113 th Congress, S. 2152 (discussed below). More than a dozen bills introduced in the 113 th Congress would have addressed the proposed EPA rules and guidelines for reducing GHG emissions from new and existing coal-fired power plants. H.R. 3826 , the Electricity Security and Affordability Act, would have set requirements EPA must meet before the agency could issue GHG emission regulations under Section 111 of the Clean Air Act. The bill would have, in part, prohibited EPA from promulgating or implementing GHG emissions standards for fossil-fueled power plants until at least six power plants representative of the operating characteristics of electric generation units at different locations across the United States had demonstrated compliance with proposed emission limits for a continuous period of 12 months on a commercial basis. Companion legislation, S. 1905 , was referred to the Senate Committee on Environment and Public Works. Several bills introduced in the 113 th Congress would have provided federal incentives for accelerating the RD&D of CCS. For example, S. 2152 would have increased DOE CCS research and development, allowed for loan guarantees to qualified CCS projects, provided an investment tax credit for certain CCS facilities, and created a clean energy coal bond, among other things. Two related bills would have dealt with tax credits and loan guarantees. S. 2287 would have revised part of the tax code that allows a tax credit for CCS and would have amended EPAct to broaden the loan guarantee program for CCS, among other things. S. 2288 would have amended the tax code to expand the tax credits for CCS. S. 2776 would have established a fund for DOE to administer in establishing at least 10 commercial-scale CCS projects over 10 years. Several other bills introduced in the 113 th Congress would have touched on CCS-related issues. The U.S. Department of Energy states that the mission for the DOE Office of Fossil Energy is "to ensure the availability of ultra-clean (near-zero emissions), abundant, low-cost domestic energy from coal to fuel economic prosperity, strengthen energy security, and enhance environmental quality." Over the past several years, the DOE Fossil Energy Research and Development Program has increasingly shifted activities performed under its Coal Program toward emphasizing CCS as the main focus. The Coal Program represented between 68% and 70% of total Fossil Energy Research and Development appropriations from FY2012 to FY2015, indicating that CCS has come to dominate coal R&D at DOE. This reflects DOE's view that "there is a growing consensus that steps must be taken to significantly reduce [greenhouse gas] emissions from energy use throughout the world at a pace consistent to stabilize atmospheric concentrations of CO 2 , and that CCS is a promising option for addressing this challenge." The FY2016 President's budget request, however, would reduce the total funding for the Coal Program compared with the previous two fiscal years. In the FY2016 request, the coal program would represent 66% of the total Fossil Energy R&D appropriation. DOE acknowledges that the cost of deploying currently available CCS technologies is very high and that to be effective as a technology for mitigating GHG emissions from power plants, the costs for CCS must be reduced. For example, in 2010 DOE stated that the cost of deploying available CCS post-combustion technology on a supercritical pulverized coal-fired power plant would increase the cost of electricity by 80%. The challenge of reducing the costs of CCS technology is difficult to quantify. The Boundary Dam Plant in Canada is the only commercial-scale coal-fired power plant equipped with CCS, and it has been operating for less than one year. Nor is it easy to predict when lower-cost CCS technology will be available for widespread deployment in the United States. Nevertheless, DOE observes that "the United States can no longer afford the luxury of conventional long-lead times for RD&D to bear results." Thus the coal RD&D program is focused on achieving results that would allow for an advanced CCS technology portfolio to be ready by 2020 for large-scale demonstration. The following section describes the components of the CCS activities within DOE's coal R&D program and their funding history since FY2012. This report focuses on this time period because during that time DOE obligated Recovery Act funding for its CCS programs, greatly expanding the CCS R&D portfolio. This was expected to accelerate the transition of CCS technology to industry for deployment and commercialization. In addition, one remaining active project in the CCPI program that received funding in Round 2, prior to enactment of the Recovery Act—the Kemper County Energy Facility—also is discussed. Lastly, the Boundary Dam Project is described briefly, although it is a Canadian venture, because of its unique status as the only currently operating commercial-scale coal-fired power plant with CCS in the world. The 2010 RD&D CCS Roadmap described 10 different program areas pursued by DOE's Coal Program within the Office of Fossil Energy: (1) Innovations for Existing Plants (IEP); (2) Advanced Integrated Gasification Combined Cycle (IGCC); (3) Advanced Turbines; (4) Carbon Sequestration; (5) Solid State Energy Conversion Fuel Cells; (6) Fuels; (7) Advanced Research; (8) CCPI; (9) FutureGen; and (10) Industrial Carbon Capture and Storage Projects (ICCS). DOE changed the program structure for coal after FY2010, renaming and consolidating program areas. The program areas are divided into two main categories: (1) CCS Demonstration Programs and (2) CSS and Power Systems. Table 1 shows the current program structure and indicates which programs received Recovery Act funding. In its FY2016 budget justification, DOE states that the CCS and Power Systems R&D program supports secure, affordable, and environmentally acceptable near-zero emissions fossil energy technologies through research, development, and demonstration (RD&D) to improve the performance of advanced CCS technologies. Some programs are directly focused on one or more of the three steps of CCS: capture, transportation, and storage. For example, the carbon capture program supports R&D on post-combustion, pre-combustion, and natural gas capture. The carbon storage program supports the regional carbon sequestration partnerships, geological storage technologies, and other aspects of permanently sequestering CO 2 underground. In contrast, FutureGen from the outset was envisioned as combining all three steps: a zero-emission fossil fuel plant that would capture its emissions and sequester them in a geologic reservoir. Within the CCS Demonstrations Program Area, RD&D is also divided among different industrial sectors. The Clean Coal Power Initiative (CCPI) program area originally provided federal support to new coal technologies that helped power plants cut sulfur, nitrogen, and mercury pollutants. As CCS became the focus of coal RD&D, the CCPI program shifted to reducing GHG emissions by boosting plant efficiencies and capturing CO 2 . In contrast, the ICCS program area demonstrates carbon capture technology for the non-power plant industrial sector. Both these program areas focus on the demonstration component of RD&D, and account for $2.3 billion of the $3.4 billion appropriated for CCS RD&D in the Recovery Act in FY2009. From the budgetary perspective, the Recovery Act funding shifted the emphasis of CCS RD&D to large, industrial demonstration projects for carbon capture. The CCPI and ICCS program areas are discussed in more detail below. This shift in emphasis to the demonstration phase of carbon capture technology is not surprising, and appears to heed recommendations from many experts who have called for large, industrial-scale carbon capture demonstration projects. Primarily, the call for large-scale CCS demonstration projects that capture 1 million metric tons or more of CO 2 per year reflects the need to reduce the additional costs to the power plant or industrial facility associated with capturing the CO 2 before it is emitted to the atmosphere. The capture component of CCS is the costliest component, according to most experts. The higher estimated costs to build and operate power plants with CCS compared with plants without CCS, and the uncertainty in cost estimates, results in part from a dearth of information about outstanding technical questions in carbon capture technology at the industrial scale. Some cost data are emerging, however, now that the Kemper County Energy Facility is close to completion and the Canadian Boundary Dam project is operating (both discussed below). The Administration requests approximately $191 million for FY2016 for other programs pursuing fossil energy R&D and support activities. The largest activity is program direction ($114 million requested), which provides for DOE headquarters support and for federal field and contractor support of the overall fossil energy R&D programs. These activities would support CCS-related activities directly and indirectly. The second-largest activity is natural gas technologies ($44 million), which supports collaborative research to foster safe and prudent development of shale gas resources, the reduction of methane emissions from natural gas infrastructure, and research on gas hydrates. The other activities listed in Table 1 , plant and capital, environmental restoration, and supercomputer, total approximately $33 million in the FY2016 request. In comparative studies of cost estimates for other environmental technologies, such as for power plant scrubbers that remove sulfur and nitrogen compounds from power plant emissions (SO 2 and NOx), some experts note that the farther away a technology is from commercial reality, the more uncertain is its estimated cost. At the beginning of the RD&D process, initial cost estimates could be low, but could typically increase through the demonstration phase before decreasing after successful deployment and commercialization. Figure 1 shows a cost estimate curve of this type. Deploying commercial-scale CCS demonstration projects—an emphasis within the DOE CCS RD&D program—would therefore provide cost estimates closer to operational conditions rather than laboratory- or pilot-plant-scale projects. In the case of SO 2 and NOx scrubbers, efforts typically took two decades or more to bring new concepts (such as combined SO 2 and NOx capture systems) to the commercial stage. As Figure 1 indicates, costs for new technologies tend to fall over time with successful deployment and commercialization. It would be reasonable to expect a similar trend for CO 2 capture costs if the technologies become widely deployed. DOE awarded Southern Company Services a cooperative agreement under the CCPI Round 2 program, prior to enactment of the Recovery Act and the CCPI Round 3 awards, to develop technology at the Kemper County Energy Facility in Kemper County, Mississippi. The $270 million award was aimed to provide direct financial support for the development and deployment of a gasification technology called Transport Integrated Gasification (TRIG TM ). The Kemper County Project is an integrated gasification combined-cycle (IGCC) power plant that will be owned and operated by Mississippi Power Company, a subsidiary of Southern Company, and which will use lignite as a fuel source. The plant is expected to have an estimated peak net output capability of 582 megawatts, and is designed to capture 65% of the total CO 2 emissions released from the plant. According to DOE, this would make the CO 2 emissions from the Kemper Project comparable to a natural gas-fired combined cycle power plant, and would therefore emit less than the 1,100 pounds per megawatt-hour limit as required by the new EPA proposed rule. The estimated 3 million tons of CO 2 captured each year from the plant would be transported via newly constructed pipeline for use in enhanced oil recovery operations at nearby depleted oil fields in Mississippi. Commercial operation of the Kemper County Project has been delayed several times since construction began in 2010. According to a Mississippi Power timeline for the project, commercial operation will begin sometime in 2016. The project also has cost far more than the original estimate. The $270 million award under Round 2 of the CCPI program represented approximately 10% of what DOE had reported as the overall cost to build the plant, approximately $2.67 billion. However, in April 2013 the company announced that capital costs would be closer to $3.4 billion, approximately $1 billion higher than original cost estimates for the plant. In early April 2014, Mississippi Power released documents indicating that the project was on schedule to begin operations in the last quarter of 2014 but that the total cost for the plant, including the lignite mine, CO 2 pipeline, land purchase, and all the other components of the full project, had risen to approximately $5.2 billion. In late April 2014, Mississippi Power again modified its cost and schedule estimates, adjusting costs upward by $61 million related to construction issues and $135 million related to the extension of the start-up date into 2015. According to some reports, the overall cost of the plant may now exceed $6 billion when complete and ready for commercial operation, and the schedule for start-up of commercial operations has been pushed to 2016. It is likely that the plant will attract increased scrutiny in the wake of the EPA proposed rule on CO 2 emissions, and its cost and schedule overruns evaluated against the promised environmental benefits due to CCS technology. As Figure 1 shows, costs for technologies tend to peak for projects in the demonstration phase of development, such as the Kemper County Project. What the cost curve will look like, namely, how fast costs will decline and over what time period, is an open question and will likely depend on if and how quickly CCS technology is deployed on new and existing power plants. The Boundary Dam Project, operated by SaskPower, is a Canadian venture, and it is the only commercial-scale power plant with CCS operating in the world. Some of its published cost and schedule data may be helpful to those trying to understand the financing and time requirements for other commercial-scale CCS projects. The cost for the project was approximately $1.3 billion, according to one source, of which $800 million was for building the CCS process, and the remaining $500 million was for retrofitting the Boundary Dam Unit 3 coal-fired generating unit. The project also received $240 million from the Canadian federal government. Boundary Dam started operating in October 2014, after a four-year construction and retrofit of the 150 megawatt generating unit. The final project was smaller than earlier plans to build a 300 megawatt CCS plant, but that plant may have cost as much as $3.8 billion. The larger-scale project was discontinued because of the escalating costs. Like the Kemper Plant discussed above, Boundary Dam is a project that sells CO 2 for enhanced oil recovery, shipping 90% of the captured CO 2 via a 41-mile pipeline to the Weyburn Field. Unused CO 2 will be stored in a deep saline aquifer about 2.1 miles underground. The now-operating 110 megawatt (net) plant plans to capture at least 1 million tons of CO 2 per year. The bulk of Recovery Act funds for CCS ($3.32 billion, or 98%) was directed to three subprograms organized under the CCS Demonstrations Programs: the Clean Coal Power Initiative (CCPI), Industrial Carbon Capture and Storage projects (ICCS), and FutureGen ( Table 1 ). Under the 2010 CCS Roadmap , and with the large infusion of funding from the Recovery Act, DOE's goal is to develop the technologies to allow for commercial-scale demonstration in both new and retrofitted power plants and industrial facilities by 2020. The DOE 2011 Strategic Plan sets a more specific target: to bring at least five commercial-scale CCS demonstration projects online by 2016. It could be argued that in its allocation of Recovery Act funding, DOE was heeding the recommendations of some experts who identified commercial-scale demonstration projects as the most important component, the lynchpin, for future development and deployment of CCS in the United States. It could also be argued that much of the future success of CCS is riding on these three programs. Accordingly, the following section provides a snapshot of the CCPI, ICCS, and FutureGen programs, and a brief discussion of some of their accomplishments and challenges. The Clean Coal Power Initiative was an ongoing program prior to the $800 million funding increase from the Recovery Act. This funding now is being used to expand activities in this program area for CCPI Round 3 beyond developing technologies to reduce sulfur, nitrogen, and mercury pollutants from power plants. After enactment of the Recovery Act, DOE did not request additional funding for CCPI under its Fossil Energy program in the annual appropriations process ( Table 1 shows zero dollars for FY2012-FY2015). Rather, in the FY2010 DOE budget justification, DOE stated that funding for the these projects in CCPI Round 3 would be supported through the Recovery Act, and as a result "DOE will make dramatic progress in demonstrating CCS at commercial scale using these funds without the need for additional resources for demonstration in 2010." According to the 2010 DOE CCS Roadmap , Recovery Act funds have been used for these demonstration projects to "allow researchers broader CCS commercial-scale experience by expanding the range of technologies, applications, fuels, and geologic formations that are being tested." DOE selected six projects under CCPI Round 3 through two separate solicitations. The total DOE share of funding would have been $1.75 billion for the six projects in five states: Alabama, California, North Dakota, Texas, and West Virginia ( Table 2 ). However, the projects in Alabama, North Dakota, and West Virginia withdrew from the program, and currently the DOE share for the remaining three projects is approximately $1.03 billion (of a total of over $6 billion for total expected costs). With the withdrawal of three CCPI Round 3 projects, DOE's share of the total program costs shrank from over 21% to approximately 15%. Commercial sector partners identified a number of reasons for withdrawing from the CCPI program, including finances, uncertainty regarding future regulations, and uncertainty regarding the future national climate policy. Southern Company—Plant Barry 160 Megawatt Project : Southern Company withdrew its Alabama Plant Barry project from the CCPI program on February 22, 2010, slightly more than two months after DOE Secretary Chu announced $295 million in DOE funding for the 11-year, $665 million project that would have captured up to 1 million tons of CO 2 per year from a 160 megawatt coal-fired generation unit. According to some sources, Southern Company's decision was based on concern about the size of the company's needed commitment (approximately $350 million) to the project, and its need for more time to perform due diligence on its financial commitment, among other reasons. Southern Company continues work on a much smaller CCS project that would capture CO 2 from a 25 megawatt unit at Plant Barry. Basin Electric Power—Antelope Valley 120 Megawatt Project : On July 1, 2009, Secretary Chu announced $100 million in DOE funding for a project that would capture approximately 1 million tons of CO 2 per year from a 120 megawatt electric-equivalent gas stream from the Antelope Valley power station near Beulah, ND. In December 2010, the Basin Electric Power Cooperative withdrew its project from the CCPI program, citing regulatory uncertainty with regard to capturing CO 2 , uncertainty about the project's cost (one source indicates that the company estimated $500 million total cost; DOE estimated $387 million—see Table 2 ), uncertainty of environmental legislation, and lack of a long-term energy strategy for the country. The project would have supplied the captured CO 2 to an existing pipeline that transports CO 2 from the Great Plains Synfuels Plant near Beulah for enhanced oil recovery in Canada's Weyburn field approximately 200 miles north in Saskatchewan. American Electric Power—Mountaineer 235 Megawatt Project : In July 2011 American Electric Power (AEP) decided to halt its plans to build a carbon capture plant for a 235 megawatt generation unit at its 1.3 gigawatt Mountaineer power plant in New Haven, WV. The project represented Phase 2 of an ongoing CCPI project. Secretary Chu had earlier announced a $334 million award for the project on December 4, 2009. According to some sources, AEP dropped the project because the company was not certain that state regulators would allow it to recover the additional costs for the CCS project through rate increases charged to its customers. In addition, company officials cited broader economic and policy conditions as reasons for cancelling the project. Some commentators suggested that congressional inaction on setting limits on GHG emissions, as well as the weak economy, may have diminished the incentives for a company like AEP to invest in CCS. One source concluded that "Phase 2 has been cancelled due to unknown climate policy." According to DOE, $140 million of the $295 million previously allotted to the Southern Company Plant Barry project was redistributed to the Texas Clean Energy project and the Hydrogen Energy California project. DOE provided additional funding, resulting in each project receiving an additional $100 million above its initial award. The remaining funding from the canceled Plant Barry project (up to $154 million) was allotted to the NRG Energy project in Texas (now the Petra Nova Energy Project; see Table 2 ). According to a DOE source, selection of the Basin Electric Power project was announced but a cooperative agreement was never awarded by DOE. Funds that were to be obligated for the Basin project could therefore have been reallocated within the department, but were rescinded by Congress in FY2011 appropriations. Some of the funding for the AEP Mountaineer project was rescinded by Congress in FY2012 appropriations legislation ( P.L. 112-74 ). In the report accompanying P.L. 112-74 , Congress rescinded a total of $187 million of prior-year balances from the Fossil Energy Research and Development account. The rescission did not apply to amounts previously appropriated under P.L. 111-5 ; however, funding for the AEP Mountaineer project that was provided by the Recovery Act and not spent was returned to the Treasury and not made available to the CCPI program. The original DOE ICCS program was divided into two main areas: Area 1, consisting of large industrial demonstration projects; and Area 2, consisting of projects to test innovative concepts for the beneficial reuse of CO 2 . Under Area 1, the first phase of the program consisted of 12 projects cost-shared with private industry, intended to increase investment in clean industrial technologies and sequestration projects. Phase 1 projects averaged approximately seven months in duration. Following Phase 1, DOE selected three projects for Phase 2 for design, construction, and operation. The three Phase 2 projects are listed as large-scale demonstration projects in Table 3 . The total share of DOE funding for the three projects, provided by the Recovery Act, is $686 million, or approximately 64% of the sum total Area 1 program cost of $1.075 billion. Under Area 2, the initial phase consisted of $17.4 million in Recovery Act funding and $7.7 million in private-sector funding for 12 projects to engage in feasibility studies to examine the beneficial reuse of CO 2 . In July 2010, DOE selected six projects from the original 12 projects for a second phase of funding to find ways of converting captured CO 2 into useful products such as fuel, plastics, cement, and fertilizer. The six projects are listed under "Innovative Concepts/Beneficial Use" in Table 3 . The total share of DOE funding for the six projects, provided by the Recovery Act, is $141.5 million, or approximately 71% of the sum total cost of $198.2 million. Since its original conception, the DOE ICCS program has expanded with an additional 22 projects, funded under the Recovery Act, to accelerate promising technologies for CCS. In its listing of the 22 projects, DOE groups them into four general categories: (1) Large-Scale Testing of Advanced Gasification Technologies; (2) Advanced Turbo-Machinery to Lower Emissions from Industrial Sources; (3) Post-Combustion CO 2 Capture with Increased Efficiencies and Decreased Costs; and (4) Geologic Storage Site Characterization. The total share of DOE funding for the 22 projects, provided by the Recovery Act, is $594.9 million, or approximately 78% of the sum total cost of $765.2 million. Overall, the total share of federal funding for all the ICCS projects combined is $1.422 billion, or approximately 70% of the sum total cost of $2.038 billion. DOE allocated $112 million in FY2012, $107 million in FY2013, $109 million in FY2014, $100 million in FY2015, and is requesting $109 million in FY2016 for its carbon sequestration and storage activities. (See Table 1 .) In contrast with the carbon capture technology RD&D, which received nearly all of the $3.4 billion from Recovery Act funding, carbon sequestration/carbon storage activities received approximately $50 million in Recovery Act funds. Recovery Act funds were awarded for 10 projects to conduct site characterization of promising geologic formations for CO 2 storage. DOE has devoted the bulk of its funding for geological sequestration/storage activities to RD&D efforts for injecting CO 2 into subsurface geological reservoirs. Injection and storage is the third step in the CCS process, following the CO 2 capture step and CO 2 transport step. One part of the RD&D effort is characterizing geologic reservoirs (which received a $50 million boost from Recovery Act funds, as noted above); however, the overall program is much broader than just characterization, and has now reached the beginning of the phase of large-volume CO 2 injection demonstration projects across the country. According to DOE, these large-volume tests are needed to validate long-term storage in a variety of different storage formations of different depositional environments, including deep saline reservoirs, depleted oil and gas reservoirs, low permeability reservoirs, coal seams, shale, and basalt. The large-volume tests can be considered injection experiments conducted at a commercial scale (i.e., approximately 1 million tons of CO 2 injected per year) that should provide crucial information on the suitability of different geologic reservoirs; monitoring, verification, and accounting of injected CO 2 ; risk assessment protocols for long-term injection and storage; and other critical challenges. In 2003 DOE created seven regional carbon sequestration partnerships (RCSPs), essentially consortia of public and private sector organizations grouped by geographic region across the United States and parts of Canada. The geographic representation was intended to match regional differences in fossil fuel use and geologic reservoir potential for CO 2 storage. The RCSPs cover 43 states and 4 Canadian provinces and include over 400 organizations, according to the DOE 2011 Strategic Plan . Table 4 shows the seven partnerships, the lead organization for each, and the states and provinces included. Several states belong to more than one RCSP. The RCSPs have pursued their objectives through three phases beginning in 2003: (1) Characterization Phase (2003 to 2005), an initial examination of the region's potential for geological sequestration of CO 2 ; (2) Validation Phase (2005 to 2011), small-scale injection field tests (less than 500,000 tons of CO 2 ) to develop a better understanding of how different geologic formations would handle large amounts of injected CO 2 ; and (3) Development Phase (2008 to 2018 and beyond), injection tests of at least 1 million tons of CO 2 to simulate commercial-scale quantities of injected CO 2 . The last phase is intended also to collect enough information to help understand the regulatory, economic, liability, ownership, and public outreach requirements for commercial deployment of CCS. There are RD&D activities funded by DOE under its carbon sequestration/carbon storage program activities other than the RCSPs, such as geological storage technologies; monitoring, verification, and assessment; carbon use and reuse; and others. However, the RCSPs were allocated approximately 66% of annual spending on carbon sequestration/carbon storage in FY2015, and comprised 58% of that account in the FY2016 budget request. The RCSPs provide the framework and infrastructure for a wide variety of DOE geologic sequestration/storage activities. The third phase—Development—is currently underway for all the RCSPs, and large-scale CO 2 injection has begun for the SECARB and MGSC projects. The Development Phase large-scale injection projects are arguably akin to the large-scale carbon capture demonstration projects discussed above (see Table 2 ). They are needed to understand what actually happens to CO 2 underground when commercial-scale volumes are injected in the same or similar geologic reservoirs as would be used if CCS were deployed nationally. In addition to understanding the technical challenges to storing CO 2 underground without leakage over hundreds of years, DOE also expects that the Development Phase projects will provide a better understanding of regulatory, liability, and ownership issues associated with commercial-scale CCS. These nontechnical issues are not trivial, and could pose serious challenges to widespread deployment of CCS even if the technical challenges of injecting CO 2 safely and in perpetuity are resolved. For example, a complete regulatory framework for managing the underground injection of CO 2 has not been developed in the United States. However, EPA promulgated a rule under the authority of the Safe Drinking Water Act (SDWA) that creates a new class of injection wells under the existing Underground Injection Control Program. The new class of wells (Class VI) establishes national requirements specifically for injecting CO 2 and protecting underground sources of drinking water. EPA's stated purpose in proposing the rule was to ensure that CCS can occur in a safe and effective manner in order to enable commercial-scale CCS to move forward. The development of the regulation for Class VI wells highlighted that EPA's authority under the SDWA is limited to protecting underground sources of drinking water but does not address other major issues. Some of these include the long-term liability for injected CO 2 , regulation of potential emissions to the atmosphere, legal issues if the CO 2 plume migrates underground across state boundaries, private property rights of owners of the surface lands above the injected CO 2 plume, and ownership of the subsurface reservoirs (also referred to as pore space). Because of these issues and others, there are some indications that broad community acceptance of CCS may be a challenge. The large-scale injection tests may help identify the key factors that lead to community concerns over CCS, and help guide DOE, EPA, other agencies, and the private sector towards strategies leading to the widespread deployment of CCS. Currently, however, the general public is largely unfamiliar with the details of CCS and these challenges have yet to be resolved. Testimony from Scott Klara of the National Energy Technology Laboratory sums up a crucial metric for the success of the federal CCS RD&D program, namely, whether CCS technologies are deployed in the commercial marketplace: The success of the Clean Coal Program will ultimately be judged by the extent to which emerging technologies get deployed in domestic and international marketplaces. Both technical and financial challenges associated with the deployment of new "high risk" coal technologies must be overcome in order to be capable of achieving success in the marketplace. Commercial scale demonstrations help the industry understand and overcome startup issues, address component integration issues, and gain the early learning commercial experience necessary to reduce risk and secure private financing and investment for future plants. To date, there are no commercial ventures in the United States that capture, transport, and inject large quantities of CO 2 (e.g., 1 million tons per year or more) solely for the purposes of carbon sequestration. The Kemper County Energy project likely will be the first to do so, although the majority of the injected CO 2 will be for purposes of enhanced oil recovery. The Boundary Dam Project in Canada, which began operations in 2014, is the first commercial-scale power plant with CCS in operation in the world. Boundary Dam also sends most of its captured CO 2 to a nearby oilfield for enhanced oil recovery. The DOE CCS RD&D program has embarked on commercial-scale demonstration projects for CO 2 capture, injection, and storage. The success of these demonstration projects will likely bear heavily on the future outlook for widespread deployment of CCS technologies as a strategy for preventing large quantities of CO 2 from reaching the atmosphere while plants continue to burn fossil fuels, mainly coal. The proposed EPA standard to limit CO 2 emissions from new coal-fired power plants has invited renewed scrutiny of CCS technology and its prospects for commercial deployment. Congress may wish to carefully review the CCS R&D program and particularly the results from the demonstration projects as they progress. Such a review could help Congress evaluate whether DOE is on track to meet its goal of allowing for an advanced CCS technology portfolio to be ready by 2020 for large-scale demonstration and deployment in the United States. In addition to the issues and programs discussed above, other factors might affect the demonstration and deployment of CCS in the United States. The use of hydraulic fracturing techniques to extract unconventional natural gas deposits recently has drawn national attention to the possible negative consequences of deep well injection of large volumes of fluids. Hydraulic fracturing involves the high-pressure injection of fluids into the target formation to fracture the rock and release natural gas or oil. The injected fluids, together with naturally occurring fluids in the shale, are referred to as produced water. Produced waters are pumped out of the well and disposed of. Often the produced waters are disposed of by re-injecting them at a different site in a different well. These practices have raised concerns about possible leakage as fluids are pumped into and out of the ground, and about deep-well injection causing earthquakes. Public concerns over hydraulic fracturing and deep-well injection of produced waters may spill over into concerns about deep-well injection of CO 2 . How successfully DOE is able to address these types of concerns as the large-scale demonstration projects move forward into their injection phases could affect the future of CCS deployment. | Carbon capture and sequestration (or storage)—known as CCS—is a physical process that involves capturing manmade carbon dioxide (CO2) at its source and storing it before its release to the atmosphere. The U.S. Department of Energy (DOE) has pursued research and development (R&D) of aspects of the three main steps leading to an integrated CCS system since 1997. Congress has appropriated nearly $7 billion in total since FY2008 for CCS research, development, and demonstration (RD&D) at DOE's Office of Fossil Energy: nearly $3.5 billion in total annual appropriations (including FY2015) and $3.4 billion from the American Recovery and Reinvestment Act (Recovery Act; P.L. 111-5). The large influx of Recovery Act funding for industrial-scale CCS projects was intended to accelerate development and deployment of CCS in the United States. Since enactment of the Recovery Act, DOE has shifted its RD&D emphasis to the demonstration phase of carbon capture technology. To date, however, there are no commercial ventures in the United States that capture, transport, and inject industrial-scale quantities of CO2 solely for the purpose of carbon sequestration. The success of DOE CCS demonstration projects likely will influence the outlook for widespread deployment of CCS technologies as a strategy for preventing large quantities of CO2 from reaching the atmosphere while U.S. power plants continue to burn fossil fuels, mainly coal. One project, the Kemper County Facility, has received $270 million from DOE under its Clean Coal Power Initiative (CCPI) Round 2 program and is slated to begin commercial operation in 2016. The 582 megawatt-capacity facility anticipates capturing 65% of its CO2 emissions, making it equivalent to a new natural gas-fired combined cycle power plant. Cost and schedule overruns at the Kemper Plant, however, have raised questions over the relative value of environmental benefits from CCS technology compared with construction costs of the facility and its effect on ratepayers. In 2014, the U.S. Environmental Protection Agency (EPA) proposed emission standards for new and existing fossil-fueled electric generating units under Section 111 of the Clean Air Act. New natural gas-fired stationary power plants should be able to meet the proposed standard for new plants without additional cost and without the need for add-on control technology. However, the only apparent technical way for new coal-fired plants to meet the standard would be to install CCS technology. The proposed rule has sparked increased scrutiny of the future of CCS as a viable technology for reducing CO2 emissions from coal-fired power plants. Given the pending EPA rule, congressional interest in the future of coal as a domestic energy source appears directly linked to the future of CCS. Debate has been mixed as to whether the rule would spur development and deployment of CCS for new coal-fired power plants or have the opposite effect. Congressional oversight of the CCS RD&D program could help inform decisions about the level of support for the program and help Congress gauge whether it is on track to meet its goals. In the 114th Congress, a bill has been introduced (S. 601) that would promote CCS for coal-fired utilities by a combination of loan guarantees, tax credits, and supporting the DOE R&D effort in its coal program, among other things. A similar bill was introduced in the 113th Congress but was not enacted. One issue is whether congressional oversight is needed of the CCS R&D program, particularly of the results from the demonstration projects as they progress. Such a review could help Congress evaluate whether DOE is on track to meet its goal of allowing for an advanced CCS technology portfolio to be ready by 2020 for large-scale demonstration and deployment in the United States. |
The term revenue is defined as funds collected from the public that arise from the government's exercise of its sovereign or governmental powers. Federal revenues come from a variety of sources, including individual and corporate income taxes, excise taxes, customs duties, estate and gift taxes, fees and fines, payroll taxes for social insurance programs, and miscellaneous receipts (such as earnings of the Federal Reserve System, donations, and bequests). The executive branch often uses the term receipts or governmental receipts in place of the term revenues . The collection of revenue is a fundamental component of the federal budget process that provides the government with the money necessary to fund agencies and programs. Further, the collection of revenue directly effects individual citizens and businesses and, in some cases, can achieve specific policy outcomes. The Constitution grants Congress this considerable power to "lay and collect taxes, duties, imposts, and excises." Most revenue is collected by the federal government as a result of previously enacted law that continues in effect without any need for congressional action. However, Congress routinely considers revenue legislation that repeals existing provisions, extends expiring provisions, or creates new provisions. Such legislation may (1) increase revenues, (2) decrease revenues by lowering taxes or by providing new exemptions, deductions, or credits—often referred to as tax expenditures —or (3) redistribute the incidence of taxation without significantly changing overall revenue amounts. Revenue legislation may make changes to excise taxes, individual and corporate income taxes, social insurance taxes, or tariffs and duties. Congress may consider such legislation either as a measure dedicated solely to revenues or as a provision in another type of measure. (It should be noted that the phrase "revenue measures" as used throughout this report applies to all measures containing revenue provisions.) As with all legislation considered by Congress, revenue measures are subject to general House and Senate rules. In addition, revenue measures are subject to further House and Senate rules, as well as constitutional and statutory requirements (e.g., the Origination Clause, the Congressional Budget Act of 1974). The purposes of such revenue-specific rules are generally to centralize and coordinate the development and consideration of revenue legislation, to provide Members of Congress with the information necessary to judge the merits of revenue legislation, and to control the budgetary impact of revenue measures. Such rules significantly affect revenue legislation, in particular by shaping their content and having an impact on their timing. This report provides an overview and analysis of the most consequential revenue-specific rules that apply during the process of developing and considering revenue legislation, including when they apply and to what legislation. The requirements related to the origination and referral of revenue measures are derived from the Constitution, as well as House and Senate rules, and are supplemented by established practice and policies established by the Speaker. The general effect of such rules and practice is to define what constitutes "revenue" in order to allow Congress to centralize and coordinate the development and consideration of revenue measures. Article I, Section 7, clause 1, of the U.S. Constitution, referred to as the Origination Clause, states: All Bills for Raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills. This clause prescribes that the House, not the Senate, must originate measures that contain revenue provisions. It is generally accepted that the goal of the Origination Clause was to grant the power to tax to the chamber directly elected by the people and as part of the compromise that enabled the Philadelphia Convention to create a bicameral Congress. The Senate may author revenue provisions but only as amendments to House-originated measures that already contain revenue provisions. Senate rules place no general limits, however, on the Senate's power to amend, so the Senate may amend a House bill containing revenues with any other type of revenue provisions. For instance, in the 111 th Congress, the Senate took up H.R. 3590 , a House bill to provide tax credits to servicemembers, and inserted in the bill language overhauling the health care system including a number of revenue provisions, which ultimately became the Patient Protection and Affordable Care Act ( P.L. 111-148 ). The Origination Clause does not necessarily extend to other types of receipts or collections, often referred to as "user fees," which are further discussed below, nor to budget resolutions, because budget resolutions only establish revenue levels for governing subsequent consideration of legislation and do not provide revenue-raising language. As with other provisions of the Constitution, the Supreme Court can hear cases concerning the Origination Clause. If the Court were to find that a revenue bill had been enacted in violation of the Origination Clause, the statute could be struck down. Additionally, the House and Senate each have internal procedures and practices related to enforcement of the Origination Clause. If the House determines that a measure received from the Senate violates its prerogatives under the Origination Clause, it may respond by employing either the formal procedure of "blue-slipping" or a number of other less formal practices. Blue-Slipping House Rule IX, clause 2(a)(1), provides for the process of blue-slipping, which is the term used to describe the act of formally returning a measure to the Senate that the House has determined violates the Origination Clause. The term blue-slipping is derived from the color of paper on which the resolution returning the offending bill to the Senate is printed. If the House decides to use the blue-slip procedure, a Member—typically the chair of the House Ways and Means Committee —raises a question of the privileges of the House in the form of a resolution expressing that the prerogatives of the House have been violated. The text of such a resolution typically reads: Resolved, That the bill of the Senate ... in the opinion of this House, contravenes the first clause of the seventh section of the first article of the Constitution of the United States and is an infringement of the privileges of this House and that such bill be respectfully returned to the Senate with a message communicating this resolution. This is a highly privileged resolution and has precedence over all other motions, except a motion to adjourn. If the Speaker determines that the resolution does raise a valid question of privilege, the House proceeds to the immediate consideration of the resolution. The resolution is considered under the hour rule, and if agreed to, the resolution is sent, along with the offending measure, back to the Senate. Other Practices As a constitutional requirement, the House has an affirmative responsibility to enforce the Origination Clause if it determines that the Senate has violated its prerogative, so it cannot be waived. It does not, however, have to blue-slip the measure but may respond to the offending measure in several other less formal ways. For example, the House may simply take no action on the violating measure or refer the measure to committee, in which case the committee may choose to report a House bill rather than to consider the Senate bill further. The House may also use a conference committee or an exchange of amendments between the chambers as a way of dealing with a questionable measure by removing the offending provision. The Origination Clause can also be enforced by the Senate. Any Senator may raise a point of order if the pending measure or amendment is in question of violating the Constitution. Constitutional points of order are submitted by the presiding officer directly to the Senate to be decided by majority vote. Although revenue provisions can deal with different types of subject matter, both House and Senate rules grant only one committee in each chamber jurisdiction over revenue measures: the House Ways and Means Committee (House Rule X, clause(1)(t)) and the Senate Finance Committee (Senate Rule XXV, clause (1)(i)). Revenue measures introduced in either chamber, therefore, are referred to these committees. House and Senate rules protect the jurisdiction of these committees not only through referral but also by making certain legislation that contains revenue provisions out of order if not reported by either revenue committee. The Budget Committees, however, may affect revenue legislation in two major ways: (1) by setting forth overall revenue totals in the budget resolutions that can be enforced by points of order on the House and Senate floor, and (2) by including reconciliation instructions in the budget resolution that direct the House Ways and Means and Senate Finance Committees to report revenue changes within their jurisdictions that would accomplish a particular budgetary goal. For more information, see sections on the budget resolution and budget reconciliation process below. House Rule X grants the House Ways and Means Committee jurisdiction over revenue measures, including customs revenue, revenue measures generally, and revenue measures relating to insular possessions. House rules provide that every measure be referred to each committee having jurisdiction over subject matter within the bill to the maximum extent feasible, thereby requiring any measure containing a revenue provision to be referred to the Ways and Means Committee for consideration of those provisions. In the House, if a measure contains provisions that touch on the jurisdiction of more than one committee, the Speaker designates a committee of primary jurisdiction and then will typically refer the bill to one or more additional committees for consideration of the portion of the measure within that committee's jurisdiction. Therefore, if a measure is predominantly revenue related, Ways and Means would be the committee of primary referral. If the measure is not predominantly revenue related but contains revenue provisions, it would be referred a committee of primary jurisdiction and also to Ways and Means for consideration of revenue provisions. House rules further protect the jurisdiction of the Ways and Means Committee by providing for a point of order against any measure or amendment containing a tax or tariff provision if not reported from Ways and Means. Specifically, the rule states: A bill or joint resolution carrying a tax or tariff measure may not be reported by a committee not having jurisdiction to report tax or tariff measures, and an amendment in the House or proposed by the Senate carrying a tax or tariff measure shall not be in order during the consideration of a bill or joint resolution reported by a committee not having that jurisdiction. A point of order against a tax or tariff measure in such a bill, joint resolution, or amendment thereto, may be raised at any time during pendency of that measure for amendment. It should be noted that the jurisdiction of the Ways and Means Committee over revenue provisions is broad, and therefore even provisions having a less obvious effect on revenues, such as import restrictions, are encompassed in its jurisdiction. Congress sometimes considers measures that include user or regulatory fees—for example, fees for entering a national park or user fees for water or mineral rights on federal land. While these fees, like revenues, represent money coming into the Treasury, they are treated differently in the federal budget process. User fees are often referred to as "offsetting receipts or collections," and for accounting proposes, they are typically counted as negative amounts of spending. Because user fees are not considered revenue, they are not typically under the jurisdiction of the Ways and Means Committee. The Speaker provided guidance on the distinction between revenues and fees at the beginning of the 111 th Congress in a policy statement: Standing committees of the House, other than the Committees on Appropriations and Budget, have jurisdiction to consider user, regulatory and other fees, charges, and assessments levied on a class directly availing itself of, or directly subject to, a governmental service, program, or activity, but not on the general public, as measures to be utilized solely to support, subject to annual appropriations, the service, program or activity, including agency functions associated therewith, for which such fees, charges, and assessments are established and collected and not finance the costs of government generally. The fee must be paid by a class benefiting from the service, program or activity, or being regulated by the agency; in short, there must be a reasonable connection between the payors and the agency or function receiving the fee. The fund that receives the amounts collected is not itself determinative of the existence of a fee or a tax. The statement provided further guidance on the referral of measures that include user fee provisions: The Committee on Ways and Means is entitled to an appropriate referral of broad based fees and could choose to recast such fees as excise taxes. A provision only reauthorizing or amending an existing fee without fundamental change, or creating a new fee generating only a de minimis aggregate amount of revenues, does not necessarily require a sequential referral to the Committee on Ways and Means. The Senate Senate Rule XXV grants the Senate Finance Committee jurisdiction over revenue measures, including revenue measures generally, except as provided in the Congressional Budget Act of 1974; revenue measures relating to the insular possessions; tariffs and import quotas; and matters related thereto. Senate rules require that a measure be referred to a single committee based on "the subject matter which predominates" in the legislation. In general, for any measures containing revenue provisions, such matter is regarded as predominant and the measure is referred to the Finance Committee, regardless of other subject matter. Although Senate rules allow for a measure to be referred to more than one committee, such multiple referrals are rare and are typically employed only by unanimous consent. The jurisdiction of Senate Committees, including the Senate Finance committee, is protected by Senate Rule XV, clause 5, which states: It shall not be in order to consider any proposed committee amendment (other than a technical, clerical, or conforming amendment) which contains any significant matter not within the jurisdiction of the committee proposing such amendment. As mentioned above, the Constitution prohibits the Senate from originating revenue measures, but current Senate practice generally allows the Senate Finance Committee to report revenue measures to be considered by the Senate in advance of receiving a revenue measure from the House. The text of such measures may later be inserted into a House revenue measure as an amendment. House and Senate rules have evolved to require specific materials to accompany revenue measures. The purpose of such rules is to provide Members with information on the content of the measure to assist them in considering the merits of the legislation. The requirement for revenue estimates is set forth in the Budget Act and further supplemented by House and Senate rules. It provides Members of Congress with information on the budgetary implications of the legislation. The Budget Act states that revenue measures reported from either the House Ways and Means Committee or the Senate Finance Committee require a prepared projection of how the measure will affect current revenue levels. Specifically, Section 308(a)(1) of the Congressional Budget Act requires that whenever a committee of either House reports a measure providing an increase or decrease in revenues or tax expenditures for a fiscal year (or fiscal years), the accompanying report must contain a statement, prepared after consultation with the director of the Congressional Budget Office (CBO), containing a projection by CBO of how the measure will affect the levels of revenues or tax expenditures under existing law for such fiscal year (or fiscal years) and each of the four ensuing fiscal years if it is timely submitted before such report is filed. The Budget Act also requires that any conference report that provides an increase or decrease in revenues for a fiscal year (or fiscal years) shall contain the same estimate described above if available on a timely basis. If such information is not available when the conference report is filed, the committee shall make it available as soon as practicable prior to the consideration of the conference report. For the purposes of estimating the budgetary impact of revenue legislation, Section 201(f) of the Congressional Budget Act requires CBO to "use exclusively during that session of Congress revenue estimates provided to it by the Joint Committee on Taxation." House Rule XIII, clause 3(c), states that a measure that has been reported by committee shall include in the accompanying committee report, separately set out and clearly identified, the statement required by Section 308(a) of the Budget Act described above. Senate Rule XXVI, paragraph 11(a), requires that any bill or joint resolution of a public character reported from committee include in the committee report an estimate of the costs that would be incurred in carrying out such bill or joint resolution in the fiscal year in which it is reported and in each of the five fiscal years following such fiscal year (or for the authorized duration of any program authorized by such bill or joint resolution if less than five years), except that, in the case of measures affecting revenues, such reports require only an estimate of the gain or loss in revenues for a one-year period. House Rules XIII, clause 3(h), requires a tax complexity analysis to be prepared by the Joint Committee on Taxation for bills and joint resolutions reported from the Ways and Means Committee that propose to amend the Internal Revenue Code of 1986. Such an analysis provides information on the relevant administrative issues raised by provisions that would amend the Internal Revenue Code. In effect, it answers the question of whether this provision would add significant complexity or provide significant simplification to the tax code either for individuals or businesses subject to the tax or for its administration. The rule states that it is not in order to consider a bill or joint resolution reported from the Ways and Means Committee that proposes to amend the Internal Revenue Code of 1986 unless (1) there is included in the committee report a tax complexity analysis prepared by the Joint Committee on Taxation in accordance with Section 4022(b) of the Internal Revenue Service Restructuring and Reform Act of 1998; or (2) the chairman of the committee causes a tax complexity analysis to be printed in the Congressional Record before the measure is considered. In 2007, the House and Senate adopted rules related to congressionally directed spending items, limited tax benefits, and limited tariff benefits. While the rules place requirements on Members of Congress requesting such items, (e.g., requiring certification that the Member has no financial interest in the request), this report addresses the requirements related to congressionally directed spending items, limited tax benefits, and limited tariff benefits included in revenue measures. The House and Senate adopted such rules to bring more transparency to the process of Members requesting congressional earmarks or limited tax and tariff benefits. House Rule XXI, clause 9, generally requires that certain types of measures be accompanied by a list of congressionally directed spending items, limited tax benefits, or limited tariff benefits that are included in the measure or its report or a statement that the proposition contains none. Depending upon the type of measure, the list or statement is to be either included in the measure's accompanying report or printed in the Congressional Record . If either the list or the statement is absent, a point of order may lie against the measure's floor consideration. The point of order applies only in the absence of such a list or letter and does not speak to the completeness or the accuracy of either document. As mentioned above, House Rule XXI, clause 9, applies not only to congressionally directed spending items but also to limited tax and tariff benefits. As provided in the rule, a limited tax benefit is defined as (1) any revenue-losing provision that (a) provides a federal tax deduction, credit, exclusion, or preference to 10 or fewer beneficiaries under the Internal Revenue Code of 1986, and (b) contains eligibility criteria that are not uniform in application with respect to potential beneficiaries of such provision; or (2) any federal tax provision that provides one beneficiary temporary or permanent transition relief from a change to the Internal Revenue Code of 1986. A limited tariff benefit is defined as a provision modifying the Harmonized Tariff Schedule of the United States in a manner that benefits 10 or fewer entities. House earmark disclosure rules apply to any congressionally directed spending item, limited tax benefit, or limited tariff benefit included in either the text of the measure or the committee report accompanying the measure, as well as the conference report and joint explanatory statement. The disclosure requirements apply to items in authorizing, appropriations, and revenue legislation. Furthermore, they apply not only to measures reported by committees but also to unreported measures, "manager's amendments," Senate measures, and conference reports. Such disclosure requirements, however, do not apply to all legislation at all times. For example, when a measure is considered under "suspension of the rules," House rules are laid aside; therefore these disclosure rules do not apply. Also not subject to the rule are floor amendments (except a "manager's amendment"), amendments between the houses, or amendments considered as adopted under a self-executing special rule, including a committee amendment in the nature of a substitute made in order as original text. Senate Rule XLIV prohibits a vote on a motion to proceed to consider a measure or a vote on adoption of a conference report unless the chair of the committee or the majority leader (or designee) certifies that a complete list of congressionally directed spending items, limited tax benefits, limited tariff benefits, and the name of each Senator requesting each is made available on a publicly accessible congressional website in a searchable form at least 48 hours before the vote. If the certification requirements have not been met, a point of order may lie against consideration of the measure or vote on the conference report. If a Senator proposes a floor amendment containing an additional congressionally directed spending item, limited tax benefit, or limited tariff benefit, those items must be printed in the Congressional Record as soon as "practicable." Rule XLIV applies not only to congressionally directed spending items but also limited tax benefits and limited tariff benefits. The rule defines limited tax benefit as any revenue provision that (1) provides a federal tax deduction, credit, exclusion, or preference to a particular beneficiary or limited group of beneficiaries under the Internal Revenue Code of 1986, and (2) contains eligibility criteria that are not uniform in application with respect to potential beneficiaries of such provision. Limited tariff benefit is defined as a provision modifying the Harmonized Tariff Schedule of the United States in a manner that benefits 10 or fewer entities. Such disclosure rules apply to any congressionally directed spending item, limited tax benefit, or limited tariff benefit included in either the text of the bill or the committee report accompanying the bill, as well as the conference report and joint explanatory statement. The disclosure requirements apply to items in authorizing, appropriations, and revenue legislation. Furthermore, they apply not only to measures reported by committees but also to unreported measures, amendments, House bills, and conference reports. The rule may be waived either by unanimous consent or by motion, which requires the affirmative vote of three-fifths of all Senators (60, if there is no more than one vacancy). This rule, as with most Senate rules, is not self-enforcing and relies instead on a Senator raising a point of order if the rule is violated. The annual budget resolution serves as a central coordinating mechanism for budgetary decisionmaking in Congress and affects the consideration of revenue measures in two major ways. First, it sets forth overall revenue totals that are enforceable on the House and Senate floor by points of order. Second, it may include reconciliation directives to the committees with jurisdiction over revenue measures. The budget resolution does not become law; it is not sent to the President for signature or veto. Instead, as a concurrent resolution, it is an agreement between the House and Senate that acts as a framework within which Congress considers legislation dealing with spending, revenue, and the debt limit. To establish this framework, the Congressional Budget Act requires that the budget resolution include several components, including an appropriate revenue level. Specifically, Section 301(a)(2) requires that the budget resolution set forth appropriate levels for "total Federal revenues and the amount, if any, by which the aggregate level of Federal revenues should be increased or decreased by bills and resolutions to be reported by the appropriate committees." In addition, the budget resolution is required to include such amounts for future years as well. Section 301(a) sets the requirement at "the fiscal year beginning on October 1 of such year, and planning levels for at least each of the 4 ensuing fiscal years." The budget resolution can include levels for a period longer than the four ensuing fiscal years and has included up to 10 ensuing years. One example of revenue levels included in the annual budget resolution is as follows: SEC. 101. RECOMMENDED LEVELS AND AMOUNTS. The following budgetary levels are appropriate for each of fiscal years 2009 through 2014: (1) FEDERAL REVENUES- For purposes of the enforcement of this resolution: (A) The recommended levels of Federal revenues are as follows: Fiscal year 2009: $1,532,571,000,000. Fiscal year 2010: $1,653,682,000,000. Fiscal year 2011: $1,929,625,000,000. Fiscal year 2012: $2,129,601,000,000. Fiscal year 2013: $2,291,120,000,000. Fiscal year 2014: $2,495,781,000,000. (B) The amounts by which the aggregate levels of Federal revenues should be changed are as follows: Fiscal year 2009: $0. Fiscal year 2010: -$12,304,000,000. Fiscal year 2011: -$159,006,000,000. Fiscal year 2012: -$230,792,000,000. Fiscal year 2013: -$224,217,000,000. Fiscal year 2014: -$137,877,000,000. The first set of numbers reflect the total amount of revenue or receipts that Congress has agreed should be brought into the federal government each fiscal year. The second set of numbers reflects the amount by which revenues projected to be collected under current law (the baseline) should be altered to reach the desired levels shown in the first set of numbers. The budget resolution may also include reconciliation directives instructing committees to develop and report legislation that will assist Congress in achieving the budgetary goals set forth in the annual budget resolution. For more information on rules pertaining to revenue measures considered under reconciliation, see the section below titled "Rules Applying to Revenue Measures Under the Reconciliation Process." In both the House and Senate, the revenue levels in the budget resolution are enforced in two main ways: (1) by generally prohibiting the chambers from considering revenue legislation until a budget resolution has been agreed to, and (2) once a budget resolution has been agreed to, by prohibiting the consideration of legislation that would cause the revenue levels in the budget resolution to be breached. Until a budget resolution has been agreed to, Section 303(a) of the Budget Act generally prohibits consideration of "any bill or joint resolution, amendment or motion thereto, or conference report thereon" that provides for an increase or decrease in revenues that will first become effective during that fiscal year. Section 303(a) can be waived in either chamber by a simple majority. Although this rule deals with the timing and not the content of revenue legislation, it deters Congress from considering legislation that would not be subject to the revenue levels set forth in a budget resolution. After the budget resolution has been agreed to by both chambers, all spending, revenue or debt limit legislation considered by Congress is expected to be consistent with the levels agreed to in the budget resolution. These are enforced by points of order on the House and Senate floors. Section 311(a)(1) of the Budget Act prohibits House consideration of legislation that would cause revenues to fall below the levels set forth in the budget resolution. Note, however, that it is in order for the House to consider legislation that would exceed the revenue level. For this reason, the revenue level in the resolution is referred to as the "revenue floor." Section 311(a)(1) applies to all legislation considered in the House, including bills, joint resolutions, amendments, the instructions in a motion to recommit, or conference reports. Section 311(a)(1) is enforceable by a Member raising a point of order on the House floor. Such a point of order can be waived in the House by a simple majority. In addition, Section 302(g) of the Budget Act, known as the Pay-As-You-Go exception, provides that Section 311(a)(1) shall not apply in the House under specific circumstances. The Pay-As-You-Go exception exempts revenue legislation that would otherwise be out of order for violating the "revenue floor" if such legislation, when taken in combination with other legislation, would not increase the deficit. Section 311(a)(2) of the Budget Act prohibits Senate consideration of legislation that would cause revenues to fall below the levels set forth in the budget resolution. Section 311(a)(2) applies to all legislation considered in the Senate, including bills, joint resolutions, amendments, or conference reports. Section 311(a)(2) is enforceable by a Senator raising a point of order on the Senate floor. Under Section 904 of the Budget Act, the Senate may waive the application of such a point of order by a vote of three-fifths of all Senators (60 votes if there is no more than one vacancy). Although currently only the Senate has a PAYGO rule, both chambers have employed them at some time. In addition, statutory PAYGO was reestablished in February 2010. While congressional PAYGO rules differ from statutory PAYGO (as described below), both derive their name from the term "pay-as-you-go," and their general purpose is to prevent the enactment of mandatory spending or revenue legislation that would cause or increase a deficit. As a budget enforcement tool, PAYGO is limited in two main respects: (1) it does not apply to discretionary spending, and (2) it applies only to new legislation being considered by Congress. It can have no effect on previously enacted revenue and direct spending law and so would not trigger enforcement based on changes in revenue or direct spending that result from slow economic growth, unemployment, or other factors. The current Senate PAYGO rule was established in the FY2008 budget resolution and prohibits the consideration of direct spending or revenue legislation that is projected to increase or cause an on-budget deficit in either of two time periods: (1) the period consisting of the current fiscal year, the budget year, and the four ensuing fiscal years following the budget year; and (2) the 11-year period consisting of the current year, the budget year, and the ensuing nine fiscal years following the budget year. The rule applies to any bill, joint resolution, amendment, motion, or conference report that affects direct spending or revenues. The Senate PAYGO rule allows the use of what has been referred to as a "ledger" or "scorecard" to provide some flexibility. Generally, if legislation enacted earlier in the same calendar year reduced direct spending or increased revenues, the resultant budgetary credit or surplus is placed on a pay-as-you-go ledger. The Senate can then consider legislation that would increase direct spending or reduce revenues and use the surplus recorded on the pay-as-you-go ledger as an offset. The rule states, however, that deficit reduction resulting from reconciliation legislation may not be recorded on the ledger. One or more provisions in a measure may be exempted from the rule by designating them as an "emergency." The Senate PAYGO rule may be waived either by a vote of three-fifths of all Senators (60, if there is no more than once vacancy). The PAYGO rule is also not self-enforcing and relies instead on a Senator raising a point of order if the rule is violated. In February 2010, Congress passed the Statutory Pay-As-You-Go Act of 2010, establishing a budget enforcement mechanism commonly referred to as "statutory PAYGO." Similar to the Senate PAYGO rules, the goal of statutory PAYGO is to prevent new legislation from increasing the deficit, but while the Senate PAYGO rule seeks to offset each new direct spending and revenue measure passed, statutory PAYGO seeks to ensure that the new direct spending and revenue legislation enacted over a given year is deficit neutral. Another difference is that while the Senate PAYGO rule is enforced only by points of order on the Senate floor, statutory PAYGO is enforced by a process known as sequestration, in which the President is required to issue an order making across-the-board cuts to non-exempt direct spending programs. To enforce budget neutrality on new revenue and direct spending legislation, the budgetary effects of such provisions enacted into law, including both costs and savings, are recorded on two separate scorecards: one that covers a five-year period and one that covers a 10-year period. Some programs and activities are exempt from the PAYGO scorecards, such as provisions deemed an emergency by Congress. At the end of a congressional session, the scorecards are evaluated to determine if a debit has been recorded for the current budget year—that is, new legislation has increased or created a deficit. If no such debit is found, no action occurs. If a debit is found, however, the President must issue a sequestration order, which automatically implements across-the-board cuts to non-exempt direct spending programs to compensate for the amount of the debit. Some direct spending programs and activities are exempt from sequestration, such as Social Security and Tier I Railroad Retirement benefits, federal employee retirement and disability programs, veterans' programs, net interest, refundable income tax credits, Medicaid, Temporary Assistance for Needy Families, and unemployment compensation. House Rule XXI includes two provisions that apply to legislation that would increase federal income tax rates. The first requires that three-fifths of the House must agree to a federal income tax increase. The stated goal of this rule is to make passage of such tax increases more difficult. Specifically, the rule states: A bill or joint resolution, amendment, or conference report carrying a Federal income tax rate increase may not be considered as passed or agreed to unless so determined by a vote of not less than three-fifths of the Members voting, a quorum being present. The second provision, House Rule XXI, clause 5(c), prohibits a retroactive federal income tax rate increase —that is, an increase that applies to a period beginning before the enactment of the provision. The Budget Act generally prohibits consideration of "any bill or joint resolution, amendment or motion thereto, or conference report thereon" that provides for an increase or decrease in revenues that will first become effective during that fiscal year until a budget resolution has been agreed to. This prohibition applies to both the House and the Senate but can be waived in either chamber by a simple majority. House rules are structured to generally require that revenue measures be considered by the House in the Committee of the Whole. This practice is established by two House rules: (1) Rule XIII, clause 1, which requires that bills for raising revenue be placed on the Calendar of the Committee of the Whole House on the State of the Union (Union Calendar), and (2) by Rule XVIII, clause 3, which requires that "all bills, resolutions, or Senate amendments (as provided in clause 3 of Rule XXII) involving a tax or charge on the people [or] raising revenue ... shall be first considered in the Committee of the Whole House on the state of the Union." In current practice, revenue legislation is generally considered by the House in one of three ways: It may be considered under suspension of the rules, which provides for no amendments, limited debate, and requires a two-thirds vote for approval. Revenue legislation may also be considered under the terms of a special rule reported from the House Rules Committee. Such a special rule may require that the House resolve into Committee of the Whole for consideration of the measure and include provisions setting ground rules for debate and amendment, typically either prohibiting floor amendments or specifying those that may be offered. Finally, revenue measures may also be considered under reconciliation procedures, as discussed below. The Senate does not have rules requiring revenue measures to be considered in a specific procedural manner. However, revenue measures are sometimes considered under the reconciliation process, which carries with it additional unique procedures, particularly in the Senate. The final portion of this report discusses these additional rules and procedures associated with considering revenue measures as part of the reconciliation process. Revenue legislation is often considered under the budget reconciliation process that is governed by special procedures established in the Budget Act that serve to limit what may be included in reconciliation legislation, prohibit certain amendments, and encourage its timely completion. When Congress adopts a budget resolution, it is agreeing upon revenue (and other budgetary) totals for the upcoming fiscal years. As described above, if Congress attempts to consider legislation that would violate the "revenue floor," the legislation would be subject to a point of order. In this way the totals in the budget resolution are enforced. However, in some cases, for these revenue totals to be achieved, Congress must pass legislation that alters current direct spending and revenue laws. In this situation, Congress seeks to reconcile existing law with its current priorities. Budget reconciliation is an optional process that assists Congress in making these changes. Many of the major tax measures enacted in the past few decades have been considered as reconciliation. Congress has the option of including reconciliation directives in its annual budget resolution. These directives trigger the reconciliation process, and without their inclusion in a budget resolution, no measure would be eligible to be considered under expedited parliamentary procedures. When reconciliation directives are included in an annual budget resolution, their purpose is to require committees to develop and report legislation that will allow Congress to achieve the budgetary goals set forth in the annual budget resolution. These directives detail which committee(s) should report reconciliation legislation, the date by which the committee(s) should report, the dollar amount of budgetary change that should exist within the legislation, and the time period over which the budgetary change should occur. In this way, the reconciliation process allows the Budget Committees to assist Congress in implementing the budgetary changes outlined in the budget resolution while at the same time protecting legislative committee jurisdiction over direct spending and revenue laws by allowing them to report legislative changes of their choice. Sometimes these directives instruct the House Ways and Means Committee, the Senate Finance Committee, or both to report legislation within their jurisdictions that would change current revenue law. In the House, the options for consideration of a measure under the reconciliation process do not differ substantially from those for the consideration of other major legislation. Once a specified committee develops and reports legislation to satisfy its directive, the legislation is typically considered either under the terms of a special rule reported from the Rules Committee or, less frequently, under suspension of the rules. The only major difference in how the House treats measures considered as reconciliation is in how the legislative language is packaged. If a single committee is directed in the budget resolution to develop reconciliation legislation, it will likely be instructed to report this language directly to its full chamber. For example, in 2005, the Ways and Means Committee was instructed to report to the House a reconciliation bill reducing revenues. If, however, several committees are directed to develop and report reconciliation legislation, they will typically be directed to submit the language to the House Budget Committee for packaging, without any substantive change, into an omnibus measure. For example, in 1990, the Ways and Means Committee was instructed to report reconciliation language making changes in revenue to the House Budget Committee to be packaged together with the reconciliation responses of other committees. In the Senate, like the House, if a single committee is directed in the budget resolution to develop reconciliation legislation, it will likely be instructed to report this language directly to its full chamber. For instance, in 2005, the Finance Committee was instructed to report to the Senate a reconciliation bill that would reduce revenues. If, however, several committees are directed to develop and report reconciliation legislation, they will typically be directed to submit the language to the Senate Budget Committee for packaging, without any substantive change, into an omnibus measure. For example, in 1993, the Finance Committee was directed to report to the Senate Budget Committee legislative changes within its jurisdiction that would increase revenues. Once a specified committee develops and reports legislative language to satisfy its directive, the legislation is considered under reconciliation procedures outlined in the Budget Act. Reconciliation procedures encourage the timely completion of consideration of reconciliation legislation in the Senate in two main ways. First, a motion to proceed to the reconciliation measure is not debatable and, therefore, cannot be filibustered. Second, debate on a budget reconciliation bill—and on all amendments, debatable motions, and appeals—is limited to 20 hours. Reconciliation procedures prohibit certain types of language from being included in reconciliation measures or offered as amendments. For example, under Section 310(e)(1), it is not in order to offer non-germane amendments to reconciliation bills. Further, Section 313 of the Budget Act (often referred so as the Byrd rule) prohibits "extraneous" matter from being included a reconciliation measure. The Byrd rule provides six definitions of what is considered extraneous, but generally they are provisions not related to achieving the goals of the reconciliation instructions. Also, Section 310(d) of the Budget Act prohibits any amendment to a reconciliation bill that would increase the deficit, although an amendment to strike out a provision in the bill is always in order. Lastly, provisions included in reconciliation legislation that would make changes to Social Security are prohibited. Under current Senate practice, only one reconciliation bill dealing with revenue may be considered in response to reconciliation instructions. Section 310 of the Budget Act recognizes three types of reconciliation legislation that committees may be directed to report: spending, revenue, and debt limit. The Budget Act also recognizes that committees may be directed to report a combination of the three, including a direction to achieve deficit reductions, which may result from an unspecified combination of revenue increases and spending decreases. If a committee is given more than one directive—for instance, to increase revenues and decrease spending—then the committee may respond with separate recommendations. Under current Senate practice, however, this provision has been interpreted to mean that no more than one reconciliation measure of each type is permitted. Reconciliation instructions, therefore, may result in the creation of as many as three reconciliation bills that may be considered on the Senate floor under expedited procedures but no more than one each for spending, revenue, and the debt limit. | The term revenue is defined as funds collected from the public that arise from the government's exercise of its sovereign or governmental powers. Federal revenues come from a variety of sources, including individual and corporate income taxes, excise taxes, customs duties, estate and gift taxes, fees and fines, payroll taxes for social insurance programs, and miscellaneous receipts (such as earnings of the Federal Reserve System, donations, and bequests). The executive branch often uses the term receipts or governmental receipts in place of the term revenues. The collection of revenue is a fundamental component of the federal budget process that provides the government with the money necessary to fund agencies and programs. Further, the collection of revenue directly affects individual citizens and businesses and, in some cases, can achieve specific policy outcomes. The Constitution grants Congress this considerable power to "lay and collect taxes, duties, imposts, and excises." Most revenue is collected by the federal government as a result of previously enacted law that continues in effect without any need for congressional action. However, Congress routinely considers revenue legislation that repeals existing provisions, extends expiring provisions, or creates new provisions. Congress may consider such legislation either in a measure dedicated solely to revenues or as a provision in another type of measure. As with all legislation considered by Congress, revenue measures are subject to general House and Senate rules. In addition, revenue measures are subject to further House and Senate rules, as well as constitutional and statutory requirements (e.g., the Origination Clause, the Congressional Budget Act of 1974). The purposes of such revenue-specific rules are generally to centralize and coordinate the development and consideration of revenue legislation, to provide Members of Congress with the information necessary to judge the merits of revenue legislation, and to control the budgetary impact of revenue measures. This report provides an overview and analysis of the most consequential revenue-specific rules that apply during the process of developing and considering revenue legislation. It highlights certain rules and precedents that apply specifically to revenue measures and distinguishes them into four categories: (1) rules that apply to the origination and referral of revenue measures; (2) rules that require supplemental materials or information to be included with revenue measures; (3) rules that apply to the budgetary impact of revenue measures; and (4) rules related to the consideration of revenue measures under the budget reconciliation process, which carries with it additional unique procedures. |
Under current law, employer-provided health insurance coverage is excluded from employees' income for determining their federal income taxes. Exclusions also apply to federal employment taxes (Social Security, Medicare, and unemployment taxes) and to state income and payroll taxes as well. Considering the average cost of employment-based insurance, now around $4,750 a year for single coverage and $12,700 for family coverage, these exclusions result in significant tax savings for many workers. Because employment-based health insurance covers more than three-fifths of the population under the age of 65, the exclusions also result in considerable revenue loss to the government. Ending the exclusions could raise several hundred billion dollars a year, depending on exactly what would be repealed and how workers and employers adjust. Revenue effects of this magnitude make the exclusions a tempting target for policy makers and other advocates who seek to raise revenues without explicitly raising tax rates. The federal income tax exclusion—the focus of this report—has been targeted for other reasons as well. Because it reduces the after-tax cost of insurance to the worker in ways that are not transparent, it likely results in people with insurance obtaining more coverage than they otherwise would. Not being explicitly capped or limited in some other manner, it does little to restrict the generosity of the insurance or annual premium increases. These attributes contribute to what many economists argue is a welfare (or efficiency) loss from excess health insurance for those with coverage. These attributes also contribute to rising health care costs and spending throughout the country. In addition, the federal income tax exclusion often is criticized as unfair because the workers' tax savings depend on their marginal tax rate. High-income workers generally have greater savings than middle-income workers, and the latter usually have more than low-income workers. When these tax savings are viewed simply as an economic subsidy, this pattern strikes many people as wasteful and inequitable. These three assertions about the income tax exclusion—that the revenues could help to reduce the deficit, that it contributes to inefficiency and rising health care costs, and that higher-income taxpayers unfairly get greater tax savings—are the principal arguments put forth for repeal. Each is discussed in this report. Before turning to them, however, the report discusses the scope and origins of the exclusion, both of which are more complex than is generally recognized. The income tax exclusion has been in the tax code for more than 50 years, and its repeal could have unintended consequences unless policy makers understand what transactions it covers and what role it has had in the development of employment-based insurance. A discussion of the scope and origins will also reveal some of the uncertainties repeal would raise for both tax and health care policy. Limited to these topics, the report does not address all issues that might be raised about the exclusion. A comprehensive analysis would be difficult because of limited knowledge about who actually pays for employer-provided health insurance and how workers value insurance at different ages and income levels. While there is general understanding about these matters—it is reasonable to assume that much of the employer contribution is actually borne by workers through reduced wages—that is unlikely to be sufficient, and could be misleading, for drawing conclusions applicable to the diversity of employment arrangements throughout the country. For legislation, differences among types of employers (by size and industry, for example) and types of workers (by gender, family status, and income) often are important. The statutory provision allowing an income tax exclusion for employer-provided health insurance is short but complex. It covers more than health insurance (and health plans that often are described as insurance) and applies to most but not all workers, including members of the workers' families. How other forms of coverage would be affected by repeal of the exclusion for health insurance might be considered. In order to understand the tax issue the exclusion resolves, it should be considered along with another exclusion applying to benefits. When employees receive something of value from their employer, the general presumption under an income tax is that it will be taxable. Whether taxes will actually be paid depends on the deductions and credits a taxpayer might claim, but at least the starting position is that whatever is received should be taken into account for the purpose of determining an employee's tax liability. This rule is reflected in Section 61(a) of the Internal Revenue Code, which provides that all forms of income from whatever source are taxable unless there is an express exception. With respect to employer-provided health insurance, there are two exceptions that are relevant, an exclusion for coverage and an exclusion for benefits received. These exceptions reflect two different tax questions that arise with this insurance, whether the provision of coverage by itself should be taxable (regardless of whether the taxpayer actually uses insurance benefits) and whether the insurance benefits used should be taxable (regardless of whether the taxpayer paid for the coverage). Proposals to end the exclusion for employer-provided health insurance involve the former question and not the latter, but there are interactions that might be noted. In addition, because the exclusion for coverage applies to more than health insurance as it is commonly understood, this section of the report also discusses whether it might be appropriate to retain the exclusion for some purposes. The exclusion for coverage can be found in Section 106(a) of the Code: General rule—Except as otherwise provided in this section, gross income of an employee does not include employer-provided coverage under an accident or health plan. The provision allows employees to exclude (that is, leave out of their income tax calculations) employer-paid premiums or contributions to a trust or other fund for their accident or health plan. There is an equivalent exclusion for employment taxes elsewhere in the Code that pertains to both employees and the employer. The term accident or health plan includes not only health insurance but also accidental death and dismemberment insurance, short-term and long-term disability coverage, and coverage through reimbursement arrangements such as health care flexible spending accounts (FSAs) and health reimbursement accounts (HRAs). Although usually described as an employee exclusion, the provision applies as well to coverage of a spouse and dependents of the employee, whether prior to or after the latter's death. Coverage of former employees is also included. The exclusion applies to both insured and self-insured plans. An insured plan typically involves the purchase of coverage from a commercial carrier, while under a self-insured plan the employer retains the financial risk. In addition, the exclusion applies to coverage employees obtain separately in the individual insurance market, provided employers pay the premiums directly (list-billing) or reimburse employees under a secure arrangement that does not allow reimbursements to be diverted to another purpose. Individual market insurance is not common with this exclusion. Finally, the exclusion applies to employee-paid premiums under premium conversion plans. Under these arrangements, which must be set up by employers, employees reduce their taxable wages in exchange for their employers using the money to pay health insurance. From an accounting perspective, the premiums are no longer considered to be paid by the employees. Section 106(a) does not apply to self-employed individuals because they are not considered employees under the Code. However, under current law, they can obtain roughly the same income tax savings from the above-the-line deduction authorized under Section 162(l). Exclusions for benefits received can be found in Sections 105(b) and 104(a)(3). Section 105(b) allows taxpayers to exclude benefits they receive from employer-financed accident or health plans. It applies to benefits for their spouse or dependents as well. The exclusion is limited to expenses for medical care as defined in Section 213(d), except to the extent they were claimed as an itemized deduction in a prior year. Thus, the exclusion does not apply to disability benefits attributable to employer payments since these benefits need not be spent on medical care. In contrast, Section 104(a)(3) allows taxpayers to exclude amounts received through accident or health plans except for amounts financed by an employer. The taxpayers themselves might pay for this insurance, but that is not necessary; the only requirement is that the employer not pay. The exclusion here is not limited to expenses for medical care, as is the exclusion in Section 105(b). Thus, it might include disability benefits. Section 104(a)(3) applies to individual and group policies, including employment-based plans. If both employers and employees pay for the coverage, the benefits might have to be apportioned to determine their tax treatment. This is not necessary for medical expenses from health insurance, which would be excluded under either Section 105(b) or Section 104(a)(3). However, disability benefits attributable to employer payments would be taxable since they are not covered by Section 105(b). Those attributable to employee payments would be exempt under Section 104(a)(3). Self-insured plans covering highly compensated employees must comply with nondiscrimination rules. If they do not, the Section 105(b) exclusion may be limited for these employees. The nondiscrimination rules do not apply to insured plans. Self-employed people are covered by Section 104(a)(3), not Section 105(b). If Section 106(a) were repealed, employer-paid coverage under accident and health plans would become taxable to employees for the federal income tax. States would likely adopt the same treatment, as they do for most income tax provisions. Repealing 106(a) would not by itself end the exclusions for employment taxes, but most proposals would abolish those as well, if only to obtain additional revenue for to help reduce the federal deficit. However, repealing Section 106(a) would also affect disability insurance and health care reimbursement arrangements, among other employer benefit plans. These possible changes have not received much attention, and they might not be what is intended. Consideration might be given to retaining the exclusion for these benefits, though, as will be seen, doing so may raise other complications. Employer-paid disability insurance may be needed to prevent the adverse selection that occurs when employees purchase coverage themselves. When left to individual choice, people who think they might become disabled are more likely to purchase insurance than those who do not; this drives up premiums as insurers adjust for their anticipated cost. Employment-paid disability insurance may also be needed to provide coverage to workers who will need but would fail to purchase it. Many people underestimate the likelihood of becoming disabled during their working years or do not think about the issue at all. Of course, employers could purchase disability coverage for all employees even if the exclusion were repealed; while the coverage would be taxable, the benefits would then be exempt under Section 104(a)(3). However, many employees would likely object to being taxed for coverage they would not choose in exchange for receiving tax-free benefits most will not need. For disability insurance, unlike health insurance, there are few proposals for alternative tax subsidies to encourage people to purchase coverage. An expanded tax deduction or a tax credit might provide some of the same incentive as the exclusion for employer-paid coverage, though neither would likely overcome the adverse selection problem. Health care reimbursement arrangements allow employees to pay out-of-pocket medical expenses (deductibles, copayments, and things not covered by insurance) on a pre-tax basis. The most common form is a health care FSA, though some employers offer HRAs. Most health care FSAs are funded through salary reduction agreements under which employees agree to receive lower take-home pay in exchange for benefits, though others are funded at least in part by employers. Either way, Section 106(a) applies. Health care FSAs are popular with employees who have families or otherwise anticipate having lots of medical and dental bills. They can help families manage their expenses and cash flow. Employers find them useful for helping employees deal with rising health care costs and for getting them to accept insurance with higher deductibles and copayments as well as restrictions on certain services and products. Although the Section 106(a) exclusion raises many of the same equity and efficiency concerns for FSAs as it does for health insurance, retaining it for FSAs might be justified as a way to hold down rising premiums, arguably the greater problem. At the same time, retaining the exclusion for these arrangements could raise technical and enforcement issues. If FSAs and HRAs retained tax preferences but insurance did not, over time it is likely the former would expand and the latter would contract, at least in terms of covered benefits if not cost. In effect, FSAs and HRAs would assume some of the functions now borne by insurance. This would counteract some of the anticipated effects of ending the exclusion. It would also result in disparate treatment for small employers, who often cannot establish FSAs due to statutory nondiscrimination requirements. Similar issues might arise with respect to the health care employers provide with on-site doctors and nurses and through wellness programs. If Section 106(a) were repealed, coverage for some of these services might become taxable, discouraging their use. This would not further what some observers think is a useful way to improve workers' health. If instead they were not taxable, however, over time they would likely expand, replacing some of the services now covered by insurance. Attempting to delineate the line between what should be taxable and what should be exempt could be challenging. The origins of the tax exclusion for employer-provided health insurance have become part of the debate over whether the exclusion should be repealed. To some, initial determinations about a narrow tax issue, coupled with contemporaneous regulatory decisions, account for the predominance of employer-provided coverage in the United States. However, the history of the exclusion is not unambiguous in this respect, and it reveals concerns about tax policy questions that remain today. Section 106 was enacted in 1954 as part of a comprehensive revision of the Internal Revenue Code. At the time, it consisted only of what later became Section 106(a), though the wording has changed several times. Current law subsections (b), (c), and (d), which are not relevant to the present discussion, were added relatively recently. Prior to 1954, there was no statutory provision that explicitly allowed an exclusion for coverage under employer-provided accident and health insurance. Regulatory rulings shortly after the modern income tax began had conflicting outcomes, first providing that premiums on life, accident and health insurance were considered income to employees but then saying they were not, at least in the case of group life coverage. A 1943 ruling held that an employer contribution for group medical and hospitalization insurance issued by a commercial insurer was exempt income to workers. Since group coverage of this sort had started spreading in the 1930s, the need for resolution had become important. Nonetheless, apparently the distinction between which insurance arrangements qualified for the exclusion and which did not remained unclear. Employer payments for individual coverage were always taxable prior to 1954. Various rationales were advanced for the different treatment of group plans (or at least certain group plans) and individual insurance. Although the economic value of employer payments for individual insurance could be determined from the premiums individuals were charged, the economic value of group coverage would vary among individuals, perhaps substantially. It was not at all clear—as it still is not today—how to value coverage for someone who would not be insurable in the individual market. In addition, there was parallel treatment at the time for life insurance: employer coverage for individual life insurance (or life insurance with cash value) was taxable, while group coverage for term insurance was not, at least to a point. Finally, health insurance at the time often included wage continuation payments for periods of illness; since rights for this were forfeited when employment was terminated, it was not clear whether coverage by itself (in contrast to actual receipt of payments) constituted income. The enactment of Section 106 provided a basis for excluding employer payments for individual insurance and certain other coverage such as union plans. It also clarified a number of other points, though other ambiguities remained. Sections 104(a)(3) and 105(b) were also enacted as part of the 1954 Code and have remained largely unchanged since. The predecessor to Section 104(a)(3) can be traced back to the Revenue Act of 1918, when it was added to clarify that amounts received through accident or health insurance or from workmen's compensation acts would be exempt. Under that provision as well as the successor Section 22(b)(5) of the 1939 Code, the exclusion was limited to amounts received through accident and health "insurance," which included commercially insured arrangements but not most private employer or employee association plans. Benefits from private employer plans were sometimes exempt when they were established pursuant to state law. Further uncertainty about the definition of "insurance" arose from the 1952 Seventh Circuit decision in Epmeier v. U.S ., which applied the term to a self-insured plan paying benefits based upon salary and length of employment, that is, a form of wage continuation. The 1954 Code clarified these issues by carrying over the language in Section 22(b)(5) of the 1939 Code to present law Section 104(a)(3) and adding a new section, 105(b), that provided an exemption for benefits from self-insured plans. The legislation allowed a limited exemption for wage replacement benefits in Section 105(d), but this was repealed by the Tax Reform Act of 1976. By removing much of the uncertainty about these tax questions, the 1954 Code furthered the growth of group insurance. Not only did the statutory exclusion reduce the effective price of insurance, but it made coverage easier to obtain as employers, having clearer guidance, became more willing to establish plans. One study shows how the change both increased the amount of coverage obtained and engendered a shift from individual to group policies. Even before 1954, however, group insurance coverage had been expanding. One reason for this is that the Stabilization Act of 1942, which otherwise imposed strict limits on wage increases, expressly exempted insurance and pension benefits. Employers eager to attract workers in a tight labor market expanded their benefit plans instead. In addition, the National Labor Relations Board in 1948 held that fringe benefits could be covered under collective bargaining agreements; this furthered the growth of union plans. To some observers, these tax changes and regulatory decisions largely explain the predominance of employment-based insurance in the United States. Coming at a time of dramatic growth in the number of people with insurance, the policies were both a response to changes in how insurance was provided and the cause of their perpetuation. In retrospect, it might seem that a handful of legal developments, each of which was aimed at resolving a narrow issue, was responsible for both the way in which a majority of the population now finances its health care and the problems associated with it. There is something to be said for this argument. At the very least, it shows that tax policies currently at issue were largely shaped during a particular period in history, responding to what were perceived to be the needs at that time. An implication might be that current policies should be reviewed in light of today's needs, and that further changes might now be appropriate. At the same time, the historical argument about the importance of tax and regulatory policies may be overstated. Enrollment in group plans expanded steadily from 1939 onwards, starting prior to the tax ruling and regulatory changes mentioned above and increasing roughly in tandem with increases in enrollments in individual policies. If employment-based insurance supplanted individual market coverage, it was not evident at the time. Moreover, other forces possibly contributed to the rise of employment-based insurance. According to one analysis, a range of influential groups—doctors, hospitals, insurers, and employers—saw it as a way of achieving their own goals while simultaneously reducing pressure for a government solution in the form of compulsory social insurance. The latter had been advocated by some during the years before World War Two. More important, the historical argument does not explain why employment-based insurance has persisted as the predominant form of coverage for people under the age of 65. Although the proportion of this age group covered under employment plans has declined somewhat in recent years, it is still about the same as it was 20 years ago. Much of the recent decline has occurred in smaller businesses, where the principal problem has less to do with financing, let alone the tax benefits, than with lack of access to stable insurance pools in which risk and administrative costs are spread over large numbers of participants. Employers are not legally required to provide health insurance to their workers, let alone pay for it. There is little doubt they do so partly because of tax advantages from the Section 106(a) exclusion. It is uncertain how much employers gain from the exclusion except from reductions in employment taxes, but even if they gained nothing directly they would likely provide coverage in order to give their workers tax savings. In a competitive labor market, workers' tax savings on one form of compensation might allow employers to reduce other forms. However, it is likely that employers provide health insurance for other reasons as well. One is that insurance is an attractive benefit to most workers, both for the coverage it provides and for the time it saves them in shopping for policies on their own. Given these preferences, when other employers competing for the same workers offer health insurance, it is difficult for one employer not to do so. Second, employers have an economic interest in healthy workers and, to some extent, workers' healthy families. According to some studies, healthy workers are more productive. These advantages are more likely to be found in large firms employing higher-skilled workers; they diminish as firm size shrinks and skill levels decline. But even if employers could readily dismiss ill employees and replace them with others, there would be turnover costs. For these reasons, whether employer-provided coverage would erode if the exclusion were repealed cannot be forecast with any certainty, particularly given the diversity of employment arrangements in the country. Much would depend on the availability of alternative tax benefits that might replace the exclusion as well as whether these would be linked to attempts to create stable insurance pools. Regardless of how the exclusion came to be part of the tax code, these present factors are likely to be more significant. The future of employment-based insurance was one of the most important issues in health care reform. Considering its dominant role in providing coverage for people under the age of 65, changes to the insurance, whether intentional or not, ought not be taken lightly. Most employment-based insurance is thought to have larger and more stable risk pools than individual market insurance, and barring improvements in the latter some would oppose policies that might threaten the former. Some would argue that one of the first decisions to be made about reform is whether employment-based insurance should be strengthened, weakened, or left alone, and that decisions about the tax exclusion should be based upon that choice. One criticism of the exclusion for employer-provided health insurance is that it reduces the after-tax cost of insurance to workers in ways that are not transparent, likely resulting in their obtaining more coverage than they otherwise would. Not being explicitly capped or limited in some other manner, it does little to restrict the generosity of the insurance or annual premium increases. The exclusion thus contributes to what some economists consider an excess of insurance coverage and a significant welfare (or efficiency) loss for insured individuals and society as a whole. How repealing the exclusion would affect this welfare loss is a complicated question, however, depending on how consumers react to higher cost-sharing. It could be challenging to determine alternative tax benefits to replace the exclusion without adversely affecting people with high costs. The welfare loss from excess insurance, particularly insurance with low deductibles and copayments, occurs because people pay more for health care services than they would if everyone assumed more of the cost themselves. This outcome is caused partly by the increased demand attributable to insurance (people generally use more services when they have coverage because their effective price at the time of service drops) and partly by the increase in market prices for services due to higher aggregate demand. Increased market prices in turn encourage people to purchase more insurance in order to avoid or minimize the additional financial risk from higher prices. Low deductibles and copayments reduce the financial risk insured people face, and this welfare gain must be offset against the losses described above. Even taking this into account, estimates of the net welfare loss from health insurance indicated that it could be a large sum. In an article on this issue in 1973, Martin Feldstein estimated that raising the coinsurance rate from one-third to two-thirds of private hospital expenditures could have saved $4 billion a year out of a base of $12.6 billion in 1969. A later revision of Feldstein's work in a 1991 study estimated that the net welfare loss from excess health insurance could have been $109.3 billion in 1984 dollars, assuming that insurance induces a large increase in gross prices and consumers place large marginal value on medical spending. Assuming constant prices and high marginal valuation, the estimate would still have been $33.4 billion. These figures obviously would be much higher in today's dollars. Health insurance and health care have changed since the 1980s, and some of the excesses at that time might have been attributable to unrestricted fee-for-service plans that no longer are common. In 1988, 73% of workers with employment-based coverage were enrolled in conventional insurance plans while in 2007 only 3% were. In the latter year, 57% were enrolled in preferred-provider organization (PPO) plans and 21% in health maintenance organizations (HMOs); in 1988, only 27% were enrolled in either. Today it is not unusual for health plans both to control utilization directly (requiring approval by gatekeepers for access to specialists, for example) and to limit providers' charges as a condition of their participating in a network. In these respects, employment-based health insurance is subject to restrictions even though the tax exclusion itself is not. Nonetheless, for the most part employment-based insurance does not have high deductibles. In 2007, more than 80% of workers in HMOs did not have any general annual deductible, which was also the case for just under 30% of workers in PPO plans and more than 50% of workers in point-of-service (POS) plans. For those with a general annual deductible, the average amounts for single coverage were only $401 in HMOs, $461 for PPO plans, and $621 for POS plans. Although the average deductible in high-deductible plans with savings options was $1,729, only 5% of covered workers were in these plans. (Enrollees in all of these plans would likely have had copayments for most services.) Whether moving to higher insurance cost sharing would reduce health care spending is not at issue; notwithstanding measurement difficulties, economic theory, actuarial experience, and empirical studies all indicate that it does. Probably the most frequently cited research demonstrating this point is the RAND Health Insurance Experiment (HIE), a carefully designed study of nearly 6,000 people between 1974 and 1982. Among other things, the study showed that per capita expenses for patients with a 95% coinsurance requirement for outpatient services were 31% lower than those for patients without cost-sharing. Reductions were also present but somewhat smaller for patients with lower coinsurance requirements, as they were for those with deductible policies. Reductions occurred for a broad range of conditions, especially for ambulatory care but also for hospitalizations. More debatable is what effect reductions in spending have on individuals' health, which could affect measures of the welfare loss. A common reading of the RAND HIE is that the health outcomes of those with high cost sharing were not different from those having conventional coverage, with several exceptions. (The exceptions included high blood pressure and vision imperfections in adults and anemia in children.) Although more health problems might have arisen for the high cost sharing group had the experiment continued longer, there is no way to prove or disprove this now. However, the similarity in outcomes for participants in the HIE did not occur because individuals with high cost sharing chose to forgo only services of limited clinical value. Instead, it reflected a beneficial reduction in harmful medical services that offset a detrimental reduction in useful services. Bad care and good care were both forgone, resulting in outcomes similar to those having conventional coverage. Today there may be more effective treatments for chronic diseases that higher cost sharing would place at risk, and formerly untreatable or acute illnesses may now be considered chronic and subject to treatment. A critical question here is whether greater cost sharing can be combined with other reforms so that individuals reduce their spending but maintain or even increase effective care. Possible changes include reducing or eliminating cost sharing for services likely to impart high value, providing better information and helping people use it, and making prices for services and products more available and transparent. Some steps have already been taken in these directions (in consumer-driven health care plans, for example), though it is too early to tell how far they will spread and whether they will make a significant difference. Ending the tax exclusion could be helpful in reducing health care spending. Because the exclusion reduces the net price of insurance, it likely encourages workers to obtain more coverage than otherwise; since it is uncapped, tax savings and the incentive to purchase more coverage grow unchecked as the cost of insurance rises. In contrast, while an alternative tax benefit such as an expanded tax deduction or a refundable tax credit might have no effect on the former problem (since it too would reduce the net price of coverage), it could provide a brake on the latter, depending on how it is designed. For example, President George W. Bush proposed terminating the exclusion and replacing it with a standard deduction for health insurance (SDHI) of $7,500 for self-only coverage or $15,000 for family coverage. The Joint Committee on Taxation has estimated that adoption of the SDHI coupled with other parts of the proposal would result in a net revenue increase of over $440 billion from FY2009 through FY2018. The increase would occur largely because the SDHI would be indexed to changes in the Consumer Price Index (CPI) while the exclusion it replaces would have grown at the higher rate for health insurance costs. The reduced tax savings from the change presumably would affect the amount of coverage purchased. However, it may be somewhat speculative to assume that a reduction in tax savings from indexing alternative benefits to the CPI would materialize to the extent envisioned. If large savings were to occur in the out-years, the reduction in spending they encourage might lead to calls for Congress to adjust the limits. It may also be speculative whether ending the exclusion would also encourage more effective care. One possibility is that a deduction or credit would be allowed only if the insurance had incentives to this effect. Another is that if the cost of insurance exceeds what could be claimed as a deduction or taken into account as a credit people would become more cost-conscious and concerned about effectiveness. Whether these things would occur is unknown, however. There are other issues with potentially ending the exclusion that merit attention. For one thing, in replacing the exclusion with a capped deduction or credit (for example, the $7,500 and $15,000 figures in the President's proposal), it is not immediately clear where to set the cap. Setting it too low might erode needed insurance benefits for some people; if many were affected, the level might not be sustainable. Setting it too high may lock in current welfare losses, delaying significant savings for years to come. (The same dilemma applies to proposals to cap the exclusion rather than replace it with a deduction or credit.) The issue is complicated by the wide range of health care costs throughout the country. As analysis by the Congressional Budget Office shows health care spending per capita in 2004 varied from approximately $4,000 in Utah to $6,700 in Massachusetts. Although differences in spending reflect more than price differentials (they are also influenced by differences in health status, preferences, and other matters), the magnitude of the differences suggests price disparities might not be inconsequential. Even if they were, spending may be the better indicator for setting a cap unless it is plausible to assume that usage can be reduced in high cost areas. A study by Milliman of 14 major metropolitan areas shows similar spending differences. In addition, health care costs vary among people with employment-based insurance regardless of where they live. In 2005, median health care spending was $2,525 for people aged 55 through 64 and $623 for those aged 25 through 34. For women aged 25 through 64 with this insurance, median spending was $1,086, whereas for men it was $530. People aged 25 through 64 with this insurance who reported being in fair health had median expenditures of $3,777, while those who reported being in very good health had median expenditures of $893. To the extent that health insurance reflects these differences, its cost will vary. The largest differentials might occur among small employer plans, particularly in states where there are few restrictions on premium variations in insured plans. (At the same time, small employers might drop coverage that becomes too expensive, which large employers would be unlikely to do.) Workers who incur very high costs might have illnesses or injuries that require them to leave their jobs, reducing the differentials, though sometimes the high cost person is a family member. Conceivably, tax limits on insurance costs might be adjusted to compensate for some of these differences. For example, the ceiling on a deduction or credit (or the cap on the exclusion) could be set higher for people aged 55 through 64. Alternatively, high cost people might be allowed an additional deduction based upon some portion of their income (similar to the current itemized deduction, though here not limited to itemizers). However, these variations would add complexity, and they might perpetuate differentials that ideally should be reduced. Ending the exclusion would also raise the question of what amount should be included in employees' income for tax purposes. An average premium (for example, the COBRA premium) has been suggested. However, the economic value of group health insurance varies widely among workers, as was recognized in debates over the exclusion prior to its codification in 1954 (see the discussion above in the " Origins " section). The value of insurance to a young, healthy worker is likely far less than the value to an older worker in poor health, or who perhaps has a family member in poor health. It would seem unfair to require both workers to recognize the same additional amount in the income on which they must pay taxes. Age-based variations might seem more equitable, but the opposite might be true if the younger worker had poor health and the older worker were in good health. Moreover, if the total amount of the employer contribution had to be recognized, small increases for young workers would mean very large increases for older workers, likely to provoke their opposition to the policy change. Determining a fair allocation of the employer contribution that workers should recognize could become complex. For example, some might think that income should be taken into consideration. Income often increases with age, so older workers arguably could afford the larger tax obligation. However, average incomes increase only until the late middle ages; then they start to decline just when health care expenses rise more sharply. In addition, some research suggests that some older workers already pay for their higher health care costs through lower wages. To the extent this is true, it might not seem appropriate to increase the amount of the employer contribution older workers must recognize. The current exclusion avoids all of these technical issues; everything is just left out of the tax calculations. To some observers, this is a virtue. At the same time, while the simplicity of omission has obvious attractions, it does not show variations in the allocation of tax subsidies that some would consider important. Differences in the amount of subsidy by age, geography, and health condition might seem inappropriate to some. Ending the exclusion would improve transparency and allow these difference to be assessed and debated. At the same time, it might create new controversies that divert attention from other health care issues. Two equity issues arise with respect to the tax exclusion of employer-provided coverage. One is how people with employer-provided coverage are treated for tax purposes compared to otherwise similar people who have coverage purchased in the individual market. The other is how people with employer-provided coverage are treated at different income levels. The former issue, which is addressed first, is easier to analyze, and there is an obvious solution to what some people consider a problem. The latter issue is more complicated than is usually recognized and may defy simple solutions. The tax exclusion sometimes is criticized for providing tax savings when employers pay for the insurance, while coverage purchased in the individual market generally has no tax savings. To some, this creates an unwarranted distortion in the insurance markets. In their view, it is not obvious why health insurance, which is essentially a personal matter, should be tied to one's job. It is argued that the tie limits workers' health plan choices and penalizes workers who might be able to work more productively elsewhere. Under current law, there are two provisions that provide tax savings to people who purchase insurance in the individual market. One is the 100% deduction allowed self-employed taxpayers who buy policies for themselves and their family members; this applies only to a small number of people, less than 3% of all who file returns. The other is the itemized deduction for unreimbursed medical expenses, which is available only to taxpayers who itemize their deductions and only to the extent the expenses exceed 7.5% of their adjusted gross income. For most taxpayers, the standard deduction is larger than the sum of their potential itemized deductions, and of those who itemize, most do not have extensive unreimbursed medical expenses. In 2005, about 35% of all returns had itemized deductions, and of these, less than 21% (about 7% of all returns) claimed the medical expense deduction. Most people who purchase insurance in the individual market cannot claim either of these deductions. This imbalance in individuals' tax savings could largely be remedied by allowing an above-the-line deduction for premiums that is available to everyone without employer-provided coverage. This type of deduction, which could be claimed whether or not one itemized, might be a standard deduction like President George W. Bush proposed or limited to premiums actually paid; in the latter case, the income tax savings to individuals would be approximately the same as those from the exclusion for equivalently-priced employer-provided insurance. The income tax deduction just described would not provide savings from the exclusion for employment taxes, but an additional deduction might be allowed people with employment income for that purpose. Some might oppose this solution since employer-provided insurance generally has broader and more stable risk pooling; in their view, this should be protected and rewarded despite the apparent inequity in tax savings. The second tax equity issue is how people with employer-provided coverage are treated at different income levels. Income tax savings from the exclusion for employer provided health insurance depend on taxpayers' marginal tax rates. For low-income taxpayers, the savings on federal income taxes might be 10% or as little as none, depending on their income. In 2008, for example, single tax filers generally will not have a regular tax liability until their income exceeds $8,950, the sum of their standard deduction and personal exemption. Until their income exceeds $16,975, their taxable income (the difference between $16,975 and $8,950) would be taxed at 10%. Thus, if single taxpayers with wage income of $13,000 were given employer-paid insurance worth $3,000, their savings from the income tax exclusion would be $300 (i.e., $3,000 x 10%). For higher-income taxpayers, the income tax savings would be greater. For single filers in the top tax bracket of 35%, the tax savings from the exclusion of $3,000 of coverage would be $1,050, appreciably more than the savings for low-income workers. For middle-income taxpayers in the 15% or 25% brackets, the income tax savings would be $450 or $750, respectively. (In 2008, the 15% bracket for single filers applies to taxable incomes of $8,026 to $32,550; the 25% bracket to taxable incomes of $32,551 to $78,850; and the 35% bracket to taxable incomes over $357,700). Different figures apply to taxpayers filing as married or head of households, but the pattern just described would be the same. Taxpayers often get additional savings from a parallel exclusion on their state income taxes. Currently, 43 states and the District of Columbia impose taxes on individual incomes. Rates vary from state to state, and while some of the tax savings would be offset by a reduction in the itemized deduction for state income taxes, typically higher income taxpayers would get greater savings. This picture is complicated by tax savings from the exclusion for employment taxes. Medicare taxes of 1.85% of wages (considering just the employee's share) apply to workers regardless of income; thus all would be affected equally by an exclusion for insurance worth $3,000. For Social Security taxes, however, the exclusion benefits low and middle-income workers but not those with wages above $102,000, the wage base ceiling in 2008. The exclusion would save the former 6.2% (considering just the employee's share), or $186 for $3,000 worth of insurance. Employment taxes aside, the figures above show that middle income taxpayers generally benefit more from the exclusion than low income taxpayers, and that high income taxpayers generally benefit more than those with middle incomes. When these tax savings are viewed purely as an economic subsidy, this pattern seems unfair if not wasteful. It is unlikely that an insurance subsidy program using appropriated funds would be designed in this manner. The equity problems are likely to be exacerbated in several respects. For one thing, higher-income workers are more likely to be eligible for employer-provided health insurance. One study showed that 89.6% of workers with family incomes above 400% of the federal poverty level were eligible for employer coverage in contrast to 39.8% of workers with incomes below the poverty level in 2005. The same study also showed that 83% of those eligible in the higher-income group actually accepted coverage, compared with 63.5% of those eligible in the lower-income group. Where these patterns occur, the disparities in tax savings based on the $3,000 figure in the discussion above would understate differences among income groups. Moreover, higher-income taxpayers may benefit more from the exclusion if their employment-based insurance on average provides greater economic benefits than identical coverage provides lower-income taxpayers. As described in the previous section, income on average increases with age, at least until the late middle ages, and age usually is associated with higher health care expenditures. The preceding analysis is not the only way of looking at the tax equity issue. To some extent, the tax savings shown above might not be an inequitable subsidy but only a consequence of the proper treatment of losses under a progressive income tax. In a progressive tax system, when gains are taxed at higher and higher rates depending on income, then it is conceptually appropriate to deduct losses at those same rates. To the extent that health insurance is viewed as a method of smoothing losses over time and individuals, then the greater tax savings for higher income people from the exclusion would not be inappropriate or, for that matter, unfair. The argument about progressivity would have greater force if health insurance covered only catastrophic expenditures that everyone would clearly see as losses (for example, hospitalization for accidents or heart attacks). However, since a portion of its cost is for anticipated expenditures for routine care, not all of the exclusion can be associated with a loss of this nature. The root issue is whether health care is like other forms of personal consumption. On reflection, many people might conclude that it is not. Health care takes time, provides no personal pleasure, and, most important, usually is designed to return patients to a condition prior to an accident or illness that no one would choose to have had. Absent the latter, it does not result in gratification or enhancement of one's well being. On the other hand, health insurance, which is the subject of the exclusion, provides additional value because people recognize they cannot predict their health with certainty and worry that they might not be able to afford care when they need it. It buys peace of mind as well as services. In this respect, insurance may be like other forms of personal consumption in that it is not directly associated with a loss that should be recognized under an income tax. Because it is difficult to determine what portion of an insurance premium merits treatment as a tax loss, it is challenging to think of what might be an appropriate remedy. The issue is compounded by the diversity of insurance arrangements and uncertainty about the extent to which particular workers ultimately bear the cost of employer-provided coverage. There is much to be said for moving toward a health care financing system that is more transparent, equitable, and efficient. Given the extraordinary complexity of American health care and increasing concerns about rising costs and the growing numbers of uninsured, new policy approaches are widely being given careful consideration. Whether ending the exclusion should be part of these approaches depends on what the replacement policies are. Problems attributable to the exclusion might also occur with new measures, or other problems could arise. It is difficult to evaluate one step without knowing the other. Given the origin of the exclusion, it would not be inappropriate to consider revisions in light of today's problems. However, one might move carefully before dismantling a policy that has been in place for more than 50 years. Some policymakers appear to be interested in the exclusion primarily to reduce the federal deficit. However, if the sole objective were to raise revenues, it might be simpler just to increase taxes generally. For many people who currently have employment-based insurance—over three-fifths of the population under the age of 65—the mathematical effect might be roughly the same, at least for income taxes. For people under the age of 65 paying for other private insurance, an offsetting deduction could provide tax equity. People under the age of 65 with other public insurance might not be affected, considering that their income often is too low to be taxed. Nonetheless, some argue that the exclusion should be ended not to raise money but to improve efficiency and limit costs and spending. In the absence of alternative proposals to achieve these goals, termination might be appropriate. A principal policy decision appears to be whether to maintain and possibly strengthen the employment-based system of health care. If that is the goal, then maintaining the exclusion might be appropriate since it is unclear what the effects of termination would be over time. If instead the goal were to move towards individual market insurance or an expansion of public coverage, then ending the exclusion should be given greater consideration. The general formula for calculating federal income taxes appears below. The list omits some steps, such as prepayments (from withholding and estimated payments) and the alternative minimum tax. 1. Gross income (everything counted for tax purposes) 2. Minus deductions (or adjustments) for determining adjusted gross income (AGI)—"above the line deductions" 3. Equals AGI 4. Minus greater of standard or itemized deductions 5. Minus personal and dependency exemptions 6. Equals taxable income 7. Times tax rate 8. Equals tax on taxable income (i.e., "regular tax liability") 9. Minus credits 10. Equals final tax liability | Employer-provided health insurance is excluded from the determination of employees' federal income taxes, resulting in significant tax savings for many workers. Comparable exclusions apply to federal employment taxes and to state income and employment taxes. Because employment-based health insurance covers three-fifths of the population under the age of 65, the exclusions also result in considerable revenue loss to the government. Ending them could raise several hundred billion dollars a year, depending on exactly what is repealed and how workers and employers adjust. Some see this revenue as a source for financing health care reform without explicitly raising taxes. The federal income tax exclusion—the focus of this report—is criticized for several reasons. Because it reduces the after-tax cost of insurance in ways that are not transparent, it likely results in people with insurance obtaining more coverage than they otherwise would. Not being explicitly capped or limited, it does little to restrict the generosity of the insurance or annual premium increases. These attributes contribute to what some economists argue is a welfare (or efficiency) loss from excess health insurance for those with coverage and also contribute to rising health care costs and spending. In addition, the income tax exclusion often is criticized because it gives greater tax savings to higher income individuals and families, an outcome that strikes many observers as wasteful and inequitable. These arguments about the exclusion merit careful consideration, as President Obama's Commission on Fiscal Responsibility and Reform include the tax exclusion as a recommendation for reducing the deficit. However, the arguments involve complex issues, and other points and perspectives might be taken into account. The welfare loss may be difficult to gauge considering how consumers react to higher cost-sharing. Determining alternative tax benefits that would not adversely affect people with high costs to replace the exclusion could be challenging. The larger tax savings to higher-income people might not be an inequitable subsidy, but only a consequence of the proper treatment of losses under a progressive income tax. The income tax exclusion has been in the tax code more than 50 years, and its repeal could have unintended consequences. For example, unless exceptions were made, repeal would also terminate the exclusion for employer-paid disability insurance, health care flexible spending accounts, and other benefits some consider useful. The exclusion and regulatory decisions in the 1940s sometimes are said to be the reason why employer-paid coverage is the predominant form of private health insurance in the United States. There is something to this argument, but there are other reasons why employment-based insurance arose and why it remains attractive. These reasons make it difficult to predict the effect of ending the exclusion on the future of employment-based insurance, a major policy issue. |
Coal combustion waste (CCW) is inorganic material that remains after pulverized coal is burned for electricity production. A tremendous amount of the material is generated each year—industry estimates that as much as 135 million tons were generated in 2009, making it one of the largest waste streams generated in the United States. Disposal of CCW onsite at individual power plants may involve decades-long accumulation of the waste—with hundreds of thousands, if not millions, of tons of dry ash (in a landfill) or wet ash slurry (in a surface impoundment) deposited at the site. On December 22, 2008, national attention was turned to risks associated with managing such large volumes of waste when a breach in a surface impoundment pond at the Tennessee Valley Authority's (TVA's) Kingston, TN, plant released 1.1 billion gallons of coal fly ash slurry. The release covered more than 300 acres and damaged or destroyed homes and property. TVA estimates that cleanup costs may reach $1.2 billion. The incident at Kingston brought attention to the potential for a sudden, catastrophic release related to the structural failure of a surface impoundment. However, a more common threat associated with CCW management is the leaching of contaminants likely present in the waste, primarily heavy metals, resulting in surface or groundwater contamination. For example, the Environmental Protection Agency (EPA) has determined that arsenic, selenium, lead, and other contaminants can leach into groundwater and exceed safe limits when CCW is deposited in unlined disposal units. This risk was particularly high at unlined surface impoundments. While new disposal units are likely to be built with a liner, 75% of surface impoundments in use today are greater than 25 years old and are unlikely to have a liner or groundwater monitoring. To address potential threats to human health and the environment associated with improper management of CCW, on June 21, 2010, EPA proposed for public comments two regulatory options applicable to the management of CCW. Under the first option, EPA would draw on its existing authority to identify a waste as hazardous and regulate it under the hazardous waste management standards established under Subtitle C of the Resource Conservation and Recovery Act (RCRA, 42 U.S.C. § 6901 et seq.). The second option would establish criteria applicable to landfills and surface impoundments accepting CCW under RCRA's Subtitle D solid waste management requirements. Under Subtitle D, EPA does not have the authority to enforce its proposed requirements. Instead, EPA would rely on states or citizen suits to enforce its standards. Over 11,000 public comments were received before the November 19, 2010, deadline. Commenters included those representing industry, environmental and citizen organizations, state government representatives, individuals, and some Members of Congress. Those stakeholders expressed a host of concerns over EPA's proposal. Broadly, industry groups argue that the Subtitle C option is not justified and would be too costly to implement. Further, they argue that regulating the waste as hazardous under Subtitle C would stigmatize it, potentially limiting recycling opportunities. State representatives are concerned about the costs of implementing a Subtitle C regulatory program. They further argue that EPA has not demonstrated that existing state regulatory programs are in fact deficient in protecting human health and the environment. Environmental and citizen groups argue that new data demonstrate that the waste meets the regulatory criteria necessary to list it as hazardous under Subtitle C and that EPA lacks the authority to enforce the disposal criteria it proposes under Subtitle D. Some Members of Congress have expressed concern over EPA's ultimate decision to regulate CCW. They have expressed some of the same concerns expressed by interested stakeholders, primarily questions and concerns regarding the impact that Subtitle C regulations may ultimately have on coal-producing states, state regulatory agencies, energy prices, and CCW recycling opportunities, and concern that human health and the environment would not be sufficiently protected under the Subtitle D option given EPA's limited authority to enforce it. Several legislative options have been discussed and proposed that would direct EPA to select one regulatory option over the other. For example, two bills proposed on April 6, 2011 ( H.R. 1391 , the Recycling Coal Combustion Residuals Accessibility Act of 2011, and H.R. 1405 ), would prohibit EPA from regulating CCR as hazardous waste under RCRA Subtitle C. In addition to prohibiting EPA from regulating the waste under Subtitle C, other legislative options are available to Congress. Congress may also choose to give EPA additional authority to regulate the waste under Subtitle D. Specifically, it might direct EPA to revise existing criteria, applicable to municipal solid waste (MSW) landfills under Subtitle D, to include landfills and surface impoundments that receive CCW. For example, Congress could authorize EPA to establish minimum national standards, such as a requirement to have composite liners on new disposal units or to install groundwater monitoring at existing units. To address issues associated with EPA's lack of enforcement authority under Subtitle D and the desire for industry to avoid labeling the material as "hazardous" waste, Congress could also choose to create a new subtitle under RCRA that would specifically address issues unique to the management of CCW. Such a proposal could include a number of legislative provisions, but, broadly, could direct EPA to develop waste management standards applicable to disposal facilities that accept CCW (similar to Subtitle D), but also provide EPA with federal enforcement authority to require states to implement those standards (similar to Subtitle C). An alternative approach to addressing CCW management is provided in the Coal Residuals Reuse and Management Act ( H.R. 2273 , reported by the Committee on Energy and Commerce on September 26, 2011). The bill would amend Subtitle D of RCRA and establish a "Coal Combustion Residuals Permit Program." The bill would give states the option to adopt and implement a permit program for the management and disposal of CCWs, to the extent that such activities occur in "structures" in the state. Under the bill, states would be given the option of either adopting a permit program or requiring EPA to implement the program in states that notify EPA of their intent not to do so. EPA would not be required to approve the permit program, but would be required to provide notice to the state if EPA found some element of the program to be deficient. EPA would not be directed to establish requirements specifically applicable to the proposed permit program. Instead, permit program requirements would draw upon several elements related to existing MSW landfill criteria and state permit programs (see " Relevant Existing Subtitle D Requirements "). In states that decline to implement a CCW permit program, EPA would be required to implement it. To assist Members of Congress in understanding the potential and proposed legislative approaches, this report provides an overview of the current rulemaking and relevant background information that applies to that rulemaking. In particular, the report describes the nature of the waste itself and primary methods of managing it; discusses potential risks associated with its mismanagement, particularly as supported by new data EPA has gathered to support the proposed rulemaking; and provides an overview of EPA's current regulatory proposal—including an overview of relevant existing RCRA requirements. Issues in this report are discussed primarily within the context of EPA's regulatory proposal and associated supporting documents. It generally does not incorporate studies or opinions of interested stakeholders such as industry groups, state agency representatives, or environmental organizations, except as those positions may be reflected in EPA's June 21, 2010, regulatory proposal. It is unknown when or if EPA will ultimately select one of the two proposals. On March 3, 2011, in testimony at an EPA budget hearing before the House Committee on Appropriations, Subcommittee on Interior, Environment, and Related Agencies, EPA Administrator Lisa Jackson stated that she does not anticipate a final rule to be promulgated in 2011. The cause of the delay was attributed to the large number of public comments received. Federal requirements specific to the management of solid and hazardous waste were evolving in the late 1970s and early 1980s. In 1976, Congress enacted the Resource Conservation and Recovery Act (RCRA, 42 U.S.C. § 6901 et seq.). Subtitle C of RCRA created a hazardous waste management program that, among other provisions, required EPA to develop criteria for identifying the characteristics of "hazardous" waste and develop waste management criteria applicable to such waste. Subtitle D of RCRA established criteria applicable to non-hazardous solid waste disposal. It also established state and local governments as the primary regulating and implementing entities for the management of solid waste (i.e., household garbage and non-hazardous industrial solid waste). As required under Subtitle C, EPA first proposed hazardous waste management regulations in 1978. In these proposed regulations, EPA identified six categories of wastes it deemed "special wastes" that would be deferred from hazardous waste management requirements until further study and assessment could be completed to determine their risk to human health and the environment. These special wastes were identified because they typically were generated in large volumes and, at the time, were believed to pose less risk to human health and the environment than the wastes being identified for regulation as hazardous waste. In the months before the hazardous waste regulations were finalized in 1980, Congress was debating RCRA reauthorization. In February 1980, Representative Tom Bevill introduced an amendment to the pending legislation that would require EPA to defer the imposition of hazardous waste regulatory requirements for fossil fuel combustion waste and discarded mining waste until data regarding its potential hazard to human health or the environment could be determined. Representative Bevill stated that EPA's intent to regulate such waste as hazardous would discourage the use of coal and constitute an unnecessary burden on the utility industry. In anticipation of the enactment of this legislation, according to EPA, the agency excluded the regulation of fossil fuel combustion waste from its final hazardous waste regulations. Ultimately, the Solid Waste Disposal Act Amendments of 1980 ( P.L. 96-482 ) included provisions commonly referred to as the "Bevill Amendment" or the "Bevill exclusion." Under those provisions Congress specifically excluded CCW from regulation under RCRA Subtitle C, pending EPA's completion of a report to Congress and regulatory determination on whether hazardous waste regulations were warranted. Subsequently, EPA published its Bevill regulatory determination in May 2000, retaining the hazardous waste exemption under RCRA. EPA concluded that CCW did not warrant regulation as hazardous waste. However, EPA stated that it was convinced that national regulations under Subtitle D were warranted for CCW disposal in landfills and surface impoundments because (1) the composition of the waste had the potential to present danger to human health and the environment in certain circumstances; (2) EPA had identified proven cases of damages to human health and the environment through improper waste management; (3) while industry management practices had improved measurably, there was sufficient evidence the wastes were being managed in a significant number of landfills and surface impoundments without proper controls in place, particularly in the area of groundwater monitoring; and (4) while there had been substantive improvements in state regulatory programs, EPA identified significant gaps either in states' regulatory authorities or in their exercise of existing authorities. In its 2000 regulatory determination, EPA also stated that it would revise its determination if it found that a need for regulation under Subtitle C was warranted. On October 16, 2009, after 10 years of additional study, debate, and controversy over the appropriate method of regulating CCW, EPA submitted a draft proposal to revise its Bevill regulatory determination and list the material as hazardous waste under Subtitle C of RCRA. EPA sent the draft proposal to the White House Office of Management and Budget's Office of Information and Regulatory Affairs (OIRA). Under the draft proposal, EPA would establish land disposal and treatment standards for CCW. EPA cited several reasons for its determination that regulation under Subtitle C was needed, including the following: Using new risk analyses and study data, it was determined that, under plausible management scenarios, CCW samples met the regulatory criteria for identifying and listing the waste as "hazardous" (40 C.F.R. 261.11(a)(3)). Factors required to be taken into consideration to make that determination include a waste's toxicity, constituent concentration, potential for hazardous constituents to migrate, and plausible mismanagement of the waste. Recent risk assessments have shown that CCW disposal in unlined landfills and surface impoundments presents substantial risks to human health and the environment from releases of toxic constituents (particularly arsenic and selenium) into surface and groundwater. Further, those risks are essentially eliminated when the waste is disposed of in units with composite liners. EPA has documented numerous cases of damage to surface and groundwater (e.g., the water exceeded health-based standards for contaminants like lead, arsenic, selenium, and chromium) when CCW was deposited in unlined disposal units or used as construction fill. Although new disposal units appear to be built with liners and groundwater monitoring, a large amount of waste is still being disposed into units that lack necessary protections. Recently collected data regarding existing state regulatory programs call into question whether those programs have sufficiently improved to address the gaps that EPA identified in its May 2000 regulatory determination and whether those programs are adequate to protect human health and the environment in the absence of national minimum standards. While industry practices may be improving, EPA continues to see cases of inappropriate management or cases in which key protections (e.g., groundwater monitoring at existing units) are absent. Changes in air pollution control technology at coal-fired power plants are anticipated to further increase both the overall amount of waste and the contaminants, particularly heavy metals, in the waste. Further, EPA noted that while corrective action has been taken at sites with proven damage cases, the federal waste management regulatory program is designed to prevent contamination in the first place, if at all practicable, rather than simply remedy it after discovery. Its regulatory proposal sought to implement such preventive requirements. After the OIRA review, EPA's draft proposal underwent substantial changes. The final proposal, published on June 21, 2010, stated that the determination to revise the Bevill regulatory determination had not yet been made and proposed an additional regulatory option for consideration. The second option would keep the Bevill exclusion in place, but establish national criteria applicable to landfills and surface impoundments under RCRA's Subtitle D non-hazardous solid waste requirements. The primary reason EPA cited for including the proposal to regulate CCW under Subtitle D's solid waste requirements was industry's argument that the "hazardous waste" label would stigmatize beneficial uses of the material and ultimately increase the amount that must be disposed. Both options in the June 2010 regulatory proposal would establish design and operating criteria for landfills and surface impoundments, such as a requirement for composite liners, groundwater monitoring, corrective action, closure of units, and post-closure care, and to address the stability of surface impoundments. Under the Subtitle C option, EPA would also establish land disposal restrictions, financial assurance requirements, and a federal permit program under which the standards would be implemented (that program could ultimately be implemented by authorized states). Requirements to retrofit existing surface impoundments with a liner, coupled with land disposal restrictions that would require the removal of solids from wet disposal units, would effectively phase out surface impoundment disposal of the waste. An important distinction between the two proposals is EPA's authority under RCRA to enforce them. Under the existing Subtitle C requirements, EPA has the authority to reverse the Bevill exclusion, identify the waste as hazardous, and establish appropriate waste management standards. Under Subtitle D, EPA has limited authority to revise existing regulations applicable to solid waste disposal facilities. Instead, any criteria it develops under Subtitle D would be enforceable by states that choose to do so or through existing citizen suit provisions. Under current authority, EPA could regulate CCW if it deems the material hazardous under Subtitle C, but would not have the authority to implement or enforce requirements applicable to CCW landfills or surface impoundments under Subtitle D. (A discussion of EPA's existing authority under RCRA is discussed in the " RCRA Provisions Relevant to EPA's Proposal " section, below.) In its proposal, EPA acknowledges that there are differing views on the meaning of the data and analyses collected to support its rulemaking and the course of action EPA should take to address that information. Among state regulatory agencies, industry groups, citizen groups, and environmental organizations, there has been both strong support and opposition for each option. Included among the arguments in favor of regulating the waste under the solid waste requirements (generally supported by state regulatory agencies and industry groups) are the following: there is not enough evidence that the material poses a significant threat to human health or the environment to warrant regulation as hazardous waste; regulating it as hazardous would be unnecessarily costly and burdensome to both industry and state regulators; and current state regulation of the material is sufficiently protective of human health and the environment. Also, as mentioned previously, industry groups argue that labeling the material as "hazardous" or regulating it under Subtitle C requirements would stigmatize the material, thus limiting potential options for reuse and ultimately increasing the amount of waste sent for disposal. Environmental and citizen groups in favor of regulating the material under the hazardous waste requirements argue that recently completed waste characterization studies demonstrate that the material can have toxicity characteristics that could qualify it to meet the regulatory definition of hazardous waste. Also, recent risk assessments have shown that improperly managed waste poses a substantial threat to human health or the environment. Further, they argue that recycling may actually increase if disposal becomes more costly under the Subtitle C requirements. Their arguments against the Subtitle D-related proposal hinge on EPA's lack of authority to enforce it. They argue that sufficient protections must involve restrictions on land disposal that include enforceable federal requirements (including the implementation of a permit program to clearly document facility compliance). Considering EPA's limited authority to require states to implement its solid waste regulations, the Subtitle D option would essentially continue to manage the material in accordance with inadequate state requirements, they say. Further, they argue that reliance on citizen suits to enforce EPA's disposal standards (particularly if states do not choose to implement them) is burdensome on the public and an unreliable method of implementing national disposal standards. Finally, under the Subtitle D proposal, EPA has no authority to require financial assurance to insure cleanup if contamination is discovered. As stated previously, the public comment period for EPA's proposal ended on November 19, 2010. It is unclear when, or if, final regulations will be promulgated. According to testimony by EPA Administrator Lisa Jackson, EPA received over 450,000 comments to its regulatory proposal. Further, she anticipated that evaluating such a large volume of comments would be time-consuming and that final regulations were not expected in the calendar year (2011). Coal combustion waste consists of inorganic residues that remain after pulverized coal is burned. At various stages of the coal combustion process, different types of waste are generated. Bottom ash and boiler slag are generated at the base of the furnace. Electrostatic precipitators remove solids from the stack exhaust, generating fly ash. Also, power plants often add lime to flue stacks, through wet or dry processes, to remove sulfur dioxide from exhaust gas (a contributor to acid rain). This process creates flue gas desulfurization (FGD) products. These residues include both coarse and fine particles. See Table A-1 in the Appendix for a more detailed description of the different types of CCW generated. The physical and chemical characteristics of each type of CCW have bearing on both its potential for use (e.g., as a component in concrete or gypsum wallboard or as a soil amendment) and its potential to present some level of risk to human health or the environment. In the 30 years that EPA has been studying CCW, many stakeholders have argued that the waste is largely benign. In recent years, EPA has sought to further characterize the waste. Recent data on CCW composition have identified more than 40 constituents. Contaminants of most environmental concern are antimony, arsenic, barium, beryllium, cadmium, chromium, lead, mercury, nickel, selenium, silver, and thallium. The chemical composition of CCW generated at a given plant will depend on the type and source of coal, the combustion technology used at the power plant, and the air pollution control technology used. Recently, EPA has focused particularly on the potential for changes in hazardous constituent levels as a result of the increased use and application of advanced air pollution control technologies in coal-fired power plants. These technologies are expected to reduce air emissions of metals and other pollutants. However, they are expected to transfer those pollutants to the fly ash and other air pollution control residues. As part of its regulatory proposal, EPA discusses research and information it has gathered in an effort to more accurately characterize the toxicity levels of CCW; determine how those toxicity levels may change with changes in air pollution control technology; and more accurately determine the potential for those constituents of concern to leach from their deposition site. In its regulatory proposal, EPA notes that the agency's Science Advisory Board and the National Academy of Sciences have raised concerns about the accuracy of test methods traditionally used to determine toxicity. Specifically, EPA states that considerable evidence has emerged indicating that the traditional test method, the Toxicity Characteristic Leaching Producer (TCLP), alone is not a good indicator of the mobility of metals in CCW under realistic disposal conditions. Research results discussed in the regulatory proposal used leach test methods determined to more accurately assess expected CCW management conditions (disposal or beneficial use). Among other findings, it was determined that CCW samples exceed the toxicity characteristic (the threshold over which it would be deemed a hazardous waste under RCRA) and drinking water standards for various constituents including for arsenic, selenium, lead, cobalt, barium, and chromium. Also, leach rates appear to be impacted more by the pH over the range of field conditions at the deposition site, rather than the total of amount of contaminants in the waste. This finding is particularly relevant in determining how contaminants may be safely managed for disposal or beneficial use. Of the 135 million tons of CCW generated in 2009, approximately 94 million tons (69%) was disposed of. Disposal occurred in landfills, surface impoundments, and as minefill. The remaining 40.7 million tons was beneficially used in some capacity, primarily as an ingredient in certain building materials (e.g., concrete, cement, or gypsum wallboard), as structural fill, as a waste stabilization ingredient, and as blasting grit. CCWs are managed in either wet or dry disposal systems. In wet systems, the waste is generally sluiced directly from a power plant to a surface impoundment pond, where solids settle out, leaving relatively clear water at the surface (which may be re-circulated into the plant or discharged to surface water). Surface impoundments involve a natural topographic depression, man-made excavation, or diked area formed primarily of earthen materials (although it may be lined with man-made materials) designed to hold an accumulation of CCWs containing free liquids. Solids may accumulate until the impoundment unit is full, or they may be dredged periodically and taken to another disposal unit such as a landfill. Landfill disposal involves the deposition of dry waste into an engineered area of land or an excavation for permanent disposal. EPA's June 2010 regulatory proposal includes piles, sand and gravel pits, quarries, and/or large-scale fill operations in its definition of landfills. EPA estimates there are approximately 300 CCW landfills and 629 CCW surface impoundments or similar management units in use at roughly 495 coal-fired power plants. The number of surface impoundments was determined from survey data gathered by EPA after the Kingston release. In March 2009, in an attempt to avoid catastrophic releases such as that in Kingston, EPA sent a request for information to the owners and operators of CCW impoundment units. The survey was intended to gather information necessary to determine the structural integrity of surface impoundment units. EPA identified 629 surface impoundments or similar management units in 42 states. EPA did not request data regarding landfills in its 2009 survey. While EPA's estimate of surface impoundments is based on recent data, the estimated number of landfills is taken from its May 2000 regulatory determination (which, incidentally, also estimated that there were 300 surface impoundments). In 2006, in a joint agency effort, EPA and the U.S. Department of Energy (DOE) conducted a study to determine state regulatory requirements applicable to CCW landfills and surface impoundments built between 1994 and 2004. At the time, it was estimated that roughly two-thirds of the waste was disposed of in landfills and the remainder in surface impoundments. However, it is unknown how accurate that estimate was. Based on the age of the data, the 2006 estimate regarding the proportion of landfills to surface impoundments, and the inaccuracy of the estimate of surface impoundments (before the 2009 survey), it is unlikely that the estimated number of landfills is accurate. Although CCW landfills and surface impoundments are generally not regulated under federal law, that does not mean they are entirely unregulated. Landfills and surface impoundments may be regulated under state solid waste management programs. Surface impoundments may be subject to state dam safety requirements and federal wastewater discharge requirements (under the Clean Water Act in accordance with parameters specified in a National Pollutant Discharge Elimination System (NPDES) permit). In its May 2000 regulatory determination, EPA cited inconsistencies in state requirements as a reason to propose national standards to regulate CCW disposal. In its current proposal, EPA again cites a lack of progress in state regulation of CCW disposal units. Primarily, after identifying risks associated with CCW disposal in unlined landfills and surface impoundments in 2000, states have still not adequately implemented CCW regulatory programs, according to EPA. In particular, according to recent survey data, with regard to CCW disposal units, 36% of responding states do not have minimum liner requirements for landfills, 67% do not have liner requirements for surface impoundments, 19% of the responding states do not have minimum groundwater monitoring for landfills, and 61% do not have minimum groundwater monitoring for surface impoundments. EPA states that the survey results are "particularly significant as groundwater monitoring for these kinds of units is a minimum for any credible regulatory regime." Further, EPA asserts that, while the states seem to be regulating landfills to a greater extent, given the significant risks associated with surface impoundments, survey results suggest that there continue to be significant gaps in state regulatory programs for the disposal of CCWs. The size, shape, and chemical composition of CCW lend it to certain potential beneficial uses—as a component of building materials (cement, concrete, gypsum wallboard) or as a replacement for other virgin materials such as sand or gravel. Beneficial uses can be in either encapsulated form, such as in concrete, or unencapsulated form, such as in fill or agricultural applications. In 2009, of the approximately 134.7 million pounds of CCW produced, approximately 40.7 million pounds (30%) was beneficially used. Of that total, approximately 36% was used in an encapsulated form, and the remainder for an unencapsulated use. In its regulatory proposal, EPA draws the distinction between uses of CCW that are truly beneficial and uses that, for all intents and purposes, are disposal. EPA considers the use of CCW to be "beneficial" when it used in a manner that provides some functional benefit —for example, the use can increase the durability of concrete, serve the same function in wallboard as gypsum ore, or can be used as a soil amendment to adjust pH levels to promote plant growth; conserves natural resources —the material may act as a substitute for a virgin material that would otherwise need to be obtained through practices such as extraction (e.g., it can be used in wallboard, decreasing the need to mine gypsum); or meets relevant product specifications or regulatory standards —for example, when used in certain commercial products, it may be used in controlled amounts according to a product standard or specification (where available). EPA does not consider coal combustion byproducts (e.g., fly ash or FGD material) used in these three ways to be a waste . However, there are uses that EPA has specifically identified in its regulatory proposal as not being beneficial. Those include disposal in sand and gravel pits and large-scale fill operations. Both types of use have resulted in proven environmental damages and would be considered disposal. For example, construction sites that are excavated so that more coal ash can be used as fill would be considered CCW landfills (and, hence, subject to regulation under Subtitle C or D, depending upon the final regulatory option selected). In its regulatory proposal, EPA identified an array of environmental issues and concerns associated with unencapsulated uses of CCW, and requested comment on whether such uses warrant tighter federal control. Prior to its proposal, EPA's Office of Resource Conservation and Recovery (formerly known as the Office of Solid Waste) promoted various beneficial uses of CCW through its Coal Combustion Products Partnership (C 2 P 2 ). Following the May 2010 preliminary release of its regulatory proposal, EPA stopped promoting beneficial use through the C 2 P 2 . Subsequently, the EPA Office of Inspector General determined that EPA did not follow accepted and standard practices in determining whether the categories of CCW beneficial uses that it was promoting were, in fact, safe for those proposed uses. As a result, the Inspector General's report stated that the C 2 P 2 presented an incomplete picture regarding actual damage and potential risks that can result from large-scale placement of unencapsulated CCWs and other beneficial uses. The fact that hazardous constituents are present in a waste does not in itself mean that it poses a risk to humans. The degree to which there is actual risk depends on whether those constituents can find a pathway of human exposure and whether the resulting level of exposure is likely to be high enough to cause harm. Stakeholders have long debated the extent to which the hazardous constituents actually can or do migrate from the point of deposition (e.g., a landfill or surface impoundment or a site where it may be used as a structural or embankment fill) and subsequently harm or pose a threat to human health or the environment. In its regulatory proposal, EPA identifies the following primary pathways of exposure: contaminant leaching to groundwater —when water or other liquid is able to percolate through the waste and transport contaminants off-site; the discharge, run-on, or run-off of liquid waste to surface water —this may occur accidentally or pursuant to the provisions of an NPDES permit; or fugitive dust emissions —when fine particulates associated with the dried ash become airborne. Human exposure to contaminants has been demonstrated through each of these pathways, but has most commonly occurred through contaminant leaching when the waste was deposited in an unlined landfill or surface impoundment. Under the Bevill Amendment, EPA was statutorily required to provide an analysis of both potential risks and actual documented damages to human health and the environment from CCW disposal and use. In its June 2010 proposal, EPA re-examines its previous Bevill determination by citing findings and analyses from its revised risk assessment and its updated documented damages from CCW management practices. EPA's documented damages show evidence of 27 cases of proven damages to surface and groundwater and 40 cases of potential damage associated with the improper management of CCW. In addition to impacts on human health from surface and groundwater contamination, EPA's damage cases document adverse effects to plants and wildlife. Those impacts include elevated selenium levels in migratory birds, wetland vegetative damage, fish kills, amphibian deformities, snake metabolic effects, plant toxicity, mammal uptake, fish deformities, and inhibited fish reproductive capacity. In April 2010, EPA released its revised study, Human and Ecological Risk Assessment of Coal Combustion Wastes. Among other findings, the risk assessment determined that there is a high risk of human exposure to carcinogens, such as lead, selenium, and arsenic, when CCW is deposited into unlined landfills and surface impoundments. Overall, higher risks were observed for surface impoundments compared to landfills due to higher waste leachate concentrations and the higher hydraulic pressure from impounded liquid waste. The assessment noted that this finding was consistent with reported damage cases reporting wet handling as a factor than can increase risks from CCW. Further, the risk assessment confirms that with the use of composite liners, CCWs can be managed safely, but it calls into question the reliability of clay liners, especially in surface impoundments. Generally, the findings from the damage cases and risk assessment showed that the majority of actual damages and highest potential health risks associated with CCW involved its deposition into unlined disposal units or use sites (e.g., for construction or structural fill). However, more recent damage cases (such as the Kingston release and a similar, smaller incident in 2005 in Martins Creek, PA ) are evidence that current management practices can pose additional risks that EPA had not previously studied—that is, from catastrophic releases due to the structural failure of surface impoundments. RCRA provides the general guidelines under which all waste is managed. It also includes a congressional mandate to EPA to develop a comprehensive set of regulations to implement the law (also commonly referred to as RCRA). The evolution of CCW regulation involves a long and somewhat complicated history. To understand issues associated with CCW disposal regulations and the current rulemaking process, it is useful to understand EPA's current authority under RCRA to regulate solid and hazardous waste and issues associated with the current rulemaking process—particularly questions regarding EPA's potential to regulate CCW as solid or hazardous waste. Each of EPA's regulatory options would expand upon existing regulatory requirements applicable to "solid waste" or "hazardous waste." RCRA, both the law and its implementing regulations, is complex. This report does not attempt to provide a comprehensive overview of RCRA. Instead, it discusses selected provisions of the law and regulatory requirements that are relevant to the current regulatory proposal. In particular, it discusses requirements EPA would be allowed to implement under the agency's existing RCRA authority. In debating the appropriate regulatory option for managing CCW, one factor has drawn particular attention. That is, EPA's authority to implement one option or the other. Broadly, EPA currently has the authority to implement its Subtitle C-related option. It has limited authority to implement standards applicable to CCW disposal facilities under Subtitle D. That is, EPA can promulgate regulations under Subtitle D, but can only encourage states to implement them. Under Subtitle C, EPA has broad authority to regulate hazardous waste from its generation to its ultimate disposal (and beyond, if disposal leads to contamination of air, soil, or water). That authority includes a directive to EPA to establish criteria to identify hazardous wastes; establish standards applicable to hazardous waste generators; establish minimum national standards applicable to owners and operators of hazardous waste treatment, storage, and disposal facilities (TSDFs); establish a permit program applicable to TSDFs; and establish criteria for states to administer and enforce their own hazardous waste program. RCRA defines solid waste broadly as any discarded material. The law specifies that solid wastes are not limited to materials that are physically solid. They may include discarded liquids, solids, or semi-solids. A solid waste becomes a hazardous waste in one of two ways—it may be deemed hazardous because it exhibits certain hazardous characteristics (ignitability, corrosivity, reactivity, or toxicity), or it may be deemed hazardous if EPA specifically lists the waste as such. Hence, hazardous wastes are referred to as "characteristic" or "listed" wastes. Industrial waste generators must determine whether or not a waste exhibits hazardous characteristics by testing the waste or by using knowledge of the process that generated the waste. A common test method is the Toxicity Characteristic Leaching Procedure (TCLP). The TCLP test is intended to simulate conditions that would likely occur in a landfill, and measures the potential for toxic constituents to seep or "leach" into groundwater. TCLP is not the only approved method to determine a waste's toxicity. EPA may also conduct a more specific assessment of a waste or category of wastes and list them as hazardous if they meet certain regulatory criteria. Under those criteria, a waste will be "listed" if it contains certain toxic constituents and is capable of posing a substantial present or potential hazard to human health or the environment when improperly treated, stored, transported, or disposed of. EPA must also take into consideration various factors, including the presence of toxic constituents, the concentration of those constituents, the potential of any hazardous constituents to degrade and migrate, and the plausible types of improper management to which the waste could be subject. These factors were considered in EPA's regulatory option that would regulate CCW as a hazardous waste. In particular, EPA used data from three recent waste characterization studies that determined, among other findings, that under plausible disposal conditions, CCW samples exceeded regulated toxicity levels for selenium, barium, arsenic, and chromium. These studies used toxicity test methods that were deemed more accurate than previous testing methods (i.e., TCLP). (For more information, see discussion regarding " The Nature of CCW ," above.) If a waste is identified as hazardous, then it may be subject to the requirements of RCRA subtitle C and the implementing regulations. These requirements apply to persons who generate, transport, treat, store, or dispose of such waste and establish rules governing every phase of the waste's management from its generation to its final disposition and beyond ("cradle to grave"). Facilities that treat, store, or dispose of hazardous wastes require a permit which incorporates all of the design and operating standards established by EPA rules, including standards for piles, landfills, and surface impoundments. EPA has primary responsibility for that permitting program. EPA will authorize states to implement their own program that is at least as stringent as the federal program. Currently, EPA implements the hazardous waste management program in Iowa, Alaska, Indian Country, and the territories, except Guam. All other states implement their own programs, while EPA maintains oversight of them. If EPA chooses to regulate CCW under Subtitle C, states could choose to implement their own CCW management program in compliance with EPA's Subtitle C requirements. Under Subtitle C, land disposal of hazardous waste is prohibited unless the waste is first treated to meet certain treatment standards or the waste is disposed in a unit from which there will be no migration of hazardous constituents for as long as the waste remains hazardous. Facilities regulated under Subtitle C are required to clean up any releases of hazardous waste or constituents from solid waste management units at the facility, as well as beyond the facility boundary, as necessary to protect human health and the environment. RCRA Subtitle C also requires that permitted facilities demonstrate that they have adequate financial resources (i.e., financial assurance) for obligations, such as closure, post-closure care, necessary cleanup, and any liability from facility operations. Solid wastes that are neither a listed nor a characteristic hazardous waste, or wastes that are not specifically exempted from regulation as a hazardous waste, are regulated under Subtitle D of RCRA. In contrast to its authority under Subtitle C, EPA's authority to regulate CCW disposal under Subtitle D is limited. Broadly, EPA has the authority to establish enforceable criteria applicable only to municipal solid waste (MSW) landfills. It does not have the authority to establish enforceable criteria for landfills that accept other types of waste or for surface impoundments that accept any type of waste. Subtitle D establishes a framework for federal, state, and local government cooperation in controlling the management of nonhazardous solid waste. The federal role is to establish the overall regulatory direction by providing minimum nationwide standards for protecting human health and the environment and technical assistance to states for planning and developing their own environmentally sound waste management programs. However, the actual planning and direct implementation of solid waste programs under Subtitle D remain a state and local function. Under the authority of sections 1008(a)(3) and 4004 of RCRA, EPA first promulgated "Criteria for Classification of Solid Waste Disposal Facilities and Practices" (40 C.F.R. 257). These regulations established minimum national performance standards necessary to ensure that "no reasonable probability of adverse effects on health or the environment" will result from solid waste disposal facilities or practices. Practices not complying with regulations specified under 40 C.F.R. 257 constitute "open dumping" and are prohibited under section 4005(a) of RCRA. EPA does not have the authority to enforce that prohibition directly. Instead, states and citizens may enforce the prohibition on open dumping using the citizen suit authority under RCRA (discussed below). EPA also may intervene if it is determined that waste disposal practices pose an imminent endangerment to human health or the environment (also discussed below). The Hazardous and Solid Waste Amendments of 1984 (HSWA, P.L. 98-616 ) added Section 4010 to RCRA, requiring EPA to revise its existing criteria for evaluating whether solid waste management practices and facilities were conducting open dumping. Under HSWA, EPA was directed to establish criteria applicable to solid waste management facilities that may receive hazardous household waste and hazardous wastes from small quantity generators. Subsequently, EPA promulgated "Criteria for Municipal Solid Waste Landfills" (at 40 C.F.R. 258). Those regulations include location restrictions, operation and design criteria (e.g., liner, leachate collection, run-off controls), groundwater monitoring and corrective action requirements, closure and post-closure care, and financial assurance criteria. The regulations apply only to landfill operations and specifically exclude requirements applicable to surface impoundments. Also required under HSWA, states were directed to implement a permit program to assure that solid waste management facilities that may receive MSW complied with the revised landfill criteria. EPA was authorized to determine the adequacy of the state permit programs. Further, for states it determined did not have an adequate permit program, EPA was provided with inspection and enforcement authority under Sections 3007 and 3008 of Subtitle C to enforce the prohibition on open dumping. The Subtitle D provisions added under HSWA are relevant to CCW regulation because they illustrate the limitations on EPA's authority to develop landfill criteria. That is, EPA was specifically authorized by Congress to develop landfill criteria applicable to municipal solid waste landfills (referred to in the law as "hazardous household waste and small quantity generator waste"). Beyond that, EPA may only expand upon the prohibition on open dumping. As mentioned above, open dumping prohibitions, specified under the sanitary landfill regulations (40 C.F.R. 257), are enforced by states or through citizen suits. Citizen suit provisions specified under Section 7002 of RCRA allow for civil action against any entity that is alleged to be in violation of any "permit, standard, regulation, condition, requirement, prohibition, or order." Further, citizen suits are allowed where the disposal of any solid or hazardous waste may present "an imminent and substantial endangerment to health or the environment." In addition to citizen suit provisions, EPA is authorized to take action if disposal of wastes may present an imminent and substantial endangerment to health or the environment. Under Section 7003 of RCRA, EPA can initiate judicial action or issue an administrative order to any past or present waste generator or owner of a disposal facility who has contributed or is contributing to the disposal. Section 7003 is available for use in several situations where other enforcement tools may not be available. For example, it can be used at sites and facilities that are not subject to Subtitle C of RCRA or any other environmental regulation (as may be the case at CCW disposal or use sites). Specifically, action may be initiated if each of the following conditions is met: Conditions may present an imminent and substantial endangerment to health or the environment—such conditions generally require careful documentation and scientific evidence. However, the endangerment standard under RCRA has generally been broadly interpreted. The potential endangerment stems from the past or present handling, storage, treatment, transportation, or disposal of any solid or hazardous waste. The person has contributed or is contributing to such handling, storage, treatment, transportation, or disposal. Under Section 7003, EPA may take action as deemed necessary, determined on a case-by-case basis. Further, it gives EPA authority to obtain relevant information regarding potential endangerments. In summary, under existing Subtitle D provisions, EPA could develop criteria applicable to landfills and surface impoundments that accept CCW, but would have no authority to implement or enforce those regulations or require states to implement them. EPA could establish regulations and standards under Subtitle D that would be enforceable by states (that choose to implement them) and private citizens. Since most states argue that their existing solid waste management programs adequately regulate CCW disposal, it is unclear how many states, if any, would adopt EPA's Subtitle D regulations, if finalized. In its current regulatory proposal, EPA is reconsidering whether its May 2000 regulatory determination is appropriate and whether its Bevill determination should be revised. EPA has not yet determined whether the waste should be regulated under Subtitle C or D. It is seeking comment on both options. Ultimately, EPA states that its decision must be protective of human health and the environment and be based on sound science. Each regulatory option draws on existing requirements or authorities specified under Subtitles C and D of RCRA and their implementing regulations (discussed above). The proposals also include regulatory requirements intended to address potential problems unique to managing CCW. EPA's proposal to regulate CCW under Subtitle C would be predicated on its determination that the waste meets the regulatory criteria for listing it as hazardous (discussed above). Under this option, the waste would be regulated under existing Subtitle C requirements (40 C.F.R. Parts 260-268 and 270-272) that specify, among other things, location restrictions; standards for liners, leachate collection and removal systems, and groundwater monitoring; closure and post-closure care requirements; storage requirements; land disposal restrictions and treatment standards; corrective action; financial assurance; and permitting requirements. Selected requirements unique to CCW management are discussed in Table 1 . Permitting and upgrade requirements applicable to existing surface impoundments, coupled with land disposal restrictions on future wet disposal of CCW, would effectively phase out surface impoundment disposal. If the Subtitle C option were to be finalized, it would become effective in six months in states where EPA implements the hazardous waste management program. States with an authorized hazardous waste program would be required to adopt the regulations and modify their existing state programs. EPA estimates that this could take those states one to two years, depending on when EPA finalizes the rule. Time to comply with requirements that may take longer than six months is addressed specifically in the regulatory proposal (e.g., facilities may take up to seven years to meet surface impoundment closure requirements). CCW beneficially used would be specifically excluded from the definition of hazardous waste. That is, it would not be subject to Subtitle C regulation from the point of generation to the point where it is beneficially used (e.g., made into wallboard or concrete). If EPA selects the Subtitle D option, it would leave in place the Bevill exemption from hazardous waste and establish criteria applicable to CCW surface impoundments and landfills within the criteria for classifying open dumps. It would modify existing open dumping requirements under the "Criteria for Classification of Solid Waste Disposal Facilities and Practices" (proposed as a new Subpart D, under 40 C.F.R. Part 257) to specify criteria for determining which CCW landfills and surface impoundments pose a reasonable probability of adverse effects on health or the environment under RCRA. Facilities that fail to satisfy these criteria would be considered in violation of RCRA's prohibition on open dumping. Although proposed under the regulations related to open dumping, the Subtitle D proposal is more similar to existing regulations applicable to municipal solid waste landfills (40 C.F.R. 258). For example, similar to MSW landfill restrictions, the Subtitle D proposal includes the following: Location restrictions. New disposal units (landfills or surface impoundments) would be required to be placed above the natural water table and could not be located in wetlands, within 200 feet of a fault zone, or in a seismic impact zone. New or existing disposal units could not be located in an unstable area (e.g., a location susceptible to natural or human-induced events or forces capable of impairing the integrity of the unit). Existing disposal units in an unstable area would be subject to closure requirements. Design requirements. New landfills and surface impoundments would be required to be constructed with a composite liner. Within five years, existing surface impoundments would be required to have solids removed and be retrofitted with a composite liner. Existing landfills would not be required to be retrofitted with a liner. Similar to the Subtitle C proposal, surface impoundments would be subject to stability requirements similar to those promulgated under MSHA. Operating requirements. Disposal units would be subject to fugitive dust controls and liquid run-off/run-on control. Facilities would also have recordkeeping requirements that would specify that all records, reports, studies, or other documentation required to demonstrate compliance with the requirements must be made publicly available at the operator's facility or on its publicly accessible Internet site. The availability of information is intended to facilitate citizen suits if necessary. Groundwater monitoring and corrective action requirements. New and existing disposal units would be subject to groundwater monitoring requirements. If certain hazardous constituents (including arsenic, cadmium, or selenium) are detected at a level exceeding groundwater protection standards, the facility would have 90 days to assess corrective measures and select a remedy that would protect human health and the environment. Closure and post-closure requirements. Closure of a disposal unit would be required to be done in accordance with a closure plan. As discussed previously, the most significant element of this option relates to EPA's lack of authority to implement the requirements or enforce them. EPA states that it would encourage states to adopt the criteria, but the agency has no authority to require them to do so or to implement the criteria upon their finalization. Nor does EPA have authority to require federal approval procedures for state adoption of the minimum nationwide criteria (e.g., a permit program). States would be free to develop their own regulations and/or permitting programs using their solid waste laws or other state authorities. EPA notes that if states do not adopt the proposed CCW management standards, facilities would still have to comply with the proposed Subtitle D criteria, if finalized. For that reason, EPA has proposed its requirements in a way that would be self-implementing. That is, facilities would be able to implement them without interaction with regulatory officials. Still, if facilities choose not to self-implement the proposed criteria (particularly in a state that chooses not to adopt them), there are limited enforcement mechanisms to require the facility to do so. EPA argues that the requirement to make facility compliance information available to the public would allow citizens to enforce the requirements, if a state chooses not to. However, the ability of citizens to gather necessary information to move forward with a citizen suit could be complicated if a facility does not disclose the specified information. Again, there are limited enforcement options to compel a facility to produce that information. EPA prepared an analysis of the potential costs and benefits associated with its regulatory proposal in its Regulatory Impact Analysis (RIA). The RIA estimated the average annualized regulatory cost to be approximately $1.5 billion a year under the Subtitle C option and $587 million a year under the Subtitle D option. These estimates include the costs of industry compliance and state and federal government oversight and enforcement costs. In addition to the costs, the RIA also took into consideration potential environmental and public health benefits of regulating CCW. Estimated and monetized benefits in the RIA include groundwater protection benefits consisting of human cancer prevention benefits and avoided groundwater remediation costs at CCW disposal sites; a reduction in economic impacts or cleanup costs associated with catastrophic surface impoundment failures (i.e., cleanup costs avoided); and induced future increase in industrial beneficial uses of CCWs (e.g., increased recycling due to increased cost of disposal). Taking into consideration these three potential benefits, EPA estimated annualized "regulatory benefits" under the Subtitle C option. The estimates ranged widely, depending on potential changes in the level of beneficial use of the waste. In addition to induced increases in beneficial uses of CCW (as mentioned above), the RIA also considers potential changes to costs/benefits if recycling levels remained unchanged and if there were a decrease in beneficial use due to "stigma" effects of regulating it under Subtitle C. Depending on those factors, EPA speculates that a decrease in beneficial use could result in increased costs of $16.7 billion, while induced increases in recycling could result in a regulatory benefit of $7.4 billion a year. Under the Subtitle D option, the regulatory benefit is estimated to range from $85 million to $3 billion a year (the RIA did not estimate a potential stigma effect on the Subtitle D option). States and utilities argue that data gathered to date do not clearly demonstrate that the waste poses a threat to human health and the environment and that to regulate its disposal under Subtitle C would be too costly to implement. States also argue that their current regulatory programs are sufficient to protect human health and the environment. Industries that advocate for the beneficial use of CCW argue that regulating the material under Subtitle C, even if there were exemptions for certain beneficial uses, would stigmatize the material. They are particularly concerned that liability issues would lead to the elimination of certain uses of the material, such as its use as a component in wallboard (end users may potentially equate the use of "hazardous" gypsum wallboard with problems associated with toxic wallboard from China); its use as a component in concrete or cement that is used on bare ground; or as an amendment to regulate pH levels in soil. Environmental groups argue that EPA has gathered sufficient data to demonstrate that the waste poses significant risks when deposited into unlined disposal units and that states are not consistently regulating the waste in a way that sufficiently minimizes potential threats to humans or the environment. Further, under its existing RCRA authority, EPA has minimal authority to establish disposal criteria under Subtitle D. If it is to be regulated at all in a consistent way, they argue, it must be under Subtitle C. Members of Congress have several legislative options to address concerns expressed by these groups. Congress may choose to direct EPA to leave the Bevill exemption in place and continue to exempt the material from regulation as hazardous waste. This may be problematic in that the original amendment directed EPA to hold the exemption pending a report to Congress on various factors regarding the waste's volume, disposal, and actual harm and potential risks associated with its disposal. For the past 30 years, EPA has been gathering that information and has determined that improper management poses significant risks to human health and the environment and that those risks could be minimized through some form of national regulation. Congress may also explicitly prohibit the Bevill-exempted CCW from regulation under Subtitle C (as in the proposed H.R. 1391 ). Instead of (or in addition to) prohibiting EPA from regulating the waste under Subtitle C, Congress could choose to give EPA additional authority to regulate it under Subtitle D. It may specifically direct EPA to establish waste management criteria under Subtitle D applicable to solid waste management facilities that receive CCW. Such provisions could potentially draw from the existing distinction between an "open dump" and a "sanitary landfill" (a facility from which there is no reasonable probability of adverse effects on health or the environment from disposal of solid waste). Similar to the HSWA amendments that authorized EPA to establish criteria applicable to MSW landfills, Congress could specifically authorize EPA to revise existing solid waste management criteria to include standards applicable to landfills and surface impoundments that accept coal combustion wastes. Further, Congress could require states to adopt a permit program to assure that coal combustion waste management facilities within the state meet EPA's management criteria. Congress could also choose to create a new subtitle under RCRA (a Subtitle K) that would specifically address issues unique to the management of CCW. Such a proposal could include a number of legislative provisions, but, broadly, could direct EPA to develop waste management standards applicable to disposal units that accept CCW (similar to Subtitle D), but also provide EPA with federal enforcement authority to require states to implement those standards (similar to Subtitle C) while avoiding labeling the material a "hazardous" waste. Such a proposal could also authorize EPA to specifically regulate certain beneficial uses (such as construction fill). Congress may also choose to do nothing. That is, Congress may allow the current rulemaking process to continue and allow EPA to select either its Subtitle C- or D-related proposal. As of this writing, it is unknown when EPA will finalize its proposal. In its fall 2010 "Current Regulatory Plan," the Office of Management and Budget's (OMB's) Office of Information and Regulatory Affairs listed the date of the final action as "To Be Determined." Along with the OMB regulatory plan, EPA published its Unified Regulatory Agenda, in which the agency discusses its regulatory priorities for 2011. The CCW proposal was not among those discussed. | Coal combustion waste (CCW) is inorganic material that remains after pulverized coal is burned for electricity production. A tremendous amount of the material is generated each year—industry estimates that approximately 135 million tons were generated in 2009. On December 22, 2008, national attention was turned to issues regarding the waste when a breach in an impoundment pond at the Tennessee Valley Authority's (TVA's) Kingston, TN, power plant released 1.1 billion gallons of coal ash slurry. The cleanup cost has been estimated to reach $1.2 billion. While the incident at Kingston drew national attention to the potential for a sudden catastrophic release of waste, it is not the primary risk attributed to CCW management. An April 2010 risk assessment by the Environmental Protection Agency (EPA) indicated that CCW disposal in unlined landfills and surface impoundments presents substantial risks to human health and the environment from releases of toxic constituents (particularly arsenic and selenium) into surface and groundwater. That risk is largely eliminated when the waste is disposed of in landfills and surface impoundments equipped with composite liners. In addition to potential risks, EPA has reported numerous cases of actual surface and groundwater contamination when CCW was deposited into unlined disposal units or used as construction fill. CCW disposal is essentially exempt from federal regulation. Instead, it is regulated in accordance with individual state requirements. Inconsistencies among state regulatory programs were identified by EPA in a May 2000 regulatory determination as one reason that national standards to regulate CCW were needed. More recently, EPA called into question the effectiveness of some state regulatory programs in protecting human health and the environment. For example, EPA cited state survey data that showed that over 60% of states do not require liners or groundwater monitoring for surface impoundments (the disposal units with the highest potential for contaminant spread). To establish national standards intended to address risks associated with potential CCW mismanagement, on June 21, 2010, EPA proposed two regulatory options to manage the waste. The first would draw on EPA's existing authority to identify a waste as hazardous and regulate it under standards established under Subtitle C of the Resource Conservation and Recovery Act (RCRA). The second option would establish regulations applicable to CCW disposal units under RCRA's Subtitle D solid waste management requirements. Under Subtitle D, EPA does not have the authority to implement or enforce its proposed requirements. Instead, EPA would rely on states or citizen suits to enforce the new standards. The proposal generated comment from industry groups, environmental and citizen groups, state agency representatives, individual citizens, and some Members of Congress. Concerns regarding the Subtitle C proposal relate to its ultimate impact on energy prices, state program implementation costs, and CCW recycling opportunities. Concern about the Subtitle D proposal primarily relates to whether it would sufficiently protect human health and the environment, given EPA's lack of authority to enforce it. Commenters have proposed various legislative options in response to the varied concerns over EPA's existing regulatory options. Possible legislative options include an explicit directive to EPA to regulate or prohibit CCW regulation under Subtitle C or Subtitle D or the creation of a new subtitle under RCRA that requires EPA to develop an entirely new set of disposal criteria specific to CCW management. Another option, proposed in the Coal Residuals Reuse and Management Act (H.R. 2273), would use existing landfill municipal solid waste landfill criteria as the basis for a state CCW permit program. |
Farmers have always modified plants and animals to improve growth rates and yields, create varieties resistant to pests and diseases, and infuse special nutritional or handling characteristics. Such modifications have been achieved by crossbreeding plants and animals with desirable traits, through hybridization, and other methods. Now, using recombinant DNA techniques, scientists also genetically modify plants and animals by selecting individual genes that carry desirable traits (e.g., resistance to a pest or disease) from one organism, and inserting them into another, sometimes very different, organism, that can be raised for food, fiber, pharmaceutical, or industrial uses. Karl Ereky, a Hungarian engineer, coined the term "biotechnology" in 1919 to refer to the science and the methods that permit products to be produced from raw materials with the aid of living organisms. According to the Convention of Biological Diversity, biotechnology is "any technological application that uses biological systems, living organisms, or derivatives thereof, to make or modify products or processes for specific use" (Article 2). According to the FAO's statement on biotechnology, "interpreted in a narrow sense, ... [biotechnology] covers a range of different technologies such as gene manipulation and gene transfer, DNA typing and cloning of plants and animals." Since genetically engineered (GE, sometimes called genetically modified organism or GMO) crop varieties first became commercially available in the mid-1990s, U.S. soybean, cotton, and corn farmers have rapidly adopted them in order to lower production costs and increase crop yields. Proponents point to the emergence of "second generation" GE commodities that could shift the focus of biotechnology from the "input" side (creating traits that benefit crop production, such as pest resistance) to the "output" side (creating traits that benefit consumers, such as lower-fat oils). These second generation products could offer enhanced nutritional and processing qualities and also industrial and pharmaceutical uses. Future products are expected to be livestock- as well as crop-based. Critics, meanwhile, complain that biotechnology companies generally have not yet delivered the consumer benefits they have been promising for years. Incidents of regulatory noncompliance have continued to spike concern about the adequacy of regulatory structures. In December 2008, a small amount of unapproved GE cotton was harvested along with commercially available GE cotton. The unapproved GE cotton variety produces a pesticide that is a plant-incorporated protectant (PIP). In August 2006, traces of an unapproved variety of GE rice were reported in commercial rice samples from parts of the southern United States (see " GE Rice ," below). These incidents have added to the ongoing interest in a number of public policy questions. What are the environmental and food safety impacts of GE crops and animals? What obstacles and opportunities are exporters of GE crops encountering in the global marketplace? Is the current U.S. regulatory framework, which is based primarily upon statutory authorities enacted before the rise of agricultural biotechnology, adequate for these new technologies and products? In 2013, GE crops were planted on an estimated 433 million acres worldwide ( Table 1 ), an increase of nearly 144 million acres over 2008. The acreage planted to GE crops has grown globally at an annual rate of 3% since the mid-1990s and currently comprises 12% of all crop acreage. In 2013, 8 industrialized countries and 19 lesser-developed countries had acreage planted to GE crops. Most of the acreage is highly concentrated among four crops—soybeans, corn, cotton, and canola—and five countries. The United States has approximately 40% of global acreage (173.2 million acres), and Brazil has 23% (99.6 million acres). Argentina has 14.0% of global acreage (60.3 million acres), India 6.3% (27.2 million acres), and Canada 6.1% (26.7 million acres). These five countries account for approximately 90% of the global acreage planted to GE crops. In the United States, over 60 GE plant varieties were approved by APHIS for commercial use through early 2005. By 2014, 82 plant varieties had been deregulated by APHIS. Ninety-three percent of all U.S. soybean, 94% of all upland cotton, and 88% of all corn acres were planted with GE seed varieties in 2012, according to USDA's National Agricultural Statistics Service ( Table 2 ). Virtually all current commercial applications benefit the production side of agriculture, with herbicide tolerance and pest control by far the most widespread application of GE crops in the United States and abroad. Herbicide-tolerant (HT) crops are engineered to tolerate herbicides that would otherwise kill them along with the targeted weeds. These include HT soybeans, HT upland cotton, and to a lesser extent, HT corn. Many of these are referred to as "Roundup Ready" because they are engineered to resist Monsanto's glyphosate herbicide, marketed under the brand name "Roundup." More recently, Monsanto has announced various "stacked trait" varieties—varieties that combine resistance not only to glyphosate/Roundup but also to the herbicides dicamba and glufosinate. The development of these newer varieties of HT crops is being motivated in part by the increasing weed resistance to glyphosate/Roundup. Insect-resistant crops effectively have the pesticide genetically engineered into the plants themselves to control insect pests for the life of the crop. These varieties are often referred to as having a plant-incorporated protectant (PIP). Many of these crops have been genetically engineered with Bt ( Bacillus thuringiensis , a soil bacterium), which produces a naturally occurring pesticide. These insect-resistant varieties are most prevalent in upland cotton to control tobacco budworm, bollworm, and pink bollworm; and in corn to control earworm and several types of corn borers. Monsanto is also developing "stacked trait" varieties of soybeans and sugar cane that are resistant to insects as well as glyphosate/Roundup. Other crops approved for commercialization include varieties of flax, papaya, potatoes, radicchio, canola, rice, squash, alfalfa, sugar beets, and tomatoes. Some of these crops are not commercialized or not widely planted. For example, the biotechnology firm Calgene's FlavrSavr tomato, first marketed to consumers from 1995 to 1997, was withdrawn after Calgene determined that the varieties being grown were not of consistently high quality. GE potato varieties peaked a decade ago at 2%-3% of the market; they were discontinued by the seed developer in 2001, mainly after several fast food and snack food companies declined to buy them. Varieties of GE wheat and rice, as well as flax and radicchio, have received regulatory approval but have not been commercially marketed (and/or research has been discontinued), presumably due largely to perceived producer or consumer unease with them. Other crops, such as GE sugar beets, GE canola, and GE alfalfa are widely planted. In contrast to abandoning certain approved GE products, a variety of white GE corn is now used in tortilla making after initial resistance by food processors. Herbicide resistant GE sugar beets were only planted in large acreage in the 2008 crop year. While commercially available since 2000, Western beet growers did not plant them because sugar-using food companies (e.g., Hershey, Mars) and beet sugar industry groups (e.g., American Crystal Sugar) balked at the idea of GE beets, thinking that consumers would be opposed. That opposition had subsided to the point that GE sugar beets constituted nearly 95% of the sugar beet crop by 2009. Nonetheless, the Center for Food Safety filed suit in January 2008 challenging APHIS's deregulation of GE sugar beets arguing that wind-pollinated GE sugar beets will inevitably cross-pollinate with related crops being grown in proximity, contaminating conventional sugar beets and organic chard and table beet crops. (See discussion of the sugar beet legal challenge below). Between 1987 and 2005, APHIS had approved more than 10,700 applications to conduct field tests of various GE crop varieties (out of 11,600 received from companies and other researchers), which the USDA characterized as "a useful indicator of R&D efforts on crop biotechnology." Over 5,000 applications were approved for corn alone, followed by soybeans, potatoes, cotton, tomatoes, and wheat. More than 6,700 applications were for HT and insect resistant varieties; the others were to test product quality, virus or fungal resistance, or agronomic (e.g., drought resistance) properties. By 2013, APHIS had approved more than 14,200 field trials of GE plants, most of which continued to be crop plants bearing genes conferring resistance to certain insects or tolerance to certain herbicides. Fewer animal-based GE products are commercially available, notably excepting dairy production. Chymosin, a biotechnology-produced enzyme, is used widely in cheese production. Bovine somatotropin (BST, also known as "bovine growth hormone") is a naturally occurring protein that can be produced in greater quantities through genetic engineering. The GE version of BST (rBST) was first approved by the U.S. Food and Drug Administration (FDA) in 1993. Reports suggest that more than 30% of all U.S. dairy cows are administered BST to boost milk production (by an estimated 10%-15%). Several other emerging animal biotechnologies, while not yet commercialized, are believed by researchers to hold great promise (see " Future GE Applications ," below). In February 2009, FDA approved the first product from a transgenic animal, an anti-clotting protein derived from the milk of transgenic goats. The animals are genetically engineered to produce a recombinant human antithrombin III protein in their milk. A Netherlands-based biotechnology firm also announced plans to seek U.S. and European approval in 2009 for Rhucin, made from a human protein purified from the milk of genetically engineered rabbits. The protein, C1 esterase inhibitor, helps control inflammation caused by hereditary angioedema. The FDA denied approval of the protein in February 2011, stating that the Biologics License Application was not sufficiently complete to enable a medical review. In August 2010, the FDA announced that it had begun the approval process of a GE salmon—called AquAdvantage Atlantic Salmon—developed by the Massachusetts biotechnology firm AquaBounty. The GE salmon would be the first genetically engineered animal approved for human consumption and commercial-level farming. The GE salmon has been engineered with a gene from the ocean eelpout that permits the salmon to grow at approximately twice the rate of a traditional Atlantic salmon. The GE salmon also contains a growth hormone from the Chinook salmon. FDA held a public comment period and a hearing on labeling for the transgenic salmon in September 2011. While the agency has stated that the salmon poses no threats to human health, FDA officials are undecided as to whether they would require any product labeling. Environmental issues associated with potential escape of the GE salmon into the wild were also considered in the Environmental Assessment released to the public in December 2012. (See further discussion on FDA's review of GE salmon below.) An estimated 65%-70% of all processed U.S. foods likely contain some GE material. That is largely because two such crops (corn and soybeans, where farmers have widely adopted GE varieties) are used in many different processed foods. In the United States, biotechnology regulations do not require segregation or labeling of GE crops and foods, as long as they are substantially equivalent to those produced by more conventional methods (see " Regulation and Oversight ," below). Soy-based ingredients include oil, flour, lecithin, and protein extracts. Corn-based ingredients include corn meal and corn syrups, used in many processed products. Canola oil (mostly imported from Canada, where GE-canola is grown) and cottonseed oil are used in cooking oils, salad dressings, snack foods, and other supermarket items. No GE-produced animals are yet approved for human consumption, although cheeses may contain chymosin, and dairy products may have been produced from milk containing GE-BST. A GE-salmon, currently under FDA review, has been determined to be substantially equivalent to non-GE salmon, and could be approved for human consumption (see discussion below). As noted earlier, because most other government-approved GE crops are not being grown commercially, few other GE-derived foods are currently reaching consumers. This could change in the future as more GE traits are introduced into plants to appeal to consumers, as opposed to the current emphasis on GE traits that are attractive to commodity producers (e.g., herbicide tolerance, pest resistance). For example, a GE variety of table corn developed by Monsanto has been commercialized, although it has not yet shown to be widely accepted by consumers. Analysts have pointed out that some farmers remain wary of planting GE crop varieties because their customers may be worried about their safety, although as the case of sugar beets noted above suggests, public opposition to GE products in processed food may be declining. Biotechnology supporters contend that safety concerns are unfounded because scientific reviews have found no credible evidence that GE crop varieties are unsafe for human consumption. For farmers, new insect-resistant and herbicide-tolerant GE varieties are under development or have been developed for other crops besides corn, cotton, and soybeans. These include wheat and rice (see below), alfalfa, peanuts, sunflowers, forestry products, sugarcane, apples, bananas, lettuce, strawberries, and eventually other fruits and vegetables. Other traits being developed through genetic engineering include drought and frost tolerance, enhanced photosynthesis, and more efficient use of nitrogen. Tomatoes that can be grown in salty soils, and recreational turf grasses that are herbicide tolerant, pest resistant, and/or more heat and drought tolerant, also are under development. In animal agriculture, pigs have been engineered for increased sow milk output to produce faster-growing piglets. GE cattle also have been developed to resist the bacterium that causes mastitis. APHIS approved field trials in June 2007 for a transgenic sunflower with a carp growth hormone inserted. The GE sunflower would be used in aquaculture feed for farm raised shrimp. Currently awaiting government approval for food use is a GE salmon that requires as little as half the usual time to grow to market size (see discussion below). Other such fish could follow later. Some GE insects are in field trials (e.g., pink bollworm) and other GE insects (e.g., medfly, apple codling moth, mosquitoes) are in testing phases. For processors and consumers, research on a range of GE products is continuing: oilseeds low in saturated and transfats; tomatoes with anti-cancer agents; grains with optimal levels of amino acids; rice with elevated iron levels; and rice with beta-carotene, a precursor of Vitamin A ("golden" rice). Other future products could include "low-calorie" sugar beets; strawberries and corn with higher sugar content to improve flavor; colored cotton; improved cotton fiber; delayed-ripening melons, bananas, strawberries, raspberries, and other produce (delayed-ripening tomatoes already are approved); and naturally decaffeinated coffee. Critics, however, point out that, although biotechnology advocates have been forecasting the adoption of various "output" traits for some time, few have actually reached the marketplace. Other plants being developed could become "factories" for pharmaceutical compounds. The compounds would be extracted and purified for human and animal health uses (among concerns are whether they could "contaminate" food crops; see " Plant-Based Pharmaceuticals from Biotechnology " discussion below). Some varieties of plants under development could also produce "bioindustrial" molecules, including plastics and polyurethane. Future transgenic livestock also might yield pharmaceuticals and/or human organ and tissue replacements. To date, none of these innovations have been commercialized. The basic federal guidance for regulating biotechnology products is the Coordinated Framework for Regulation of Biotechnology (51 Fed. Reg. 23302), published in 1986 by the White House Office of Science and Technology Policy (OSTP). A key regulatory principle in the U.S. biotechnology regulatory structure is that genetically engineered products should continue to be regulated according to their characteristics and unique features, not their production method—that is, whether or not they were created through biotechnology. The framework provides a regulatory approach intended to ensure the safety of biotechnology research and products, using existing statutory authority and previous agency experience with traditional breeding techniques. The three lead agencies are USDA's Animal and Plant Health Inspection Service (APHIS), the Food and Drug Administration (FDA) at the Department of Health and Human Services, and the Environmental Protection Agency (EPA). The Obama Administration announced on July 2, 2015, an initiative to update the 1986 framework. In particular, the initiative would formulate a long-term strategy to ensure that the regulatory system can adequately assess any risks associated with future biotechnology products. APHIS regulates the importation, interstate movement, and field testing of GE plants and organisms that are or might be plant pests under the Plant Protection Act (PPA; 7 U.S.C. §7701 et seq. ). APHIS also regulates animal biologics (i.e., viruses, serums, toxins for animal vaccines) under the Virus, Serum, and Toxins Act (21 U.S.C. 151 et seq. ). Specifically, GE plants that are or might be plant pests are considered "regulated articles" under APHIS regulations (7 C.F.R. 340-340.9). APHIS authorization must be obtained prior to import, interstate movement, or environmental release, including field testing. More specifically, a "regulated" plant cannot be introduced into the environment, or even field tested, unless its developer obtains APHIS authorization through either the (1) permit process or (2) notification process. Permits impose restrictions on movement and planting to prevent escape of plant material that may pose a pest risk. Sponsors follow APHIS guidance on testing and movements to ensure that the plant will not damage agriculture, human health, or the environment. Plant-based pharmaceuticals virtually always must be developed under the permit process. However, most other GE crops have been developed under the notification option, an expedited procedure that is less rigorous than permitting. Notification can be used in lieu of permitting when the plant species is not considered a noxious weed (or weed in the release area) and other APHIS standards are met. Regardless of the process chosen, after testing is completed, a developer next seeks "non-regulated status" from APHIS, the typical route to full commercialization and no further formal oversight. The developer must provide APHIS with extensive information on plant biology and genetics, and potential environmental and plant pest impacts that may result from the modification. APHIS conducts a formal environmental assessment (EA) under the National Environmental Protection Act and has public comment periods before deciding whether to approve the developer's request for "non-regulated status." A determination of non-regulated status ends further federal regulatory oversight of the GE plant. FDA regulates food, animal feed additives, and human and animal drugs, including those from biotechnology, primarily to ensure that they pose no human health risks, mainly under the Federal Food, Drug and Cosmetic Act (FFDCA; 21 U.S.C. §301 et seq. ) and the Public Health Service Act (42 U.S.C. §201 et seq. ). Under the FFDCA, all food and feed manufacturers must ensure that the domestic and imported products they market are safe and properly labeled. All domestic and imported foods and feeds, whether or not they are derived from GE crops, must meet the same standards. Any food additive, including any introduced through biotechnology, cannot be marketed before it receives FDA approval. However, additives that have been determined to be "generally recognized as safe" (GRAS) do not need such preapproval. To help sponsors of foods and feeds derived from GE crops comply, FDA encourages them to participate in its voluntary consultation process. All GE-derived products now on the U.S. market have undergone this process. With one exception, none of these foods and feeds was considered to contain a food additive, so they did not require approval prior to marketing. However, a May 1992 FDA policy statement noted that GE foods must undergo a special review under certain conditions, such as if the gene transfer produces unexpected genetic effects, changes nutrients or toxicant levels from the food's traditional variety, might contain an allergen from another crop, or would be used to host an industrial or pharmaceutical substance, for example. In June 2006, FDA published new guidance under which developers of new plant varieties intended for food use—including those that are bioengineered—can provide FDA with any information about new proteins they are using in the early stages of crop development. This voluntary consultation is to occur prior to the stage of development where the new proteins might "inadvertently" enter the food supply. FDA believes that any potential risk from the low-level presence of such material in the food supply would be limited to the remote possibility of it containing or consisting of a new protein that might be an allergen or toxin. On January 15, 2009, the U.S. Food and Drug Administration (FDA) released final guidance on how it is to regulate GE animals and products. FDA is to do so under its existing statutory authority and regulations. Generally, GE-derived foods, for example, are to be regulated like non-GE foods; if their nutritional composition does not differ from their conventional counterparts, they will not have to be labeled. Nonetheless, developers of GE animals and of GE-derived products must gain FDA pre-market approval. Although animal biotechnology involves many techniques other than cloning, this latter technology has attracted widespread attention. A final risk assessment and industry guidance on the safety of meat and milk from cloned cattle, pigs, and goats and their offspring were released in January 2008 by FDA. The documents generally echoed FDA's December 2006 draft risk assessment, which found that such products are as safe to eat as those of conventionally bred animals. The FDA also concluded that cloning poses the same risks to animal health as those found in animals created through other assisted reproductive technologies—although the frequency of such problems is higher in cloning. (Scientists stress that cloning is an assisted reproduction technique that does not involve any transfer or alteration of genes through GE.) The agency said it was no longer asking industry to refrain voluntarily from marketing the products of cloned animals and their offspring, although USDA did ask that it be continued for products from clones (but not from the offspring of clones). EPA registers and approves the use of all pesticides, including those genetically engineered into plants, which it terms "plant-incorporated protectants" (PIPs). EPA essentially determines a PIP's environmental safety through its authority under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA; 7 U.S.C. §136 et seq. ). Also, under the FFDCA, the EPA establishes tolerances (i.e., safe levels) for pesticides in foods. Pre-commercial regulation occurs through a system of notifications for small-scale field tests or experimental use permits for larger field tests. As with any pesticide, EPA requires the manufacturer of a PIP to obtain a registration through a regulatory process intended to ensure its safe use environmentally. In practice, all three agencies have more detailed procedures than described here for monitoring and approving the development and commercialization of GE crops and foods, particularly if they are for new uses (e.g., pharmaceuticals). However, the fundamental guiding policy assumption since 1986 has been that biotechnology processes such as genetic engineering poses no unique or special risks; therefore the general framework demands no new laws beyond those that already govern the health, safety, efficacy, and environmental impact of more traditional production methods. A regulatory determination of "substantial equivalence" established by the general framework precludes regulatory action based on the process by which a product is grown or produced: It is the product that is regulated, not the process. New biotechnology developments, continuing opposition by consumer groups and environmentalists, and perceived inadequacies of federal regulation have begun putting increased strain on the existing Coordinated Framework for Biotechnology Regulation established in 1986 (discussed above). The laws governing biotechnology regulation were written for purposes other than modern biotechnology. Moreover, with the Coordinated Framework now nearly 30 years old, the fragmentation of the existing regulatory structure governing federal biotechnology policy today, the perceived lack of public transparency, and the overall confusion that biotechnology regulation seems to engender, the Obama Administration issued a memorandum on July 2, 2015, to update the Coordinated Framework to ensure that the regulatory structure is capable of meeting any biotechnology risks in the future. The memorandum observes that each of the federal agencies regulating biotechnology has developed its own regulations and guidance documents to implement its authority under current statutes, resulting in "a complex system for assessing and managing health and environmental risks of the products of biotechnology." Moreover, since the 1992 update, advances in science and technology have "dramatically altered the biotechnology landscape." Scientists can now identify and alter genes in ways not known when the 1992 Coordinated Framework was published. The memorandum states that a new update to the Coordinated Framework is now needed to "facilitate the appropriate federal oversight by the regulatory system and increase transparency while continuing to provide a framework for advancing innovation." The memorandum initiates a process to achieve the following objectives over the next 12 months: (1) update the Coordinated Framework to clarify the agencies' roles and responsibilities to regulate biotechnology products; (2) formulate a long-term strategy to ensure that the regulatory system can adequately assess any risks associated with future products of biotechnology while "increasing transparency and predictability and reducing unnecessary costs and burdens"; and (3) commission an external, independent analysis of the future landscape of biotechnology products. The memorandum establishes a Biotechnology Working Group under the Emerging Technologies Interagency Policy Coordination Committee. The working group will include representatives of the White House, EPA, FDA, and USDA. After public input, the working group will update the Coordinated Framework to clarify agency responsibilities with respect to which biotechnology product areas are within the authority of each agency and, where biotechnology product areas involve multiple agencies, how agency roles relate to each other in the course of regulatory assessment. While some agency modification of current regulations could be an outcome of the working group's review, any proposed changes to the existing statutes that govern biotechnology regulation would require congressional action. If the working group's review of the Coordinated Framework results in greater transparency for the public and greater predictability for the industry, the effort could help reduce the increasingly rancorous debate that has characterized the introduction of biotechnology products over the past decade. The biotechnology industry (represented by the Biotechnology Innovation Organization—BIO), prominent U.S. agricultural producer groups, and many scientific authorities continue to subscribe to the current coordinated framework described above. They cite various studies in asserting that there is no credible evidence that current GE crops have harmed the environment or human health. Most scientific reports generally have concluded that current GE crops likely pose no greater risks than conventional varieties, that each GE product should be assessed on a case-by-case basis, and that the current U.S. regulatory framework remains adequate. However, reports have also suggested a number of administrative or regulatory changes that might be adopted to improve oversight. Congress generally has been supportive of GE products, although some Members have expressed wariness about their adoption and concerns about how they are regulated. Over the past decade, legislative activity has been relatively subdued, although bills to require labeling of GE foods have been prominent in the 113 th and 114 th Congresses. Congress continues to fund a variety of biotechnology-related activities at USDA, primarily through regular annual appropriations. Most of the USDA spending for biotechnology related programs is for various types of research (mainly through the Department's Agricultural Research Service and the National Institute for Food and Agriculture). APHIS's estimated BRS budget for FY2015 is $17.4 million. This was approximately $1.4 million less than in FY2013. The CR enacted on March 26, 2013, authorizes the same amount for FY2013 as for FY2012—$18.1 million. Critics, including some consumer and environmental groups, have gone further, raising questions about whether the current laws themselves remain adequate to protect human health and the environment, particularly as emerging GE applications—such as plant-based pharmaceuticals and industrial compounds, and transgenic animals, including insects—increasingly challenge the agencies' regulatory capabilities. They see gaps in the existing pre-market approval processes, and in post-market oversight of GE crops, that they contend may expose humans and the environment to unwarranted risks. These critics have argued that new legislation is needed to clarify agency roles and strengthen their regulatory authority, particularly over future novel GE applications. The increasing incidence of herbicide-resistant weeds, and the increased use of herbicides as more acreage expands with GE planting, have also suggested that future environmental effects could be different from what has occurred over the first decade or so of GE planting. A number of agricultural organizations, while not necessarily clamoring for new laws, have expressed wariness about some new biotechnology products now awaiting approval. Among other concerns, they worry about consumer acceptance, potential difficulties exporting these varieties to countries demanding the segregation and labeling of GMOs (or outright prohibition of GMOs), and the potential for inadvertently mixing GE with non-GE crops. The 2006 discovery of an unapproved variety of GE rice in commercial U.S. rice supplies, and the 2008 discovery of an unapproved GE cotton variety harvested with an approved variety, are indicative of the problem. The legal challenge to deregulating Monsanto's GE alfalfa also raised important concerns about the adequacy of APHIS regulatory regime. In May 2007, U.S. District Court for the Northern District of California in San Francisco held that APHIS had failed to properly consider the environmental effects of the GE alfalfa in granting approval. A coalition of farmers, consumers, and environmentalists, led by the Center for Food Safety, filed suit in 2006 alleging that GE alfalfa could create "super weeds" resistant to herbicide, hurt production of organic dairy and beef products, and cause farmers to lose export business due to risks of contamination to natural and organic alfalfa. Perhaps more than some other GE varieties, the GE alfalfa case raised important issues about the limitations of coexistence between traditional and GE production methods. The issue of whether gene flow from GE alfalfa could permanently harm growers who did not want to adopt GE varieties case was particularly clear in this case. The same issues also arose with respect to an application to deregulate GE sugar beets (see discussion of the GE alfalfa and sugar beet cases below). In late August 2006, USDA released a long-awaited status report by its Advisory Committee on Biotechnology and 21 st Century Agriculture (AC21). The report covered biotech adoption and regulation, and included a discussion of the many outstanding policy issues. The AC21 report observed, for example, that "U.S. regulations are evolving slowly and many governing statutes were written before modern agricultural biotechnology was developed. That system may not be optimal to meet the needs of producers and consumers." Although all the AC21 members agreed on the importance of ensuring the food and feed safety of transgenic crops, they had differing views "about whether the current FDA regulatory system for transgenic crops was adequate to ensure safety and public acceptance." Among other observations, the AC21 cited the lack of a "clear, comprehensive federal regulatory system to assess the environmental and food safety of transgenic animals before they are commercialized." This concern is currently at the core of the approval process for GE salmon (see discussion on GE salmon below). All sides of the debate, however, continue to agree that whatever policy course is pursued in the future, it should provide for a clear, predictable, trusted regulatory process. In December 2011, the AC21 Group was charged by the Secretary of Agriculture to develop recommendations on the issues of liability and promoting "co-existence" among traditional, organic, and GE agriculture. In November 2012, AC21 issued a final report recommending that USDA develop greater capacity to strengthen coexistence among different farming methods. FDA guidance on early food safety evaluations for new plant varieties (issued in June 2006; see page 10 ) is widely viewed as that agency's current policy thinking on AP. The Biotechnology Industry Organization (BIO) supported the FDA guidance, noting that it "provides safety assurance, while also recognizing the fact that 'adventitious presence' is a natural part of plant biology, seed production, and the distribution of commodity crops." Several food industry officials also characterized the guidance as an important step toward a science-based policy regarding low-level presence, or "adventitious presence" of GE material. However, critics such as the Center for Food Safety (CFS), a food safety and environmental advocacy organization, have complained that the guidance will more likely encourage "contamination" of the food supply by GE varieties rather than improve safety oversight. Moreover, the policy does not attempt to define or quantify an acceptable level, or levels, of adventitious presence. In 2006, CFS sued FDA for allegedly failing to adopt any pre-market safety requirements for GE foods, or to require labels identifying foods containing GE material. The lawsuit sought the establishment of a mandatory, pre-market review system for all such foods. The case was subsequently dropped by agreement with the parties. FDA continues its analysis for considering final approval for commercializing a GE salmon. FDA is reviewing the data on GE salmon under the Food, Drug, and Cosmetic Act's New Animal Drug approval process. (21 U.S.C. 321 et seq.). Questions have been raised about the adequacy of using this regulatory protocol to address the myriad issues that approving the salmon might create. FDA issued an Environmental Assessment in December 2012 on the potential environmental effects of commercializing GE salmon. Concerns continue to be raised about FDA's relevant environmental experience and expertise to assess the environmental impact (see discussion below on GE salmon). USDA's APHIS has taken a number of actions over the past several years intended to improve its regulatory oversight (like FDA, using its current legislative authority under the Plant Protection Act). These have included consolidation of its activities under a new Biotechnology Regulatory Services (BRS) office; development of a compliance and enforcement unit to ensure GE developers' adherence to the rules, and the publication of more stringent permit conditions for GE-derived plants for pharmaceuticals and industrials (see " Plant-Based Pharmaceuticals from Biotechnology ," below). In the January 23, 2004, Federal Register , the agency published a notice of its intent to prepare a programmatic environmental impact statement (EIS) evaluating these regulations, and requesting public comment on a number of possible changes. These include whether to broaden APHIS's regulatory scope to cover GE plants that may pose a noxious weed risk or may be used as biological control agents; whether to establish new categories for field testing that delineate requirements based upon relative levels of potential risk; and whether to change (i.e., strengthen) its environmental reviews and permit conditions for GE plants producing pharmaceuticals and industrials. APHIS also solicited comments on ways that it might ease its requirements for lower-risk products. The agency received over 3,000 comments on its proposal. In a December 2005 audit report, USDA's Office of Inspector General (OIG) criticized APHIS's current biotech regulation. Noting the approval, at that point, of more than 10,600 applications for GE tests at more than 49,300 field sites, the OIG expressed concern that "the Department's efforts to regulate those crops have not kept pace." Various weaknesses in the approval and inspection process "increase the risk that regulated genetically engineered organisms will inadvertently persist in the environment before they are deemed safe to grow without regulation," the report observed. More specifically, the OIG stated that APHIS lacked basic information about the field test sites that it has approved, including their precise locations; and about what becomes of the crops—including those tested for pharmaceutical or industrial uses—after testing ends. Where notifications (rather than permits) were used, APHIS did not review applicants' containment protocols. Among other things, the OIG noted that APHIS site inspection requirements were vague and not always fulfilled by inspectors, and that the agency's guidance for containing GE crops and seeds needed strengthening. Responding to the audit report, APHIS stated that most of the OIG recommendations "reaffirm APHIS' decision to create the new Biotechnology Regulatory Service (BRS) and devote greater resources toward regulating biotechnology. Most of the recommendations are in line with changes that BRS has already enforced, is currently undertaking, or plans to implement." In January 2009, the OIG released another report concluding that the department did not have an import control policy to regulate GE animals and that its import policy for GE crops could become outdated as other countries increase the number of biotechnology products. In 2011, the OIG published an audit critical of APHIS's controls over GE animal and insect research. The OIG report stated that APHIS had not issued regulations pertaining to the introduction, interstate movement, or field release of GE animals or insects. The successful court challenges to APHIS's initial deregulation of GE alfalfa and GE sugar beets based on its environmental assessments (EAs) have further raised questions about the adequacy of the agency's environmental review process. In July 2007, APHIS published a draft programmatic environmental impact statement (EIS) as part of the evaluation of its regulatory structure. In October 2008, APHIS proposed a revision of its regulations regarding the importation, interstate movement, and environmental release of certain GE organisms. The public comment period initially was to end in November 2008, but was extended to June 2009. A subsequent issue-focused meeting on the proposed rule changes was held in April 2009. A final rule was never published, and in March 2015, APHIS withdrew the proposed regulatory changes. Although now withdrawn, the proposed regulatory changes would have been the first since the regulations were established in 1987. The proposed changes would have addressed a number of issues that both proponents and opponents of GE products have raised about APHIS's regulatory process. Under current regulations, a GE organism is a regulated article if it is a plant pest or there is reason to believe it might become a plant pest. In the notification of the proposed regulation revisions, APHIS stated that technological advances have led to the possibility of developing GE organisms that do not fit within the plant pest definition, but still might cause environmental or other physical harm by the definition of a plant pest under the Plant Protection Act. According to APHIS, the new regulations would have subjected a GE organism to oversight based upon known plant pest and noxious weed risks of the parent organisms, or based upon the traits of the GE organism, or based upon the possibility of unknown risks as a plant pest or noxious weed when insufficient information is available. The proposed regulations would also have included regulating GE seedlings, tubers, cuttings, bulbs, spores, etc. APHIS had proposed to reorganize the regulations for permit applications and evaluation procedures by discontinuing its notification procedure, while retaining the permitting procedure. The proposed regulations would have established a new petition procedure for APHIS to approve a new conditional exemption from the permit requirements, which is currently done by amending regulations. For environmental releases, APHIS would have developed a permitting system based on two primary risk-related factors: (1) the ability of the unmodified recipient plant species to persist in the wild and (2) the potential of the GE trait to cause harm based on the plant pest and noxious weed definitions. With respect to the persistence factor, APHIS had proposed grouping plant species into four risk categories based on the risk of persistence of the plant or its progeny in the environment without human intervention. Four similar risk categories were also proposed for potential harm caused by the GE trait. Other proposed regulatory changes included remediation authorities for failure to comply with regulations, and agency response to low-level presence (LLP) of regulated plant materials in commercial seeds or grain that may be used for food or feed. APHIS received over 74,000 comments on the proposed changes. Reactions to the proposed regulatory revisions were mixed, and were, in part, the reason APHIS extended the original comment period and held public meetings on some of the more controversial proposed changes (e.g., scope of the regulatory changes, incorporation of the Plant Protection Act's noxious weed authority into APHIS's regulatory authority, revision of the permit process, and environmental release of GE crops that produce pharmaceutical and industrial compounds). In their comments on the proposed rule changes, biotechnology industry representatives and nongovernmental organizations expressed opposition to the expansion of APHIS authority to regulate GE organisms if they posed a risk as a noxious weed. The industry representatives also took issue with the proposal to take a voluntary approach to GE regulation, arguing that it could have a significant impact on international trade. The Center for Food Safety (CFS) denounced the proposals, stating that "these proposed regulations may set in motion a process that would put many GE crops completely beyond the bounds of regulation." CFS said that its biggest concern is that the proposed rules remove established criteria in determining the very scope of regulation. In a similar response, the Union of Concerned Scientists denounced the proposed rules for failing to adequately protect the U.S. food supply from potential contamination from biopharm crops through cross-pollination or seed mixing between biopharm food crops and those food crops intended for consumption. In March 2009, more than 80 advocacy groups signed a letter urging Secretary of Agriculture Tom Vilsack to halt approving GE crops until the agency changes its regulatory approach to biotechnology. APHIS has not indicated what its future plans are with regard to the proposed revisions. Concerns about the adequacy of APHIS regulatory procedures may be addressed in the recently announced (July 2, 2015) initiative to update the 1986 General Framework for Biotechnology Regulation. After a GE variety is approved for release into the environment on a test basis, the owner of the GE seed generally petitions APHIS for "deregulated status" of the particular GE "event" that has been approved. This is the last step to full-scale commercialization of the GE plant. Once the GE plant is deregulated, it is no longer subject to APHIS regulation under the PPA (7 C.F.R. Part 340). A significant step in the deregulation process involves an assessment of the plant's environmental impact. The National Environmental Policy Act (NEPA) requires federal agencies to prepare a detailed Environmental Impact Statement (EIS) for all "major Federal actions significantly affecting the quality of the human environment." NEPA requires that environmental analyses use an interdisciplinary approach "which will insure the integrated use of the natural and social sciences and the environmental design arts in planning and in decisionmaking." The regulations governing the finding of a significant effect are promulgated by the Council on Environmental Quality (CEQ). When an EIS is not categorically required, an agency may determine, from the data already at hand, that the environmental impacts are not significant enough to warrant an EIS. This judgment permits the agency initially to prepare an Environmental Assessment (EA) rather than the lengthier and more detailed EIS. An EA is a public document that briefly provides the basis for determining whether to move forward with an EIS or to make a finding of no significant impact (FONSI). Several cases over the past several years have raised issues about the adequacy of APHIS's regulatory structure in moving to deregulate a GE plant. APHIS on several occasions has issued a FONSI on the basis of an EA and deregulated a GE plant, only to have that decision decisively challenged in court. In April 2011, APHIS announced that it was soliciting letters of interest to participate in its National Environmental Policy Act pilot project to explore ways of improving the EAs and EISs to mitigate the increasingly contentious deregulation process. A U.S. District Court held in February 2007 that APHIS failed to properly consider the environmental effects of Monsanto's GE alfalfa. The court vacated APHIS's June 2005 decision deregulating GE alfalfa on the basis of an EA. In March 2007, the District Court of the Northern District of California issued a preliminary injunction, and in May 2007 the court issued a permanent injunction against planting or selling Monsanto's line of GE alfalfa until a final EIS was prepared. In June 2009, the Ninth Circuit Court of Appeals affirmed the illegality of APHIS's approval of deregulated status for Monsanto's GE alfalfa. Not only did the GE alfalfa have environmental implications for domestic producers, the suit, brought by a coalition of farmers and the Center for Food Safety, also cited the concerns of farmers who sell to export markets. Japan and South Korea, America's most important alfalfa customers, have warned that they will discontinue imports of U.S. alfalfa if a GE variety is grown in this country. U.S. alfalfa exports total nearly $480 million per year, with about 75% going to Japan. The court disagreed with USDA's assertion that exports to Japan would not be harmed by the deregulation of GE alfalfa. On January 12, 2010, APHIS announced that the draft environmental impact statement concerning Monsanto and Forage Genetics International lines of GE alfalfa was available for public comment. A series of public meetings in several cities was also held on February 3, 4, and 9, 2010. After a three-week extension for comments, the comment period ended March 3, 2010. The final EIS, which addressed the nearly 135,000 comments received, was published December 16, 2010. The court's decision to enjoin planting GE alfalfa until the final EIS was published was appealed to the Supreme Court. The Court agreed to hear that case on January 15, 2010, and on April 27, 2010, the Court heard oral arguments. Monsanto's appeal concerned whether the federal courts in the Ninth Circuit properly applied and interpreted the injunction standard in NEPA cases when they permanently enjoined planting until the EIS was complete. On June 21, 2010, in a 7-1 opinion written by Justice Alito, the Supreme Court reversed the injunction, saying that the Ninth Court had overreached itself procedurally in halting the plantings. Based in part on the comments received, the final EIS considered a rule for "partial deregulation," a modification of existing planting restrictions for regulated organisms, perhaps limiting planting to specific geographic areas under controlled procedures. Secretary Vilsack had indicated in earlier comments that he was considering a policy of "co-existence," one where conventional, GE, and organic production could all flourish. On January 27, 2011, however, the Secretary announced that, under the authority of the Plant Protection Act, he was granting GE alfalfa full deregulation. In February 2005, APHIS issued a finding of no significant impact on the environment (FONSI) for the cultivation and agricultural use of a Monsanto-developed variety of glyphosate-tolerant sugar beet (Event H7-1). The ruling meant that GE beets were no longer a regulated article under 7 C.F.R. Part 340. The GE beets were first planted in the western United States in spring 2008. Similar to the response to APHIS's FONSI regarding GE alfalfa, a case was filed in U.S. District Court for the Northern District of California by the Center for Food Safety and Earthjustice in January 2008 representing a coalition of farmers and consumers. As with the alfalfa case, the plaintiffs claimed that APHIS had violated NEPA by not conducting an EIS before granting the GE beets deregulated status. Sugar beet seed is grown primarily in Oregon's Willamette Valley. The area is also an important seed growing area for crops closely related to sugar beet (e.g., chard and table beets). Sugar beets, like alfalfa, are wind pollinated. Eventually, GE beets would cross-pollinate with related crops. This would have significant economic impacts on organic producers of Swiss chard and table beets being grown in the same areas as the GE beets. In his September 2009 order requiring APHIS to prepare an EIS, the presiding judge determined that "the potential elimination of a farmer's choice to grow non-genetically engineered crops, or a consumer's choice to eat non-genetically engineered food, [is] an action that potentially eliminates or reduces the availability of a particular plant [and] has a significant effect on the human environment." The court concluded that there was no support in the record for APHIS's conclusion of no significant impact. At a meeting in December 2009, the U.S. District Court for the Northern District of California set out a schedule and process for determining the remedies regarding the sugar beets. The process did not interfere with the planting of the beets in 2010. Oral arguments were heard on June 11, 2010. On August 13, 2010, the court revisited the issue of whether to issue an injunction, as had been done with GE alfalfa. Given that the Supreme Court had just ruled that the injunction for GE alfalfa was improper, the Ninth Court vacated APHIS's deregulation decision without enjoining planting. While avoiding the "drastic remedy," as the Supreme Court described the injunction of GE alfalfa, the practical effect of vacating APHIS's GE sugar beet deregulation decision is that planting GE sugar beet is now effectively halted. Because nearly 95% of sugar beets planted in 2009/2010 are the GE variety, this raised questions about the availability of non-GE sugar beet seed for the 2011 planting season. APHIS subsequently issued four permits authorizing seedling ("steckling") production that would not permit flowering without additional authorization. In November 2010, a judge ordered the seedlings pulled from the ground. The Ninth Circuit Court temporarily halted that decision in December 2010, ultimately holding in February 2011 that the seedlings did not have to be removed. The EIS was published in June 2012, and APHIS deregulated GE sugar beets for root production in July 2012, although full regulated status for sugar beet seed crop production was in effect until December 31, 2012. APHIS issued an EA and a FONSI for this action. APHIS fully deregulated GE sugar beets in July 2012. In June 2009, APHIS filed a request for additional comments on a petition by Syngenta Seeds, Inc. to deregulate Alpha-Amylase Maize Event 3272 (marketed under the name "Enogen"). This variety of corn is genetically engineered to contain high levels of a heat-resistant and acid-tolerant enzyme derived from marine microorganisms. APHIS has prepared a draft EA and plant pest risk assessment for review and comment. Most relevant in this request is that it is the first request to deregulate a GE plant variety that is intended solely for the use in the production of ethanol. The corn variety is not cultivated for human consumption or livestock feed, but rather is grown to improve the efficiency of converting corn starch to industrial ethanol. A concern is that there is inadequate scientific data or documentation to evaluate the possible impacts on food and feed should this variety be commingled with commodity corn supplies. In February 2011, APHIS announced that it was deregulating GE ethanol corn. Syngenta Seeds said the seed is available for 2011 planting for a small number of growers. By 2012, the seed was available for large-scale commercial planting under contracted, closed production. The Center for Food Safety, the Union of Concerned Scientists, and other groups were critical of APHIS's decision, citing concerns about contamination and its potential to cause allergies. Trade groups and companies involved in milling, refining, and exporting corn, including the Corn Refiners Association, National Grain and Feed Association, North American Export Grain Association, and North American Millers' Association, also opposed APHIS's approval of this GE corn, citing concerns that its engineered protein could damage food products such as breakfast cereals and snack foods and disrupt exports of such products. APHIS granted a permit in May 2010 to import a eucalyptus tree that is genetically engineered for "cold-tolerance." If commercialized, the hybrid eucalyptus would be used for pulp and biofuel production. Eucalyptus is a fast-growing tree that dominates tropical timber plantations. It is not native to the United States and has become invasive in some places. The permit was issued to ArborGen, LLC. ArborGen is a joint initiative of International Paper, MeadWestvaco, and Rubicon. The permit authorizes planting and flowering on 28 sites across seven southern states (Alabama, Florida, Georgia, Louisiana, Mississippi, South Carolina, and Texas). The Center for Biological Diversity and other organizations have sued to set aside the approval on grounds that the potential environmental impacts have not been properly evaluated, nor has APHIS complied with congressional mandates enacted in the 2008 farm bill ( P.L. 110-246 ) requiring more rigorous oversight of field testing for GE organisms. A British Columbian biotechnology firm, Okanagan Specialty Fruits, petitioned APHIS in December 2010 to approve a GE variety of apple, the "Arctic Apple." The apple has been genetically modified to resist turning brown after being sliced. In a letter to Secretary of Agriculture Tom Vilsack, the Northwest Horticultural Society has asked that APHIS reject the request, citing concerns about adverse marketing should the apples be permitted into the general market. Two public comment periods on the deregulation of the Arctic Apple drew more than 175,000 comments, almost all opposed to approval. In February 2015, APHIS deregulated the GE apple. The biotechnology firm is currently engaged in a voluntary food assessment consultation with FDA. On August 25, 2010, FDA announced that it had begun the regulatory approval process of a GE salmon—called AquAdvantage Atlantic Salmon—developed by the Massachusetts biotechnology firm AquaBounty. The GE salmon has been engineered with a gene from the ocean eelpout that permits the salmon to grow at approximately twice the rate of a traditional Atlantic salmon. The GE salmon also contains a growth hormone from the Chinook salmon. FDA also announced at the same time that it would hold a public comment period and a hearing on labeling for the transgenic salmon. While the agency has stated that the salmon poses no threats to human health, FDA officials are undecided as to whether they would require any product labeling. Environmental issues associated with potential escape of the GE salmon into the wild are also being considered. The GE salmon would be the first genetically engineered animal approved for human consumption and commercial-level farming. FDA scientists stated in a briefing document that the GE salmon is safe for human consumption and poses no risk to the environment. On September 19 and 20, 2010, FDA held a Veterinary Medicine Advisory Committee (VMAC) meeting on science-based issues surrounding the application for approval of the GE salmon. The meetings were open to the public. Committee members heard from FDA about GE animals generally and about the agency's evaluation and approval process. On the second day, FDA presented data supporting AquaBounty's claim that the fish grew faster than conventionally bred Atlantic salmon. The VMAC is currently reviewing FDA's recommendations and public comments. FDA released its Environmental Assessment (EA) in December 2012. The comment period on the EA ended April 26, 2013. The VMAC is advising FDA officials whether to approve the salmon and make recommendations regarding the need to label the fish, although FDA has already indicated that it is safe for human consumption and would not require labeling. FDA's position is that labeling should not suggest that GE foods are different from other foods. On May 10, 2011, the California Assembly Health Committee passed AB88, the Consumer's Right to Know Act, which requires the labeling of all GE salmon entering or sold in the state. In March 2013, grocery chains Whole Foods Market, Trader Joe's, and Aldi stated that they would not sell the GE salmon created by AquaBounty Technologies. FDA is evaluating the GE salmon under its New Animal Drug Application Process (NADA), because the recombinant DNA construct that is intended to change the fish meets the definition of a drug as defined under the Federal Food, Drug, and Cosmetic Act. This means that much of the supporting data AquaBounty supplies to FDA is confidential. A coalition of 31 organizations and restaurant chefs is demanding that FDA deny approval. Various environmental organizations are concerned that the GE salmon could escape from fish farms and threaten the wild salmon population. AquaBounty, however, says it would encourage producers to grow the GE Atlantic salmon only at in-land fish farms. Congressional Members have raised concerns about FDA's approval process. In a September 29, 2010, letter, 39 Members of both the House and Senate requested that FDA Commissioner Margaret Hamburg halt the approval process. The letter stated that the Members had "serious concerns" regarding the process for review and approval of the GE salmon. In particular, the letter stated that the FDA process was "inadequate" and "sets a dangerous precedent: the environmental review is flawed and the consumer's right to know ignored." In addition to concerns about the adequacy of the data supporting the safety for human consumption of the GE salmon, Members also expressed their concerns that the GE fish could pose serious risks to the wild population of fish, such as Atlantic, Coho, and Chinook salmon. Although the company intends to raise the fish at an egg hatchery facility on Prince Edward Island, Canada, and the GE salmon would be sterile, Members expressed their concern that the GE fish could pose threats to the remaining wild Atlantic salmon. AquaBounty acknowledged that 5% of the fish could remain fertile and potentially mate with wild populations. A coalition of 53 consumer and environmental organizations and businesses endorsed the letter from House and Senate Members. The Center for Food Safety, a central actor in opposing federal regulatory standards for biotechnology, and a coalition of allied groups also submitted nearly 172,000 comments from individuals opposing the approval. The U.S. approach to biotechnology regulation contrasts with that of many major trading partners. For example, the European Union (EU), Japan, South Korea, New Zealand, and Australia either have or are establishing separate mandatory labeling requirements for products containing genetically modified ingredients; in many of these countries, consumer and official attitudes toward GE foods are more skeptical. Differing regulatory approaches have arisen at least partly because widely accepted international standards continue to evolve. Incidents, such as those discussed below, have disrupted U.S. exports and contributed to trade tensions. Although several GE varieties of rice have been approved for commercial use ("deregulated," in regulatory parlance), none have been marketed, although they have been planted on test plots in the United States. In August 2006, the Secretary of Agriculture announced that "trace amounts" of an unapproved variety of GE rice had been found in samples of the 2005 crop of U.S. long grain rice. The Secretary and other USDA officials sought to reassure the rice trade and consumers that the findings posed no human health, food safety, or environmental concerns. Owner Bayer CropScience had not asked APHIS to deregulate this particular line, called LLRICE601, which had been field tested between 1998 and 2001. Two other Bayer GE rice varieties, known as LLRICE62 and LLRICE06, had received commercial approval but have not been commercialized, USDA stated. Also, "[t]he protein in LLRICE601 is approved for use in other products" and "has been repeatedly and thoroughly scientifically reviewed and used safely in food and feed, cultivation, import and breeding in the United States, as well as nearly a dozen other countries around the world." Nonetheless, the discovery unsettled rice markets and rekindled longtime criticisms of U.S. biotechnology regulatory policies. The U.S. rice crop is valued at nearly $2 billion annually. Exports represent approximately one-half or more of U.S. rice production annually on a volume basis, of which about 80% is long grain (the type in which GE material was detected), according to USDA statistics. Although the United States produces only about 1.5%-2% of the world rice crop, it was the fourth-leading exporter (behind Thailand, Vietnam, and India), with more than 13% of world market share in 2005. Of the 4.4 million metric tons (MMT) exported in 2005, Mexico was by far the leading buyer, at 753,000 MT. Japan was the second-leading market at nearly 424,000 MT. Various Central American and Caribbean countries took a total of 1.4 MMT; Iraq, 310,000 MT; and European Union (EU) countries, a total of 306,000 MT, USDA data show. Much of the long grain crop is produced in southern U.S. states, which generally ship from Gulf ports to Latin America, the Caribbean, and Europe, for example. California grows mainly medium and short grain rice varieties, which are marketed in Asia, including Japan. Following USDA's notification that U.S. rice supplies had traces of GE material, September 2006 closing rice futures dropped from $9.70 per cwt. (100 pounds) on August 18, closing at $8.99 per cwt. on August 25, 2005. (One year ago, the closing price was less than $7.00 per cwt.) The European Union (EU), which bought 279,300 MT of U.S. long grain rice in 2005, reacted by adopting a measure requiring all such shipments to be tested and certified as free of LLRICE601. Japan has indicated that it was suspending shipments of U.S. long grain rice although, as noted, most U.S. rice exports there are short and medium grain. According to a statement by the producer cooperative Riceland Foods, Inc., of Stuttgart, AR, the GE material was initially discovered by one of its export customers in January 2006. Riceland then sent a sample to a U.S. laboratory, which confirmed the Bayer GE trait, which is known to be present in (and approved for) corn, soybeans, canola, and cotton. Riceland said it collected samples from several storage locations in May 2006 and found positive results that were "geographically dispersed and random throughout the rice-growing area." Bayer was notified in early June, and its tests confirmed the presence of the GE trait in the equivalent of 6 per 10,000 kernels (0.06%). In August 2006, USDA officials offered few additional details about the cause or extent of the problem. They indicated that they had not been informed by Bayer of the discovery until July 31, after which the department began its own investigation, they stated. Among other actions, USDA said that APHIS was now moving to approve (i.e., deregulate) LLRICE601. Also, USDA's Grain Inspection, Packers, and Stockyards Administration (GIPSA) has verified the use of two standardized tests that can test for the GE protein in rice shipments. Consumer and environmental advocacy groups were harshly critical of APHIS and USDA, noting that officials waited three weeks to make the discovery public—and still did not know where the samples were grown or how they entered the food supply. One group, the Center for Food Safety, subsequently called for a moratorium on all new field testing permits until oversight can be improved. In August 2006, rice farmers in Arkansas, Missouri, Mississippi, Louisiana, Texas, and California filed a class action lawsuit against Bayer CropScience, accusing the company of negligence in allowing unapproved genetically engineered rice to find its way into the commercial supply chain. By November 2006, APHIS declared the rice variety LLRICE601 safe for human consumption and deregulated the variety. USDA essentially declared that the new variety was similar to two Bayer varieties that had already been approved. In July 2011, Bayer AG agreed to a $750 million settlement with the U.S. rice farmers who had sued the company. About 11,000 farmers in Arkansas, Louisiana, Mississippi, Missouri, and Texas will divide the settlement. According to attorneys for the plaintiffs, farmers who planted rice in each of the five years from 2006 to 2010 will be eligible to receive $310 per acre. Those who planted a specific strain of rice that was contaminated in 2006 were eligible for another $100 per acre. Trade concerns were apparent in the debate over whether to introduce (commercialize) a variety of glyphosate/Roundup-resistant wheat. Monsanto had asked the U.S. and Canadian governments for their approval, and other GE wheat varieties had been under development. Some producers wanted to plant the wheat as soon as it became available; others feared rejection by foreign customers of not only GE wheat, but all U.S. and Canadian wheat, out of concern that even non-GE shipments might unintentionally contain some GE grain. The latter group wanted developers and regulators to wait for more market acceptance before releasing GE wheat varieties. In early 2003, a group of U.S. wheat producers petitioned the Administration to conduct a more thorough assessment of the environmental impacts of the Monsanto request; 27 farm, religious, and consumer advocacy organizations endorsed the petition in early 2004. Underlining these concerns, Japanese consumer groups in March 2004 reportedly told U.S. officials in wheat-dependent North Dakota that their country would not import any U.S. wheat products if the Monsanto application was approved. This resistance likely contributed to a decision by Monsanto to discontinue its efforts to win regulatory approval of a genetically modified wheat variety. Monsanto announced its decision in May 2004. Although Monsanto withdrew its applications for regulatory approval from EPA and APHIS, it did not withdraw its FDA application. FDA subsequently approved the application in July 2004. However, FDA approval alone is not sufficient to bring the GE wheat to market. While opposition to GE wheat remains strong among many U.S. trading partners, a spokesman for the joint biotechnology committee of the National Association of Wheat Growers and U.S. Wheat Associates indicated in 2007 that support for planting and exporting GE wheat was growing among some U.S. wheat producers. In May 2009, wheat grower associations in the United States, Canada, and Australia issued a joint statement announcing that they intend to "work toward the goal of synchronized commercialization of biotech traits in our wheat crops.... [W]e believe it is in all of our best interests to introduce biotech wheat varieties in a coordinated fashion." This joint statement produced an immediate reaction by various environmental and consumer organizations. Canada's Farmers Union, the Organic Federation of Australia, the U.S. Organic Consumers Association, and other organizations drafted a statement opposing commercializing GE. In July, Monsanto Canada's spokesperson stated that the future "GE wheat will not be Roundup ready.... It will have increased drought tolerance, increased yield, and improved nitrogen efficiency." Monsanto anticipates that it will be at least 10 years before their research and development efforts produce a commercial variety of GE wheat. While no GE wheat has been deregulated, Monsanto, the GE wheat developer, did secure permits from APHIS to field test GE wheat in 16 states between 1998 and 2005. In May 2013, USDA announced that a variety of GE wheat had been discovered in a field in eastern Oregon. APHIS began an investigation while several U.S. trade partners (e.g., South Korea, EU) temporarily suspended new purchases. Had the presence of the non-approved wheat been widespread, serious trade impacts could have followed. A similar discovery of GE wheat in Montana was reported in September 2014. In May 2003, the United States, Canada, and Argentina initiated a complaint before the World Trade Organization (WTO) regarding the EU's de facto moratorium on approvals of new GE crops. U.S. agricultural interests contended that the moratorium not only blocked exports such as corn and other products to the EU, but also was fueling unwarranted concerns about the safety of agricultural biotechnology throughout the world. The United States and its allies further argued that the EU moratorium was violating WTO rules stating that a country's actions to protect health and the environment must be scientifically based, and approval procedures must be operated without undue delay. The WTO named a panel in March 2004 to consider the case. Although the EU effectively lifted the moratorium in May 2004 by approving a genetically engineered corn variety, the three complainants pursued the case, in part because a number of EU member states have continued to block approved biotech products. In February 2006, the WTO dispute panel, in its interim confidential report, ruled that a moratorium existed, that bans on EU-approved GE crops in six EU member countries (Austria, France, Germany, Greece, Italy, and Luxembourg) violated WTO rules, and that the EU failed to ensure that its approval procedures were conducted without "undue delay." The final ruling was circulated to the parties in May 2006 and made public in September 2006. The dispute panel's ruling dismissed several other U.S. and co-complainant claims, and did not address such sensitive issues as whether GE products are safe or whether an EU moratorium on GE approvals continued to exist. The final ruling, among other things, directed the EU to bring its practices in line with WTO rules. It concluded that the EU had breached its commitments with respect to 21 products, including types of oilseed rape, maize, and cotton. It also said individual bans in Austria, France, Germany, Greece, Italy, and Luxembourg were illegal. The EU initially agreed on a November 2007 deadline for compliance with the WTO dispute ruling. The parties subsequently agreed to extend the time for EU compliance with the ruling to January 2008. The EU missed this deadline in large measure. Brussels has found it hard to implement the WTO ruling because some of the 27 EU member states operate their own bans on GE crops. Individual countries (e.g., Austria, France, Greece) have prohibited the sale or cultivation of certain EU-approved varieties of GE corn (e.g., MON810, a variety produced by Monsanto). In 2008, France also initiated a temporary national moratorium on GE crops. Spain continues to dominate the EU in GE crop cultivation. Although positive action has been slow, the United States has temporarily suspended WTO sanctions. U.S. agricultural interests, however, remain concerned that the stricter EU rules for labeling and tracing GE products will continue to discriminate against U.S. exports. If progress is not made, the issue is likely to return to the WTO's dispute settlement body. The United States could retaliate against the EU to compensate for the annual value of lost U.S. exports, royalties, and licensing fees to the EU from biotech crops. These could be levied by imposing extra tariffs on EU goods or lifting other WTO agreements regulating agriculture or health and safety. The WTO case did not involve the EU's new "labeling and traceability" regulations, in effect as of April 2004, to require most food, feed, and processed products from GMOs to be labeled. GE-based products also must be segregated from non-GE products, with documentation. U.S. agricultural interests argue that, even if the EU regularly approves GMOs, the labeling and traceability rules are themselves unworkable and unnecessary, and can mislead consumers by wrongly implying that GM-derived products are inherently different than non-GM foods or pose safety concerns. The EU, however, continues to defend its mandatory labeling regime. At least one EU country, Germany, has addressed the issue of potential liability from GM crops—passing a law in November 2004 that holds farmers who plant GM crops liable for damages to nearby non-GM fields (even if the GM farmers adhered to planting instructions and regulations). Some U.S. interests countered that the moratorium will not effectively end until the EU clears more of some two dozen or more GE food and agricultural products still awaiting regulatory approval—and EU member states actually implement the approvals. Difference between the United States and the EU regarding genetically engineered products and labeling of foods containing GE material are areas of significant conflict in the Transatlantic Trade and Investment Partnership (T-TIP) discussions. Several EU countries have banned the cultivation of GE crops in their territories or have specific rules on the trade of GE seeds. In general, EU officials have been cautious in allowing GE products to enter the EU market, and all GE-derived food and feed must be labeled as such. The EU's regulatory framework regarding biotechnology is generally regarded as one of the most stringent—and onerous—systems worldwide. To date, few GE varieties have been approved by EU authorities for commercial cultivation. Many U.S. producers assert that EU labeling and traceability regulations and lack of timelines and transparency in the EU process for admitting GE crops and products have effectively limited certain U.S. agricultural exports to the EU. This could become a more contentious issue in the context of the T-TIP negotiations. Also, in January 2015, the European Parliament voted to allow each member country to ban or approve GE crops in their respective countries. This action will likely further complicate T-TIP negotiations on biotechnology policy. From the United States perspective, the objectives for both the T-TIP and Trans-Pacific Partnership (TPP) negotiations are a common framework for GE approvals, the development of labeling practices consistent with the U.S. Food and Drug Administration guidelines, and the implementation of policies concerning GE presence that are consistent with the Codex Alimentarius Commission Annex on Food Safety Assessment in Situations of Low-Level Presence of Recombinant-DNA Plant Material in Food. At this time, positions appear to be hardening between the United States and the EU relative to agricultural biotechnology. Any progress toward narrowing the differences between the U.S. and EU approaches to agricultural biotechnology will likely revolve around harmonizing the U.S. and EU regulatory regimes. To date, little movement toward a common position has been seen. The Cartagena Biosafety Protocol, an outgrowth of the 1992 Convention on Biological Diversity (CBD), was adopted in January 2000 and took effect in 2003. The United States is not a party to the 1992 CBD, and therefore cannot be a party to the protocol. However, because its shipments to ratifying countries are affected, it has actively participated in the negotiations over the protocol text and in countries' preparations for implementation. The protocol, which 134 other nations had ratified as of August 2006, permits a country to require formal prior notifications from countries exporting biotech seeds and living modified organisms (LMOs) intended for introduction into the environment. The protocol requires that shipments of products that may contain LMOs, such as bulk grains, be appropriately labeled and documented, and provides for an international clearinghouse for the exchange of LMO information, among other provisions. The Protocol further establishes a process for considering more detailed identification and documentation of LMO commodities in international trade. The United States objected to implementing measures approved during an international conference in Kuala Lumpur in February 2004. According to the United States, the measures would mandate overly detailed documentation requirements and potentially expose exporters to unwarranted liability damages if imported GMOs harm the environment or human health. U.S. government and industry officials believe that these and other rules could disrupt U.S. exports. In the United States, many consumers may be wary of GE foods out of fear that introduced genes could prove allergenic, introduce increased toxicity, or otherwise be harmful to human health. Some critics express concern that FDA is placing all the responsibility on manufacturers to generate safety data, as it does normally under its pre-market approval system, and is reviewing only the conclusions of industry-sponsored studies rather than conducting its own tests. They also believe that the process lacks transparency and adequate public scrutiny of data. Others counter that additional testing and oversight are unnecessary because all foods must meet the same rigorous federal safety standards regardless of whether they are genetically engineered. In July 2004, the Institute of Medicine and the National Research Council (IOM/NRC) of the National Academies of Science released a report generally supporting the proponents' view. The IOM/NRC found that food safety should be assessed based on the composition of the altered food (e.g., whether it contains new compounds, unusually high levels of nutrients, or other significant traits) rather than how the food was produced (by genetic engineering or conventional methods). However, the IOM/NRC determined that the safety of modified foods should be assessed on a case-by-case basis and cautioned that scientists' current ability to predict adverse consequences of genetic changes is limited. Federal policy also does not require GE-derived foods to be so labeled as long as they are substantially the same as their conventional counterparts. Nonetheless, some consumer groups continue to seek mandatory labeling of all GE foods. These groups argue that U.S. consumers, like their EU counterparts, should have an opportunity to see all relevant information on labels so that they can make food choices based on their own views about its perceived quality or safety. The food and biotechnology industries generally oppose compulsory labeling. They contend that consumers might interpret GE labels as "warning labels" implying that the foods are less safe or nutritious than conventional foods, whereas the industry believes the preponderance of scientific evidence indicates otherwise. The industry has also asserted that mandatory labeling would require development of a costly and possibly unattainable supply chain management system to ensure that GE and non-GE foods remain segregated from the farm to the store, with no added benefit to the consumer. The industry has asserted that if consumers want to purchase GE-free products, the market will support a voluntary system, as exists for organic foods (where rules already prohibit GE foods from being called "organic"). In fall 2012, Californians voted on Proposition 37, which would have required labeling of all foods containing GE material. Opponents of labeling, including many large food companies and grocery outlets, spent heavily to defeat the proposal. In 2014, Vermont became the first state to pass a mandatory GE labeling law. The law will not be implemented until July 2016. Connecticut and Maine also passed mandatory GE labeling laws in 2013 and 2014, respectively, but they will not go into effect until five contiguous states also pass mandatory GE labeling laws. On July 23, 2015, the full House passed a voluntary labeling bill, H.R. 1599 , to preempt current and future state laws that have been recently passed in Maine, Vermont, and Connecticut to require mandatory labeling of GE foods. Opponents of labeling have feared that in the absence of a national labeling law, each state could pass its own specific labeling requirements for GE foods, requiring costly management changes in commodity supply chains to comply with different state laws. Proponents of labeling are unlikely to find the proposed federal labeling law to their liking. H.R. 1599 would stop the Vermont labeling law from being implemented and would repeal Alaska's 2005 law requiring labeling on GE fish. Unlike the labeling bills passed by Vermont, Maine, and Connecticut, H.R. 1599 would preempt any state authority over GE labeling in favor of a voluntary National Genetically Engineered Food Certification Program under amendments to the federal Agricultural Marketing Act of 1946. The bill would prohibit a state now or in the future from "directly or indirectly establishing under any authority, or continue in effect, as to any covered products in interstate commerce, any requirement for the labeling of a covered product indicating the product has been produced from, containing, or consisting of a genetically engineered plant" unless the state establishes a voluntary program that is accredited by USDA as identical to the standards established by H.R. 1599 . While this language is aimed at preempting state labeling laws, questions arose concerning whether the preemption language might also end local non-GE protections—for example, Oregon's GE-free zones that protect the state's seed growing regions. A manager's amendment in the final bill clarified the language as pertaining only to a state regulating a GE food product. While preserving current jurisdiction, policies, definitions, and regulatory authority of FDA and APHIS, the Safe and Accurate Food Labeling Act of 2015 would also amend the Plant Protection Act by adding a new subtitle, the Coordination of Food Safety and Agriculture Programs. This new subtitle is intended to strengthen the objectives of the 1986 Coordinated Framework for Regulation of Biotechnology by affirming the safety of foods produced from or containing GE plant material. The voluntary consultative process under FDA's 1992 policy guidelines for the introduction of GE foods would continue. Many opponents of GE products have long supported making FDA's voluntary consultation process a mandatory one. H.R. 1599 , as reported, would create a new notification program for GE plants prior to their use in foods by requiring a written notification from FDA that the agency has determined that the GE food is safe and that the agency has no objections to its use in human or animal foods. Products developed by GE technologies but used as a food processing aid or enzyme would not require the premarket notification. Under the bill, the voluntary National Genetically Engineered Food Certification Program within USDA would establish national standards for labeling both GE and non-GE foods. A "certifying agent" of a state, an official responsible for state agricultural operations, would certify whether food products are produced with or without GE technologies. Food products labeled as not produced with the use of GE technologies would be subject to supply chain process controls to ensure that the producer planting the seed is not using a GE variety. Further supply chain controls would cover the growth, harvesting, storage, processing, and transportation of the non-GE product. In the case of products from livestock, the livestock, products consumed by the livestock, and the products used in the processing of products consumed by livestock must be produced without the use of GE technology. Producers seeking certification under the non-GE labeling program would be required to submit a food plan addressing their handling and processing procedures. These food plans would be subject to review by USDA and state certifying agents. The Secretary of Agriculture would also have authority to stipulate other information on the label deemed appropriate. A subsection of the bill prohibits labeling or advertising from suggesting that non-GE food products are safer or of a higher quality than those produced from or containing GE material. For entities that wish to label their products as deriving from GE materials or containing GE ingredients, a food must be produced and handled in compliance with a GE food plan submitted to USDA and state certifying agents. Consistent with current FDA labeling laws, the GE label must be neither false nor misleading. As with non-GE labeling, a GE label must not claim that the product is safer or of a higher quality than a comparable non-GE product. Other provisions of H.R. 1599 : Imports could be labeled as produced with or without GE technology if USDA determines that they have been produced and handled under a GE certification program equivalent to the USDA labeling standards. USDA would establish a program to accredit state officials or private citizens as certifying agents. Those accredited to certify an organic farm or handling operation would be deemed accredited to certify GE and non-GE products. Producers who want to use a GE or non-GE food label must maintain records that are subject to USDA review. USDA can initiate investigations to verify any reported information. H.R. 1599 further directs FDA to define the term natural and promulgate regulations governing its use on food product labels. The bill amends the Federal Food, Drug, and Cosmetic Act to deem a food misbranded if its label contains an express or implied claim that the food is "natural" unless the claim uses terms defined by and established in regulation by FDA. The framing of the debate over GE products as one of "sound science" versus "politics" is a central dynamic in the public controversy over GE products, not just in and between the United States and the EU but increasingly as a factor in the acceptance of GE products in less-developed countries (LDCs), particularly those countries with historical ties to Europe. For poor countries without a well-articulated regulatory regime or scientific infrastructure for the introduction of GE products into their countries, the "science-based regulation" framing of the issue in the United States that underlies their promotion of GE crops conflicts with the EU precautionary principle. For LDCs that trade extensively with the EU, the introduction of GE crops that are banned by their trading partners is a factor in the acceptance or rejection of GE crops and foods within their own countries. Political pressures to ban GE cultivation, to label GE foods, and to reinforce doubts about risks and benefits have limited the expansion of GE products in many LDCs. As noted above, several major biotechnology firms have essentially abandoned their plans to increase sales of GE seed in the EU. Opposition to new plant varieties and foods (e.g., GE eucalyptus trees, GE apple) and mandatory labeling efforts in the United States are also increasing and could further dampen public acceptance of GE foods in LDCs. The ongoing GE debate in the EU and U.S. about perceived risks can influence the public acceptance of GE foods and crops in LDCs. With the successes, however limited at this time, that the anti-GE forces have had in the United States and EU to limit the expansion of GE agriculture, the biotechnology industry is turning to the LDCs as their most promising future market. This development, however, may be occurring at the same time the technology is beginning to offer food products that consumers and small producers in poor countries may find more attractive than the traits of herbicide tolerance and/or pest resistance that have appealed to large-scale commodity producers. To date, the major GE crop cultivated in LDCs is cotton. Pest resistant food crops, increased nutritional quality of foods widely consumed in poor countries, and the promise of higher yields in arid climates or where soils are less fertile are GE traits that could, in coming years, find greater acceptance in LDCs than they have in the industrial economies. Also, as indigenous agricultural science and technology expertise develops, genetic engineering for local cropping systems and locally consumed foods could become more readily accepted by the public in the future. New GE technologies could also help attenuate the opposition to the current varieties of GE plants. In Asia, particularly China and India, governments view GE varieties as a way to produce more food for burgeoning populations, despite some in-country opposition and support for labeling GE products. China has been researching GE corn, cotton, wheat, soy, tomatoes, and peppers since 1986. Currently, China has over 10 million acres planted to GE varieties, mostly Upland cotton. As China's urban population grows, the country is likely to begin considering planting GE soy and corn. If so, it would be the first time a GE plant was used widely as a staple food, and may influence the decisions of other Asian countries with regard to accepting GE foods. In the debate over the potential contribution of biotechnology to food security in developing countries, critics argue that the benefits of biotechnology in such countries have not been established and that the technology poses unacceptable risks. They also suggest that intellectual property rights (IPR) protection gives multinational companies control over developing country farmers. Proponents say that the development of GE technology appears to hold great promise, with the potential to complement other, more traditional research methods, as the new driving force for sustained agricultural productivity in the 21 st century. They maintain that IPR difficulties have been exaggerated. Differences on this issue were featured in 2002, when the United Nations (UN) World Food Program (WFP) announced an appeal for food aid to meet the needs of some 14 million food-short people in six southern African countries: Lesotho, Malawi, Mozambique, Swaziland, Zambia, and Zimbabwe. However, a debate over the presence of genetically modified corn in U.S. food aid shipments made the provision of food aid more difficult and costly. Some of the countries expressed reluctance to accept unmilled GE corn on account of perceived environmental and commercial risks associated with potential introduction of GE seeds into southern African agriculture. Zambia refused all shipments of food aid with GE corn out of health concerns as well. In March 2004, Angola said it too would ban imports of GE food aid, including thousands of tons of U.S. corn, despite a need to feed approximately 2 million Angolans. The United States has blamed EU policies for southern African countries' views on food aid containing GE products. The United States maintains that genetically modified crops are safe to eat and that there is little likelihood of GE corn entering the food supply of African countries for several reasons, including the fact that current bioengineered varieties of corn are not well adapted to African growing conditions. South Africa is the only African country to commercialize biotech crops widely. However, as Table 1 above shows, developing countries, as least those with regulatory regimes in place, have become more accepting of GE crops. Concerns that an industrial cropping system is also highly dependent on the GE seeds, research, and inputs owned by a handful of global agro-food corporations is also a theme in the debates over GE crops and food in LDCs. There is concern that GE technology concentrates power and resources with large multinational corporations that own intellectual property rights in these technologies. There is fear that this could permit the corporations that dominate biotechnology to exploit farmers and limit their right to save and exchange seeds. The biotechnology industry believes that its proprietary seeds can offer innovation and superior performance and play an important role in lessening the environmental impact of agriculture through soil improvements, cleaner water, fewer pesticides, and reduced fuel use. The Food and Agriculture Organization (FAO) of the United Nations has also offered a qualified endorsement of agricultural biotechnology, stating that it "can benefit the poor when appropriate innovations are developed and when poor farmers in poor countries have access to them.... Thus far, these conditions are only being met in a handful of developing countries." Biotechnology research and development should complement other agricultural improvements that give priority to the problems of the poor, FAO said, adding: "Regulatory procedures should be strengthened and rationalized to ensure that the environment and public health are protected and that the process is transparent, predictable and science-based." Other groups have been more pointed in criticizing GE crops, arguing that they can have hidden costs that are inadequately examined by biotechnology advocates. A related question is the definition of "mixing" and whether there should be a threshold de minimis amount of GE material permissible in non-GE material. "Adventitious presence" (AP), or low-level presence (LLP), refers to any incidental appearance of very small amounts of foreign material in a commodity, food, or feedstuff. This can occur at any time during production, harvesting, storage, or marketing. Beyond setting thresholds, and developing testing protocols, a related issue is assessing liability if such mixing does occur, or if GE plants prove harmful to the environment. For example, to what extent, if any, should biotechnology companies share liability with producers and others who use their products? Presently in the grain business, even shipments of the highest grades are permitted to contain some specified low levels of unwanted material, such as weeds, damaged kernels, and/or stems and leaves. Corn graded No. 1, for example, may contain up to 2% foreign material. As more crops and acreage are devoted to GE varieties, it becomes increasingly difficult, if not impossible, to avoid their trace presence in non-GE varieties. No internationally recognized standards have existed for what amounts, if any, of GE material should be permitted in a non-GE crop, especially if that crop or a food derived from it will be labeled as non-GE. In the absence of international standards (and given the increasing global sourcing of food), individual countries are establishing their own, often varying, AP thresholds. The lack of consistent, scientifically sound standards is confusing consumers and disrupting trade, the biotech industry has asserted. For example, EU regulation sets a tolerance level for non-GM foods, feeds, and processed products at 0.9%. All products with more than 0.9% must be labeled as GM. U.S. agricultural interests consider the EU regulation in particular to be unworkable and discriminatory. EU officials counter that their standards not only are reasonable but also are being demanded by consumers. These issues, like that of different approval processes for GE crops in the United States and European Union, will loom large in any forthcoming U.S.-EU trade discussions. (See also " U.S.-EU Regulatory Conflicts " above.) In its January 23, 2004, notice, APHIS asked for comments on if, and how, its regulations should address the LLP question for GE plant material. Questions include whether such presence should be exempt from regulation, what thresholds (levels) of low-level presence (LLP) might be acceptable, and under what conditions. Major grain and biotechnology industry organizations responded by urging the FDA, EPA and APHIS to establish a policy governing LLP. In March 2007, APHIS published a Federal Register notice describing how the agency responds when LLP of regulated GE materials occurs in commercial seed or grain that may be used for food or feed. In the proposed APHIS regulation revisions discussed above, APHIS had proposed establishing criteria under which the occurrence of LLP may not be cause for agency remedial action. The new provision would permit APHIS to determine that a LLP event is non-actionable when the criteria support the conclusion that the LLP is unlikely to result in the introduction or dissemination of a plant pest or noxious weed. A provision in the 2012 House farm bill ( H.R. 5973 ), would have required USDA to begin developing an LLP standard. The provision was not included in the final bill ( P.L. 113-79 ). Two main issues continue to drive the science and public debate on the environmental impacts of GE plants, and now, GE salmon. One issue is the transfer of the introduced genes to wild plants and non-GM crops (i.e., gene flow from GE plants). This was most clearly seen with GE alfalfa and GE sugar beet. Because they are pollinated by the wind and bees, contamination of organic and conventional alfalfa is a distinct possibility. With GE sugar beets, the concern is that it could contaminate table beets and Swiss chard, two closely related species. Similarly, with GE salmon there is some probability, however small, that the fish could escape into the wild and breed with native salmon, thereby wiping out native Atlantic salmon. As other GE fish are approved, the problem of escape into the wild will mount. The second environmental issue concerns the indirect effects of the GE crops themselves on the local environment. Widespread planting of crop varieties engineered to be resistant to glyphosate herbicide, trademarked by Monsanto as RoundUp, has, after 15 years, created significant weed resistance, leading to the development of newer GE varieties that are tolerant of older and (some would argue) potentially more environmentally harmful herbicides (e.g., 2, 4-D, dicamba). A survey of thousands of U.S. farmers found that 49% had problems with herbicide-resistant weeds in 2012 and that over 40 million acres in the United States now have weed resistance problems from glyphosate resistance. This weed resistance is increasing annually. According to the International Survey of Herbicide Resistant Weeds, in 2013 there were 29 species of weeds around the world with some level of resistance to glyphosate. Weed resistance to glyphosate is also a major problem in Brazil and Argentina. Biotechnology advocates claim that GE crops offer environmental advantages over conventionally produced organisms. They note that the technology is more precise than traditional methods like crossbreeding. The latter methods transfer unwanted and unanticipated characteristics along with the desired new traits from one organism to another. Biotechnology also has made it possible to apply fewer and less toxic chemical herbicides and insecticides and to reduce soil tillage (thereby decreasing erosion and improving soil fertility), supporters of the technology assert. Critics counter that genetic engineering is not like traditional breeding. It creates crop and animal varieties that would not otherwise occur in nature, posing unpredictable risks to the environment (and to human health), they point out. Because they are living organisms, GE crops are difficult to control, greatly increasing the potential for escaping into the environment, crossbreeding with and overtaking wild species, and generally disrupting the natural ecosystem, critics believe. For example, GE, herbicide-tolerant seeds or pollen could create "superweeds" that out-compete cultivated or wild plants, critics argue. A 2002 NAS/NRC report stated that it could find no new distinctions between the types of environmental risks posed by GE plants and those posed by more conventionally bred crops (and that, in fact, there is a need to re-evaluate the potential environmental effects of the latter). The study concluded that the current APHIS regulatory system for biotechnology had improved substantially since it was first initiated and is more rigorous than the environmental oversight for other agricultural products and practices. The study did find areas of concern, including the need for greater transparency and public input into the regulatory process, and for more ecological monitoring after GE plants are approved and enter the marketplace. A 2004 NAS/NRC report cited studies to conclude that some GE organisms are viable in natural ecosystems and can breed with wild relatives. The report urged developers of GE organisms to consider biological techniques such as induced sterility in order to prevent transgenic plants and animals from escaping into the environment. "Because no single bioconfinement method is likely to be 100% effective," and because few are well-developed, such developers should create a redundant system by using more than one method of containment. The report called for more research to improve both containment methods and public confidence in regulation. In May 2004, a separate report by University of Arizona and Texas A&M University researchers confirmed the spread of GE corn into a nearby field of non-GE corn. In September 2004, a team of researchers from the Environmental Protection Agency confirmed the spread of GE grass pollen to non-GE grass up to 13 miles away, much further than previous studies would have indicated. Worldwide, hundreds of GE plants are under development for use as "factories" for pharmaceuticals (and other industrial compounds). Between 2004 and 2007 approximately 485 acres in the United States were planted to regulated GE plants for field testing of plants producing pharmaceuticals, industrial compounds, and value-added chemicals for human consumption or phytoremediation. None of these compounds has been commercialized to date. Pharmaceuticals might include, for example, vaccines or medicines for forms of cancer, infectious diseases, cardiovascular and nervous system diseases, metabolic disorders, and agents of biowarfare. A National Research Council Report in 2004 recognized that "biopharm crops pose a wholly different order" of environmental and human health risks. APHIS announced in 2007 that an environmental impact statement was being prepared for field trials of a transgenic sunflower that in engineered to produce human proinsulin, which tests have shown to be structurally, chemically, and functionally the same as pharmaceutical grade human insulin. Proponents believe plant-based pharmaceuticals will provide a far more cost-effective alternative to conventional pharmaceutical production, which now requires major investments both in large volumes of purified culture mediums and in manufacturing plants. Plant-based pharmaceuticals, on the other hand, may be more easily incorporated into the existing agricultural infrastructure, providing a significant new source of farm income, they believe. Critics are concerned about impacts on the food supply if crops like corn (the most widely planted U.S. crop, an intensively researched plant for biotechnology, and also an airborne pollinator) are "pharmed." In 2002, for example, material from GE-altered corn plants that had been test-planted in a prior growing season in Nebraska for pharmaceutical use (for ProdiGene, Inc.) was inadvertently mixed with some 500,000 bushels of soybeans, which had to be quarantined by USDA to keep them out of the food supply. USDA officials observed that the soybeans never reached the food or feed supply, evidence that current regulatory oversight is effective. Some critics argue that GE plants producing pharmaceuticals and industrial compounds should be evaluated by criteria different from those used to evaluate crops intended for food. Others have argued that biopharm plants should not be food crops. Concerns persist among both consumer groups and the food manufacturing industry about producing GE plant-made pharmaceuticals in food crops. Some want 100% prevention systems in place before the first product is commercialized. Some of these groups suggest that only non-food crops should be used for GE plant-made pharmaceuticals, or that, at a minimum, pharmaceutical crops should be banned from agricultural areas where food and feed crops are produced. Other potential issues include whether manufacturers of plant-based pharmaceuticals will be able to maintain consistency in dosages and overall quality, and unanticipated environmental problems (e.g., threatening endangered species). Responding to such concerns, APHIS published in the March 10, 2003, Federal Register a notice tightening permit conditions for its 2003 field tests of GE plants with pharmaceutical and industrial traits. The changes included (1) doubling the minimum distance allowed between traditional corn fields and test sites of pharmaceutical or industrial corn; (2) for all pharmaceutical crops (corn and other), doubling fallow zones around test sites; (3) restricting what can be grown on a test site and fallow zone in the next growing season; (4) using dedicated machinery (e.g., harvesters, planters) and storage facilities only for pharmaceutical production—adequate cleaning for other uses is no longer acceptable; (5) submitting for APHIS approval equipment cleaning and seed cleaning and drying procedures; (6) increasing APHIS field site inspections from one per season to five per season plus two visits the following year to look for any volunteer plants; (7) more record-keeping and training requirements. APHIS issued a letter on January 14, 2004, aimed at clarifying and updating its previous guidance on permits. The proposed APHIS revisions for regulating GE plants discussed above would put GE plants expressing pharmaceuticals or industrial compounds in a risk category where the engineered trait had a high potential for harm. It is not the highest risk category. APHIS equated the biopharmed plants with a poplar engineered to produce enzymes for heavy metal remediation. More recently, a variety of rice, produced by California-based Ventria Bioscience, has been developed that contains human genes. The rice, nearly ready to be approved for commercial production, produces some of the human proteins found in breast milk and saliva. The developers say the rice could be used to treat children with diarrhea in poor countries. The rice developers have received preliminary approval for growing the rice on 3,000 acres in Kansas. The company plans to harvest the proteins from the rice and use them in various food products. In early August 2006, a U.S. district court judge in Hawaii ruled that APHIS had violated the federal Endangered Species Act ( P.L. 93-205 ) and the National Environmental Policy Act (P.L. 91-190) because it had failed to consider potential impacts on endangered species and critical habitats prior to approving field trials for pharmaceutical corn on more than 800 acres throughout the Hawaiian Islands. The four companies issued the permits by APHIS were ProdiGene, Monsanto, Hawaii Agriculture Research Center, and Garst Seed. All of the companies' plants used to make pharmaceutical crops had been harvested before the suit was filed and the companies stopped planting the crops under the permits. Spokesmen for both Syngenta, which subsequently bought Garst, and Monsanto, said at the time they no longer intend to pursue research into making drugs from plant crops. In the coming decade, several policy issues are likely to be at the center of attention by industry, consumer groups, and policymakers. From a general perspective, some of the issues revolve around managing the coexistence of traditional agricultural production with the increased presence of GE-based agricultural production. This issue was a major source of conflict in the decision to deregulate GE alfalfa and sugar beets. In some respects, the policy and regulatory issues may not be fundamentally new or different from the biotechnology issues of the past 20 years. Rather, certain issues are increasing in importance as the industry matures, technologies evolve, and these longer-standing regulatory issues take new forms. While not exhaustive, some of these issues may include: evolving technologies, including the introduction of new "stacked trait" varieties—plant varieties with multiple genetically engineered traits—which is likely to increase; continuing development and the eventual commercialization of GE plant-based industrial and pharmaceutical output traits; oversight of second-generation biotechnology traits such as improved nutritional qualities and resistance to environmental stress (e.g., drought); transgenic animals and the food and industrial/pharmaceutical products derived from them; animal welfare concerns; importation of GE products; developing a low-level presence standard for unapproved GE materials in food and feed products; legal challenges to environmental assessments of transgenic plants and animals; issues related to transparency and the participation in policy and regulatory issues by various stakeholders (e.g., consumers, religious groups, animal welfare activists); compliance with existing and emerging regulatory structures in the United States and our trading partners, particularly the European Union; testing and measurement issues; traceability and labeling of GE products. As noted above, the evolution of herbicide-resistant weeds, especially those resistant to glyphosate, is a growing concern. As herbicide resistance increases among weed varieties, there could be increased reliance on herbicides that are arguably less benign than glyphosate (e.g., dicamba, 2,4 D). Biotechnology companies have engineered new plant varieties that are tolerant to these herbicides, or varieties where several herbicide-tolerant traits are "stacked" into a single variety. The environmental effects of the increasing herbicide resistance and the resort to other herbicides may become policy issues as companies commercialize these new varieties. | Biotechnology refers primarily to the use of recombinant DNA techniques to genetically modify or bioengineer plants and animals. Most crops developed through recombinant DNA technology have been engineered to be tolerant of various herbicides or to be pest resistant through having a pesticide genetically engineered into the plant organism. U.S. soybean, cotton, and corn farmers have rapidly adopted genetically engineered (GE) varieties of these crops since their commercialization in the mid-1990s. Over the past 15 years, GE varieties in the United States have increased from 3.6 million planted acres to 173 million acres in 2013. Worldwide, 27 countries planted GE crops on approximately 433 million acres in 2013. GE varieties now dominate soybean, cotton, and corn production in the United States, and they continue to expand rapidly in other countries, particularly in Latin America. Ongoing policy issues include the impacts of GE crops on the environment (e.g., pest and weed resistance), whether GE foods should be labeled, their potential contamination of conventionally raised and organic plants, and issues of liability. Underlying these issues are concerns about the adequacy of federal regulation and oversight of GE organisms, particularly as newer applications (e.g., biopharmaceuticals, multiple GE traits in single organisms, GE trees, GE insects) emerge that did not exist when the current regulatory regime was established in 1986. The FDA is currently considering approval of the first GE animal for human consumption, a salmon engineered to grow to market size in half the normal time. Global trade issues involving GE organisms are a long-standing issue and are particularly salient in current U.S.-EU trade discussions on the Transatlantic Trade and Investment Partnership (T-TIP). In the United States, agricultural biotechnology is regulated under the 1986 Coordinated Framework for the Regulation of Biotechnology. Three federal agencies—the U.S. Department of Agriculture (USDA), the Food and Drug Administration (FDA), and the Environmental Protection Agency (EPA)—share regulatory responsibilities. Regulatory non-compliance incidents and issues associated with environmental effects of GE plants have repeatedly raised concerns about the adequacy of existing U.S. regulatory structures. Questions have also arisen about the adequacy of USDA's Animal and Plant Health Inspection Service's (APHIS's) environmental assessments for deregulating GE plants. In July 2015, the Administration announced in a memorandum to agency heads a review and update of the Coordinated Framework to ensure the capacity of the regulatory structure to address any future biotechnology risks. This is the first comprehensive review of the Coordinated Framework in nearly 30 years. The 114th Congress passed a bill, H.R. 1599, to preempt various state laws that have been recently passed in Maine, Vermont, and Connecticut to require mandatory labeling of GE foods. While preserving current jurisdiction and regulatory authority of FDA and APHIS, the Safe and Accurate Food Labeling Act of 2015, as passed by the full House on July 23, 2015, would preempt any state authority over GE labeling in favor of a voluntary National Genetically Engineered Food Certification Program under the federal Agricultural Marketing Act of 1946. The certification program would establish national standards for labeling both GE and non-GE foods. A consultative process under FDA for the introduction of GE foods would continue, and a new notification system for GE plants used in food would be established. Three bills have been introduced that would require labeling of GE products. One would amend the Federal Food, Drug, and Cosmetic Act to require labeling of GE fish (H.R. 393), and a separate bill would require labeling of all GE foods (H.R. 913/S. 511). A third bill, the Genetically Engineered Salmon Risk Reduction Act (S. 738), would require labeling of GE salmon and further require an environmental impact statement and risk analysis by the Under Secretary for Oceans and Atmosphere of the Department of Commerce. |
Children are one of the most vulnerable segments of society during disasters. There are over 38.5 million households with children under 18 years in the United States. The majority of these households could be directly affected by disasters either through disruptions of day-to-day activities or through community disaster mitigation planning efforts. The perils faced by children can include separation from family members, school closures, health care shortages, housing issues, psychological impacts, and many others. The number of children affected by disasters is growing, yet there remains a gap in the inclusion of children in community disaster planning. Planning is just one of many tools that can be used to address the perils children face during and after disasters. Other activities include medical preparedness and response, medical countermeasures, medical transportation, disaster case management, national sheltering standards, housing, and evacuation. Congress established the National Commission on Children and Disasters (the Commission) to address the needs of children in disasters. This report considers the purpose, history, and structure of the Commission; the recommendations contained in the Commission's interim report to Congress; and congressional issues related to the recommendations. In-depth analysis of the recommendations will be undertaken in later reports. The 111 th Congress is currently considering amending the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act). The Disaster Response, Recovery, and Mitigation Enhancement Act of 2009 ( H.R. 3377 ) would enhance disaster response, recovery, preparedness, and mitigation capabilities. The Child Safety, Care, and Education Continuity Act of 2010 ( S. 2898 ) provides for the safety, care, and educational needs of children in disasters. Congress may wish to consider expanding proposed legislation or introducing new legislation to amend the Stafford Act to include recommendations of the Commission. Additional issues Congress may wish to consider include eligibility for federal grant funds, the federal role in emergency management, and federal agency role clarification in disaster assistance. In addition to amending the Stafford Act, Congress may elect to assess whether the Homeland Security Act (HSA) should be amended to emphasize the needs of children in emergencies. In recognition of the risks and challenges facing children during and after disasters, the Commission was authorized under the provisions of the Kids in Disasters Well-being, Safety, and Health Act of 2007 ( P.L. 110-161 ) and given federal advisory committee statutory authority under the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act of 2009 ( P.L. 110-329 ) to assess the needs of, and make recommendations about, children in disasters. The Commission is bipartisan, with 10 members appointed by the President and congressional leaders from both parties. The U.S. Department of Health and Human Services (HHS), Administration for Children and Families (ACF), provides financial and administrative support to the Commission. Congress authorized appropriations of $1.5 million for each of FY2008 and FY2009 to enable the Commission to conduct a comprehensive study to examine and assess the needs of children in the preparation for, response to, and recovery from natural disasters, acts of terrorism, and other man-made disasters. After evaluating existing research and recommendations, the Commission is directed to submit a report to the President and Congress on its findings, conclusions, and recommendations to address the identified gaps pertaining to the needs of children in disasters. The interim report of the Commission was provided to the President and Congress on October 14, 2009. The Final Report is projected to be completed by October 2010. According to the U.S. Census, children under the age of 18 comprise over 25% of the population. As a result, almost every disaster will most likely involve children. The vulnerability of children in disasters became most visible when families were separated after Hurricane Katrina, resulting in the displacement of an estimated 183,000 children, many of whom were poor. While it is unclear exactly how many children are recovering from Hurricane Katrina, research suggests that over 20,000 children still lack adequate housing, education, and essential services. The Commission was established to identify gaps in existing research and emergency management practices and make recommendations to address those gaps. Congress required that the Commission be appointed on a bipartisan basis, be representative of private nonprofit entities with expertise in providing assistance to children in disasters, and include the state and local emergency management perspective. Table 1 provides the affiliation and appointment information of the 10 commissioners. Congress directed the Commission to conduct a comprehensive study that examines the needs of children in the preparedness for, response to, recovery from, and mitigation of the impacts of major disasters and emergencies. The terms "major disasters" and "emergencies" were defined to mean the same as such terms under the Stafford Act. Specifically, the authorizing statute directs the Commission to make recommendations in the following areas: child physical health, mental health, and trauma; child care in all settings; child welfare; elementary and secondary education; sheltering, temporary housing, and affordable housing; transportation; juvenile justice; evacuation; and relevant activities in emergency management. The Commission established the following four subcommittees that meet monthly: 1. Education, Child Welfare, and Juvenile Justice; 2. Evacuation, Transportation, and Housing; 3. Human Services Recovery; and 4. Pediatric Medical Care. Each subcommittee operates under a statement of purpose that sets forth the goals and objectives of the subcommittee. These statements are excerpted below. The Education and Juvenile Justice Subcommittee will review issues affecting children and disasters in the areas of emergency preparedness, response, and recovery in schools, child care facilities, institutions of juvenile justice and corrections, and child welfare institutions. Areas of focus will include coordination with state and local planning efforts, identification of key services, training of personnel, and communication among all stakeholders, including parents and caregivers. The Subcommittee on Evacuation, Transportation and Housing will be recommending minimum standards for the care of children during evacuation, transportation and housing at any phase of a disaster situation. The Subcommittee will seek ways to encourage greater responsibility and accountability for the development and maintenance of standards that ensure the safety and accessibility for children, regardless of whether the services are provided by government or non-governmental organizations. To achieve this goal, the Subcommittee will investigate approaches, both internationally and domestically, to identify best practices and address existing gaps. The Subcommittee will facilitate collaboration of subject matter experts and stakeholders to address the identified issues by thoughtfully integrating the needs of children in these environments. The Human Services Recovery Subcommittee will focus on how to optimize recovery efforts in the aftermath of disasters and emergencies from the perspective of meeting the long-term essential needs of children and safe-guarding their well-being. Disasters and emergencies, especially those of a large-scale or catastrophic nature, can disrupt communities and community services for extended periods, during which timely access to appropriate child care, schools, supervised after-school programs, and health care (including physical health, mental and behavioral health, and oral health services) is at risk. This situation is frequently complicated by persistently unstable housing and lack of holistic disaster case management services. During disaster recovery, children must be provided these services within a supportive environment that ensures optimal recovery for individual children, their guardians, and the community as a whole. The Subcommittee will work to encourage policies and strategies that minimize the traumas and disruptions associated with long-term recovery. The Subcommittee on Pediatric Medical Care will explore ways to improve the current system for providing acute medical care to children in disasters, including improvements to the current processes for developing, stockpiling, and distributing medical countermeasures for children in a disaster and ensuring an effective emergency medical response system for children with sufficient pediatric-specific surge capacity. Congress authorized appropriations of $1.5 million for each of FY2008 and FY2009 for activities of the Commission. Even though Congress authorized $1.5 million, HHS provided $500,000 from discretionary appropriations for Commission activities for FY2008. In FY2009, HHS received $1.5 million to fund the Commission. H.R. 3293 , pending before the 111 th Congress, would provide $1 million to the Commission for FY2010. No proposals have been submitted by the Administration for FY2011 funding. Congress has directed the Commission to provide a final report in October 2010 but has not provided authorization for appropriations during the fiscal year in which the final report is due. Therefore, Congress may wish to consider the funding needs of the Commission during the period immediately following submission of the final report. The Commission has held several meetings since the first meeting on October 14, 2008. In addition to public meetings, members of the Commission have testified at the following congressional hearings: Senate Committee on Homeland Security and Governmental Affairs, Subcommittee on Disaster Recovery, Focus on Children in Disasters: Evacuation Planning and Mental Health Recovery , August 4, 2009; House Committee on Transportation and Infrastructure, Subcommittee on Economic Development, Public Buildings, and Emergency Management, Looking Out for the Very Young, the Elderly and Others with Special Needs: Lessons from Katrina and Other Major Disasters , October 20, 2009; Senate Committee on Homeland Security and Governmental Affairs, Subcommittee on Disaster Recovery, Disaster Case Management: Developing a Comprehensive National Program Focused on Outcomes , December 2, 2009; and Senate Committee on Homeland Security and Governmental Affairs, Subcommittee on Disaster Recovery, Children and Disasters: A Progress Report on Addressing Needs , December 10, 2009. The Commission submitted an interim report to the President and Congress in October 2009. The Commission has developed 11 categories of recommendations in its Interim Report: (1) disaster management and recovery; (2) mental health; (3) child physical health and trauma; (4) emergency medical services and pediatric transport; (5) disaster case management; (6) child care; (7) elementary and secondary education; (8) child welfare and juvenile justice; (9) sheltering standards, services and supplies; (10) housing; and (11) evacuation. The following section summarizes the recommendations and provides context for their consideration. The interim recommendations of the Commission for disaster management and recovery focus on the content and structure of disaster planning documents utilized at the federal, state, and local level. Specifically, the Commission recommends that stakeholders "distinguish and comprehensively integrate the needs of children across all inter- and intra-governmental disaster planning activities and operations"; and "accelerate the development of a National Disaster Recovery Strategy with an explicit emphasis on immediate and long-term physical and mental health, educational, housing, and human services recovery needs of children." The Commission appears to emphasize the need to distinguish planning that addresses the needs of children from the larger "special need," "at risk," or "vulnerable" population categories frequently seen in federal, state, and local disaster planning documents. The Stafford Act provides the authority for the prioritization of individuals with "serious needs." The Post-Katrina Emergency Management Reform Act of 2006 amended the Stafford Act to specifically address the needs of the disabled population in disasters. Congress may wish to consider further amending Section 408 to specifically address the needs of children in disasters. Additionally, the Commission has concerns that planners will simply create an appendix in existing documents for the needs of children rather than incorporating those needs into the overall planning approach. Under existing statutory authority, Congress has directed FEMA to ensure increased efficiency through coordination of mitigation, planning, response, and recovery efforts. FEMA was also directed to lead and support evacuation and related emergency operations. In acknowledgement of the pending revision to the National Response Framework (NRF) in 2010, the Commission recommends that the Department of Homeland Security (DHS) elevate the needs of children through revision of the National Response Framework Emergency Support Functions to distinctly address children in disasters. The Commission recommends providing for the mental and behavioral health needs of children affected by disasters through integrating "mental and behavioral health for children into all public health and medical preparedness and response activities"; enhancing the "research agenda for children's disaster mental and behavioral health, including psychological first aid, cognitive-behavioral interventions, social support interventions, and bereavement counseling and support"; and enhancing "pediatric disaster mental and behavioral health training for professionals and paraprofessionals, including psychological first aid, cognitive-behavioral interventions, social support interventions, and bereavement counseling and support." The Commission suggests that the above recommendations can be achieved by establishing mental and behavioral health as a core component of federal, state, and local unified incident command structures such as the National Incident Management System (NIMS). FEMA administers a Crisis Counseling Assistance and Training program that provides supplemental funding to state mental health authorities for crisis counseling for up to nine months following a disaster declaration. The nine-month time limit provision is set forth in regulations but is not in statute. Congress may wish to consider whether the regulatory provisions are appropriate. However, the Commission seems to suggest that there need to be provisions for mental and behavioral health services beyond nine months. The Commission recommends addressing the issues of child physical health and trauma in disasters by ensuring the "availability and access to pediatric medical countermeasures at the federal, state, and local level for chemical, biological, radiological, nuclear, and explosive (CBRNE) threats"; expanding the "medical capabilities of all federally funded response teams through the comprehensive integration of pediatric-specific training, guidance, exercises, supplies, and personnel"; ensuring "that all health care professionals who may treat children during an emergency have adequate pediatric disaster clinical training specific to their role"; providing "funding for a formal regionalized pediatric system of care for disasters"; and ensuring "access to physical and mental health services for all children during recovery from disaster." The Commission recommends reviewing existing federal programs, such as the disaster assistance programs provided under the provisions of the Stafford Act, to assess the feasibility of expanding eligibility to include clinics that provide physical and mental health services. The Stafford Act provides statutory authority for the repair, restoration, and replacement of damaged facilities under a program commonly referred to as public assistance. Currently, eligibility is limited to state and local governments and private nonprofit facilities. Issues related to eligibility for federal funds are discussed in greater detail in subsequent sections of this report. Congress may wish to consider whether the current eligibility will suffice or whether to expand eligibility for the public assistance program to allow for the repair, restoration, or replacement of certain for-profit facilities identified by the Commission as stakeholders in providing essential services to children in disasters. The one recommendation of the Commission for emergency medical services and pediatric transport involves "improving the capacity of emergency medical services (EMS) to transport pediatric patients and provide comprehensive pre-hospital pediatric care during daily operations and disasters." The Commission recommends establishing a dedicated grant program for EMS, similar to the Metropolitan Medical Response System program within the DHS Homeland Security Grant Program, and providing additional funding for the Emergency Medical Services for Children program to increase day-to-day pediatric emergency preparedness. The Stafford Act contains provisions that enable the President to provide accelerated federal assistance to save lives and prevent human suffering. Congress may wish to consider whether this authority would extend to the emergency medical services and pediatric transport during disasters. The one recommendation of the Commission for disaster case management involves establishing a "holistic federal disaster case management program with an emphasis on achieving tangible positive outcomes for all children and families within a presidentially-declared disaster area." After Hurricane Katrina, Congress recognized that the existence of multiple case management programs after a disaster causes confusion for providers and clients. Currently, under the provisions of the Stafford Act, FEMA is the lead agency in coordinating disaster case management, predominately through mission assignments. After Hurricane Katrina, HHS developed a holistic disaster case management model. In December 2009, FEMA and HHS entered into an interagency agreement to implement a coordinated disaster case management program. The Commission recommends addressing child care needs in disasters through requiring "disaster planning capabilities for child care providers"; and improving "capability to provide child care services in the immediate aftermath of and recovery from a disaster." Currently, the Child Care Bureau at HHS encourages (but does not require) states to develop emergency preparedness and response plans to address planning, recovery, and response efforts specific to child care and other early childhood programs. The Child Care Bureau notes that, "child care is an essential human service and critical component in the immediate aftermath of a disaster necessary to protect the safety of children and support the stabilization of families." In child care plans for the years 2008-2009, 31 state and territory child care agencies reported that they were developing (or had already developed) emergency preparedness plans and/or policies and procedures. The Child Care Bureau has also issued an information memorandum on flexibility in spending federal child care funds in response to federal or state declared emergencies. This memorandum reviews a handful of ways that states may utilize the flexibility of federal child care funds to support families affected by disasters, including ways to support displaced families and waive certain eligibility requirements. The Commission recognizes the critical role of elementary and secondary institutions in disasters. Consequently, the Commission recommends establishing "a school disaster preparedness program and appropriate funds to the U.S. Department of Education (DOE) for a dedicated and sustained funding stream to all state education agencies" for state- and district-level disaster response planning, training, exercises, and evaluation; and enhancing the "ability of school personnel to support children who are traumatized, grieving or otherwise recovering from a disaster." Currently, there are no federal laws that require local educational agencies (LEAs) to have emergency management plans. However, some federal support is available to assist LEAs in developing these plans. For example, both the U.S. Department of Education (ED) and DHS administer programs that could provide funding to LEAs for emergency management planning purposes. The Readiness and Emergency Management for Schools (REMS) program administered by ED has provided funds to LEAs to develop and improve emergency management plans for LEAs and school buildings. DHS administers the State Homeland Security program, the Urban Area Security Initiative, and the Citizens Corps program, which provides funds to state and local governments for emergency management planning. To address the child welfare and juvenile justice issues in disasters, the Commission recommends providing "guidance, technical assistance, and model plans to assist state and local child welfare agencies in meeting current applicable disaster planning requirements and further requiring collaboration with state and local emergency management, courts, and other key stakeholders"; and conducting a "national assessment of disaster planning and preparedness among state and local juvenile justice systems to inform the development of comprehensive disaster plans." States must have in place certain procedures to address the safety and well-being of children during disasters. Following the Gulf Coast hurricanes of 2005, Congress passed P.L. 109-288 to amend Title IV-B of the Social Security Act (SSA), requiring that states develop procedures to respond to and maintain child welfare services in the wake of a disaster. The act specified that HHS establish criteria for how state child welfare systems would respond. The one recommendation of the Commission for sheltering standards, services and supplies involves providing a "safe and secure mass care shelter environment for children, including appropriate access to essential services and supplies." Included in this recommendation is the need to develop and implement national standards for mass care shelters, methods for ensuring that age-appropriate essential supplies are available, training for shelter workers, and measures to screen shelter workers and volunteers working with children. Section 403 of the Stafford Act provides the President with the authority to dedicate federal resources to address sheltering needs. The NRF provides guidance for the federal role in the provision of shelters in disasters. Under the Stafford Act, the distribution of food and essential needs that may be provided in the shelters is administered by the American Red Cross, the Salvation Army, the Mennonite Disaster Service, and other disaster assistance organizations. One of the challenges in implementing national standards for shelters is that many of the sheltering needs during disasters are provided by local community organizations that may not have the resources that the larger disaster assistance organizations may have in order to meet the standards. Additionally, if the local community organization shelter does not receive federal assistance, there is no mechanism to enforce the standards. In large-scale disasters, local community organizations such as churches that do not traditionally become involved in sheltering may step forward. While the standards may provide guidance to organizations that provide disaster assistance on a consistent basis, there may be a lack of awareness among the non-traditional shelter providers. Given the wide range of stakeholders that may potentially provide sheltering services, the greatest challenge in establishing standards directed towards sheltering requirements is the ability to encourage compliance of shelters that may not receive federal funding. The one recommendation of the Commission for housing involves "prioritizing families with children for disaster housing assistance and expedited transition into permanent housing, especially families with children who have disabilities or other special health, mental, or educational needs." The disaster housing issue encompasses several concerns, including the condition of temporary housing, the lack of affordable housing in disaster-affected areas, and physical and mental burdens placed on children due to frequent housing transitions. The one recommendation of the Commission for evacuation involves family reunification as a critical element of disaster-related evacuations. Months after Hurricane Katrina struck, over 5,000 children were reported as missing to the National Center for Missing and Exploited Children. In recognition of the challenges of family reunification, the Commission recommends developing a "standardized, interoperable, national evacuee tracking and family reunification system that ensures the safety and well-being of children." The Post-Katrina Emergency Management Reform Act (PKEMRA) required FEMA to establish the National Emergency Family Registry and Locator (NEFRL) system and the National Emergency Child Locator Center to address family reunification needs in disasters. PKEMRA also required FEMA to establish a disability coordinator to ensure that the needs of individuals with disabilities in disasters are addressed. Currently, there is no similar statutory provision for a coordinator for children in disasters. Congress may wish to consider establishing a coordinator within FEMA that would ensure that the needs of children are addressed in the development and implementation of a national, standardized, and interoperable evacuee tracking and family reunification system. In addition to the issues above pertaining to the recommendations of the Commission, Congress may wish to consider policy options not addressed by the Commission. These include the role of federal agencies, transitioning disaster assistance coordination to the states, and federal grants-in-aid. There are many challenges involved in combining federal funding sources to address disaster related needs. Among these challenges is the determination of the role of each federal agency involved in a single disaster recovery project. FEMA and HUD each hold a distinct role in community recovery. Each federal agency arguably implements policy under different recovery objectives. For example, HUD programs have traditionally been viewed as a tool to promote economic development. Economic development initiatives generally encompass recovery projects that promote redeveloping and rejuvenating the economic base of communities. By comparison, FEMA programs generally fall under the auspices of short-term recovery needs and hazard mitigation and do not necessarily seek to make communities whole or provide for long-term quality of life factors. The focus of most FEMA assistance is to provide for the immediate shelter needs of individuals and restore critical infrastructure such as power, water and sewage systems, and postal services. FEMA grant programs have traditionally been considered reimbursement programs in which individuals and communities are partially reimbursed for losses and damage to properties. The Commission may need to address some of the challenges associated with implementing the interim recommendations that require alignment of two or more different recovery philosophies and differing program goals in a disaster coordination framework. Because the definition of disaster case management is unclear, the role of FEMA, HUD, and HHS in the provision of disaster case management services remains unclear. While existing statutory authority suggests that FEMA serves as the lead federal agency, each agency implements policies and programs under different disaster case management objectives. While clarity of definitions may be useful in determining the jurisdictions of various agencies in providing disaster case management, definitions may also hinder the ability of agencies to be flexible in providing assistance for disasters of varying scale. Rather than defining disaster recovery and disaster case management, Congress may wish to consider clarifying the scope of the federal role in providing disaster case management in order to provide a basis for aligning the program objectives of relevant federal agencies and the point of transition for disaster case management to state and local coordination. One of the greatest challenges of disaster assistance is determining when a state devastated by a disaster is able to resume the lead role of coordinating disaster assistance. Under the provisions of the Stafford Act, states request federal assistance only after they have determined that they have exceeded their capacity to respond to and recover from a disaster. While the federal government steps in to provide financial and administrative assistance, the role of the state continues to be prominent in the decision-making regarding disaster assistance. Questions remain concerning when the federal government should transition coordination of long-term recovery back to state and local governments. While the Disaster Recovery Working Group established by President Barrack Obama may provide some insight into transitioning disaster assistance coordination to the states, Congress may wish to use the work of the Commission to identify points of transition for programs that provide federal disaster assistance to children. The Commission has recommended that DHS prioritize grant funding for preparedness, planning, training, and exercise projects that include children. However, a number of entities directly serving children, such as private schools and daycare centers classified as small businesses, would not be eligible for assistance under most federal grant programs. The Stafford Act establishes the authority for determining eligibility. While DHS can prioritize funding for projects that include children, that funding is limited to eligible applicants. Generally, eligibility for federal disaster assistance is limited to state government agencies, local governments, federally recognized Indian Tribal governments and Alaska Native villages and organizations, and certain private nonprofit organizations. Additionally, many of the emergency medical services utilized during disasters are provided by private businesses that also would not be eligible for many of the federal grant programs that fund disaster planning, training, and exercises. Expanding federal grant eligibility may be justified because many of the services provided by private entities such as child care facilities and physical and mental health clinics provide a service that fills a gap left by limited local, state, and federal resources. The statutory provisions of the FEMA Public Assistance program state that part of the criteria for a private nonprofit facility to qualify for assistance is the determination that it provides "essential governmental type services to the general public." Arguably, for-profit organizations that may be providing an "essential governmental type service" during disasters should also be eligible for federal grant assistance. However, expanding grant eligibility would result in a significant increase in federal expenditures for disaster assistance. Congress may wish to consider whether to change eligibility to implement the recommendations of the Commission. Legislation introduced in the 111 th Congress includes provisions for child safety and education continuity in disasters ( S. 2898 ), and changes to federal programs addressing community preparedness and mitigation ( H.R. 3377 ). The Child Safety, Care, and Education Continuity Act of 2010 ( S. 2898 ) includes provisions that address many of the child care and education recommendations of the Commission. However, Congress may wish to consider expanding the provisions of S. 2898 to address additional recommendations pertaining to mental health, emergency medical services and pediatric transport, disaster case management, sheltering standards, and housing. Section 102 of the Disaster Response, Recovery, and Mitigation Enhancement Act of 2009 ( H.R. 3377 ) provides for the implementation of the recommendations of a congressional committee. Congress may wish to consider whether the evacuation recommendations of the Commission could be incorporated into implementation of other committee recommendations. Section 201 of H.R. 3377 provides federal assistance to states wishing to enhance mitigation activities. Congress may wish to consider incorporating sheltering recommendations of the Commission into the mitigation provisions of the bill. Children are one of the most vulnerable segments of society during disasters. Traditionally, they are included in broader disaster planning categories such as "special needs populations" or "at-risk populations." The increasing frequency and scale of disasters has made the needs of children a critical element of disaster planning. When assessing how to meet the needs of children in disasters, some consideration needs to be given to whether existing statutory authority provides federal agencies the flexibility to meet those needs, or whether congressional intervention is necessary to ensure that special provisions are made for children. The range of activities associated with meeting the needs of children in disasters spans multiple levels of government and the private and nonprofit sectors of society. While there is an undeniable need to prevent loss of life and provide for the quality of life for children, there remains some question about the role of various stakeholders in funding and coordinating emergency management activities. Evaluating the recommendations of the Commission within the context of existing statutory and regulatory provisions may also provide some insight into the gaps in funding and coordination, and the appropriate federal role, in caring for children affected by disasters. | The National Commission on Children and Disasters (the Commission) is authorized under the provisions of the Kids in Disasters Well-being, Safety, and Health Act of 2007 (P.L. 110-161) and given federal advisory committee statutory authority under the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act of 2009 (P.L. 110-329). The U.S. Department of Health and Human Services (HHS), Administration for Children and Families (ACF), provides financial and administrative support to the Commission, whose purpose is to assess the needs of children in the preparation for, response to, and recovery from natural disasters, acts of terrorism, and other man-made disasters. Congress authorized appropriations of $1.5 million for each of FY2008 and FY2009 for the Commission to conduct a comprehensive study to examine and assess the needs of children as they relate to preparation for, response to, and recovery from all hazards including natural disasters, acts of terrorism, and other man-made disasters. After evaluating existing research and recommendations, the Commission is directed to submit a report to the President and Congress on its findings, conclusions, and recommendations to address the identified gaps pertaining to the needs of children in disasters. The Interim Report of the Commission was provided to the President and Congress on October 14, 2009, and the Final Report is projected to be completed by October 2010. The 111th Congress is currently considering amending the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) to enhance disaster response, recovery, preparedness and mitigation capabilities (H.R. 3377). Congress is also considering legislation that would establish provisions for education, child care, emergency planning, and health care guidance to address the safety of children after a disaster (S. 2898). Issues Congress may wish to consider include expanding proposed legislation or introducing new legislation to amend the Stafford Act, or amending the Homeland Security Act, to include recommendations of the Commission. Additional issues Congress may wish to consider include what administrative options are available to implement the Commission recommendations and where there may be a need for congressional action. |
T he mission of the Department of Justice (DOJ) is to "enforce the law and defend the interests of the United States according to the law; to ensure public safety against threats foreign and domestic; to provide federal leadership in preventing and controlling crime; to seek just punishment for those guilty of unlawful behavior; and to ensure fair and impartial administration of justice for all Americans." DOJ was established in 1870 with the Attorney General as its leader. Since its creation, DOJ has added additional agencies, components, offices, boards, and divisions to its organizational structure. DOJ, along with the judicial branch, operates the federal criminal justice system. The department enforces federal criminal and civil laws, including antitrust, civil rights, environmental, and tax laws. Through agencies such as the Federal Bureau of Investigation (FBI); the Drug Enforcement Administration (DEA); and the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF), it investigates terrorism, organized and violent crime, illegal drugs, and gun and explosives violations, among others. Through the U.S. Marshals Service (USMS), it protects the federal judiciary, apprehends fugitives, and detains alleged offenders who are not granted pretrial release. DOJ investigates and prosecutes individuals accused of violating federal laws, and it represents the U.S. government in court. DOJ's Bureau of Prisons (BOP) houses individuals accused and convicted of federal crimes. In addition to its role in administering the federal criminal justice system, the department also provides grants and training to state, local, and tribal law enforcement agencies and judicial and correctional systems. This report describes actions taken by the Administration and Congress to provide FY2018 funding for DOJ. It also provides an overview of some of the funding proposals put forth by the Administration in its FY2018 budget request for DOJ. Each of DOJ's accounts are usually funded as a part of the annual Commerce, Justice, Science, and Related Agencies (CJS) appropriations act. Accounts under the General Administration heading provide funds for salaries and expenses for the Attorney General's office, the Inspector General's office, and other programs designed to ensure that the efforts of DOJ agencies, offices, boards, and divisions are coordinated, economical, and efficient. The Salaries and Expenses account supports the Attorney General and senior DOJ leadership as they manage DOJ's resources and formulate policies for legal, law enforcement, and criminal justice activities. The Justice Information Sharing Technology account provides funding for DOJ's information technology programs. In FY2017, Congress and the President changed the title of the Administrative Review and Appeals account to the Executive Office for Immigration Review (EOIR) account. Funding for the Pardon Attorney, which was previously part of the Administrative Review and Appeals account, was moved to the General Legal Activities account. The EOIR is responsible for the review and adjudication of immigration cases, in coordination with the Department of Homeland Security (DHS). The OIG account supports efforts to detect and deter waste, fraud, and abuse involving DOJ programs and personnel; promote economy and efficiency in DOJ operations; and investigate allegations of departmental misconduct. The U.S. Parole Commission account supports the commission's mission to adjudicate parole requests for prisoners who are serving felony sentences for federal and District of Columbia criminal code violations. The commission also sets the conditions of release for offenders under its jurisdiction and makes determinations about whether to return parolees who have violated the terms of their release to prison. The Legal Activities account includes several subaccounts: General Legal Activities, U.S. Attorneys, the Antitrust Division, the Vaccine Injury Compensation Trust Fund, the U.S. Trustee System Fund, the Foreign Claims Settlement Commission, Fees and Expenses of Witnesses, and the Community Relations Service. These subaccounts support a wide array of activities. For example, the General Legal Activities subaccount funds the Office of the Solicitor General to supervise and conduct government litigation in proceedings before the Supreme Court. It also funds the activities of several DOJ divisions (tax, criminal, civil, environment and natural resources, legal counsel, civil rights, INTERPOL, and dispute resolution) . Via this account, Congress and the President also establish a limit on how much can be spent from the Assets Forfeiture Fund to cover certain authorized expenses. The USMS account supports the protection of the federal judicial process, including protecting judges, attorneys, witnesses, and jurors. In addition, the USMS provides physical security in courthouses, transports prisoners to and from court proceedings, apprehends fugitives, executes warrants and court orders, oversees the detention of alleged offenders pretrial, and seizes forfeited property. The NSD account supports the coordination of DOJ's national security and terrorism missions. The NSD was established in DOJ in response to the recommendations of the Commission on the Intelligence Capabilities of the United States Regarding Weapons of Mass Destruction (WMD Commission), and authorized by Congress and the President in the USA PATRIOT Improvement and Reauthorization Act of 2005 ( P.L. 109-177 , enacted March 9, 2006). Under the NSD, the Office of Intelligence Policy and Review and the Criminal Division's Counterterrorism and Counterespionage Sections' resources were consolidated to coordinate the department's intelligence-related resources and to ensure that criminal intelligence information is shared, as appropriate. The Interagency Law Enforcement account reimburses DOJ agencies for their participation in the Organized Crime Drug Enforcement Task Force (OCDETF) program. Organized into 12 task forces, this program combines the expertise of federal agencies with those of state and local law enforcement to disrupt and dismantle major narcotics trafficking and money laundering organizations. The DOJ agencies, divisions, and offices that participate in OCDETF are the DEA, FBI, ATF, USMS, the Tax and Criminal Divisions of DOJ, and U.S. Attorneys. Other agencies participating in OCDETF are U.S. Immigration and Customs Enforcement, the U.S. Coast Guard, the Treasury Office of Enforcement, and the Internal Revenue Service. The FBI account supports the lead federal investigative agency charged with defending the country against foreign terrorist and intelligence threats; enforcing federal laws; and providing leadership and criminal justice services to federal, state, local, tribal, and territorial law enforcement agencies and partners. Since the September 11, 2001 (9/11) terrorist attacks the FBI has reorganized and reprioritized its efforts to focus on preventing terrorism and related criminal activities. The DEA account supports the only single-mission federal agency tasked with enforcing the nation's controlled substance laws, reducing the availability and abuse of illicit drugs, and preventing the diversion of licit drugs for illicit purposes. The DEA's enforcement efforts include the disruption and dismantling of drug trafficking and money laundering organizations through drug interdiction and seizures of illicit revenues and assets derived from these organizations. The agency plays a key role in federal efforts to counter drug-related violence by focusing on the convergent threats of illegal drugs, drug-related violence, and terrorism. The DEA also has an active role in the Prescription Drug Abuse Prevention Plan through the targeting of improper prescribing practices and promoting proper disposal of unused prescription drugs. The ATF enforces federal criminal law related to the manufacture, importation, and distribution of alcohol, tobacco, firearms, and explosives. The ATF works independently and through partnerships with industry groups; international, state, and local governments; and other federal agencies to investigate and reduce crime involving firearms and explosives, acts of arson, and illegal trafficking of alcohol and tobacco products. BOP was established in 1930, and its account supports the housing of federal inmates, professionalization of the prison service, and the consistent and centralized administration of the federal prison system. The mission of the BOP is to protect society by confining offenders in prisons and community-based facilities that are safe, humane, cost-efficient, and appropriately secure, and to provide work and other self-improvement opportunities for inmates so that they can become productive citizens after they are released. The BOP currently operates 122 correctional facilities across the country. It also contracts with Residential Re-entry Centers (RRCs, i.e., halfway houses) to provide assistance to inmates nearing release. RRCs provide inmates with a structured and supervised environment along with employment counseling, job placement services, financial management assistance, and other programs and services. OVW was established to administer programs created under the Violence Against Women Act of 1994 (VAWA) and subsequent legislation. The OVW account and the programs it supports provide financial and technical assistance to communities around the country to facilitate the creation of local programs, policies, and practices designed to improve the criminal justice response to domestic violence, dating violence, sexual assault, and stalking. OJP manages and coordinates the National Institute of Justice; Bureau of Justice Statistics; Office of Juvenile Justice and Delinquency Prevention; Office for Victims of Crime; Bureau of Justice Assistance; the Office of Sex Offender Sentencing, Monitoring, Apprehending, Registering, and Tracking; and related grant programs. The Research, Evaluation, and Statistics account (formerly the Justice Assistance account) funds the operations of the Bureau of Justice Statistics and the National Institute of Justice, among other related activities. The State and Local Law Enforcement Assistance account includes funding for a variety of grant programs to improve the functioning of state, local, and tribal criminal justice systems. Some examples of programs that have traditionally been funded under this account include the Edward Byrne Memorial Justice Assistance Grant (JAG) program, the Drug Courts program, the State Criminal Alien Assistance Program (SCAAP), and DNA backlog reduction program. The Juvenile Justice Programs account includes funding for grant programs administered by the Office of Juvenile Justice and Delinquency Prevention to reduce juvenile delinquency and help state, local, and tribal governments improve the functioning of their juvenile justice systems. The Public Safety Officers Benefits (PSOB) program account provides three different types of benefits to public safety officers and their survivors: death, disability, and education. The PSOB program is intended to assist in the recruitment and retention of law enforcement officers, firefighters, and first responders. The COPS account supports the awarding of grants to state, local, and tribal law enforcement agencies throughout the United States to hire and train law enforcement officers to participate in community policing, purchase and deploy new crime-fighting technologies, and develop and test new and innovative policing strategies. The CVF was established by the Victims of Crime Act of 1984 ( P.L. 98-473 , VOCA). It is administered by the Office for Victims of Crime (OVC) and provides funding to the states and territories for victim compensation and assistance programs. This account does not receive appropriations but instead is funded by criminal fines, forfeited bail bonds, penalties, and special assessments that are collected by U.S. Attorneys Offices, U.S. courts, and the BOP. The Consolidated Appropriations Act, 2017 ( P.L. 115-31 ) provided a total of $28.962 billion for DOJ. The act provided $2.713 billion for the U.S. Marshals, $9.006 billion for the FBI, $2.103 billion for the DEA, $1.259 billion for the ATF, and $7.142 billion for the BOP. The remaining funding (approximately $6.739 billion) was for DOJ's other offices—such as the U.S. Attorneys Offices, the Executive Office for Immigration Review, and the Attorney General's office—and to support the other functions noted above. For FY2017, appropriated funding for OVW was supplemented with a transfer from the CVF. A total of $482 million in new budget authority is available for OVW, but $326 million comes via a transfer from the CVF. The Trump Administration requested $28.205 billion for DOJ for FY2018. The requested amount was 2.6% less than the FY2017 enacted appropriation. The Administration proposed reductions for several DOJ accounts. These included a $232 million (-2.6%) reduction for the FBI, which was largely the result of a $187 million (-78.3%) reduction in the Construction account, but also a $44 million (-0.5%) reduction in the FBI's Salaries and Expenses account. The Administration also proposed reductions for the following: State and Local Law Enforcement Assistance (-$340 million, -26.6%), Juvenile Justice Programs (-$21 million, -8.3%), and Community Oriented Policing Services (-$4 million, -1.5%). The Trump Administration's FY2018 budget request proposed transferring $445 million from the CVF to OVW, $73 million from the CVF to the State and Local Law Enforcement Assistance account, and $92 million from the CVF to the Juvenile Justice Programs account. While the Administration's FY2018 budget request included several reductions for DOJ, it also included several proposed increases: The Offices of the United States Attorneys (+$22 million, 1.1%), The U.S. Marshals Service's Federal Prisoner Detention account (+$82 million, 5.6%), The National Security Division (+$5 million, +5.2%), Interagency Law Enforcement (+$9 million, +1.7%), The Bureau of Prisons' Salaries and Expenses account (+$76 million, +1.1%), The Drug Enforcement Administration (+$61 million, +2.9%), The Bureau of Alcohol, Tobacco, Firearms, and Explosives (+$15 million, +1.2%), and The Executive Office for Immigration Review (+$60 million, +13.9%). The Trump Administration proposed eliminating 11,523 positions and 3,587 full-time equivalents (FTEs) across DOJ. The reductions were a part of a "workforce rightsizing initiative" ordered by Attorney General Sessions. The reductions would have come through attrition and "administrative savings" (-2,125 positions and -2,084 FTEs), and through eliminating "funded but unfilled" positions and FTEs (-9,398 positions and -1,503 FTEs). The majority of eliminated positions and FTEs would have come from the FBI (-2,095 positions and -1,843 FTEs), DEA (-1,350 positions and no FTEs), USMS (-612 positions and -94 FTEs), BOP (-6,132 positions and -846 FTEs), and General Legal Activities (-587 positions and -129 FTEs). These reductions would have established a new staffing baseline for DOJ's current services. H.R. 3354 , an omnibus appropriations measure that the House passed on September 14, 2017, would have provided $29.310 billion for DOJ, 3.5% more than the Administration's request and 1.2% more than the FY2017 enacted appropriation. Compared to the FY2017 enacted appropriation, the House-passed bill included an $88 million (+3.2%) increase for the USMS, a $54 million (+2.6%) increase for the DEA, and a $36 million+ (2.8%) increase for the ATF. There were also increases for the Offices of the U.S. Attorneys (+$22 million, +1.1%) and BOP (+$26 million, +0.4%) related to the FY2017 enacted appropriations. The bill would have reduced funding overall for the FBI by $139 million (-1.6%) relative to the FY2017 enacted appropriation, but this is due to a $187 million (-78.3%) reduction in the FBI's Construction account. The House bill would have increased funding for the FBI's Salaries and Expenses account. The House also declined to adopt the Administration's proposal to supplement appropriations from the General Fund of the Treasury for the Office on Violence Against Women, State and Local Law Enforcement Assistance, and Juvenile Justice Programs accounts with transfers from the Crime Victims Fund. The bill reported by the Senate Committee on Appropriations would have provided $29.068 billion for DOJ, 2.6% more than the Administration's request and 0.4% more than the FY2017 enacted appropriation. The Senate Committee on Appropriations would have funded most DOJ accounts at or above the FY2017 enacted level. The committee-reported bill included a $108 million (+4.0%) increase for the USMS, a $13 million (+0.6%) increase for the DEA, a $15 million (+1.2%) increase for the ATF, and a $22 million (+1.1%) increase for the Offices of the U.S. Attorneys relative to the FY2017 enacted level. The committee proposed reducing overall funding for the FBI (-$19 million, -0.2%), though this is the result of an $84 million reduction in the FBI's Construction account. Like the House bill, the Senate committee-reported bill would have increased funding for the FBI's Salaries and Expenses account relative to the FY2017 enacted appropriation. The committee-reported bill would have also reduced funding for the State and Local Law Enforcement Assistance account (-$109 million, -8.6%) relative to the FY2017 enacted level. The Senate Committee on Appropriations largely declined to adopt the Administration's proposal to supplement funding for several grant accounts with transfers from the Crime Victims Fund. However, the committee-reported bill includes a transfer of $379 million from the Crime Victims Fund to the Office on Violence Against Women. For FY2018, DOJ received a total of $30.384 billion in funding, which included $30.299 billion in regular appropriations provided in the Consolidated Appropriations Act, 2018 (Division B, P.L. 115-141 ) and $85 million in emergency-designated funding provided in the Further Additional Supplemental Appropriations for Disaster Relief Requirements Act, 2018 ( P.L. 115-123 ). Total FY2018 funding for the department is 4.9% greater than the FY2017 appropriation (4.6% greater without emergency-designated funding) and 7.3% greater than the Administration's request (7.0% greater without emergency-designated funding). Nearly every DOJ account was funded at a level above the FY2017 enacted appropriation and the Administration's request, though there were a few exceptions. The FY2018 appropriation for the General Legal Activities account was $2 million less (-0.2%) than the Administration's request while the appropriation for the Research, Evaluation, and Statistics account was $21 million less (-18.9%) than the Administration's request. However, the latter was largely the result of funding for the Regional Information Sharing System (RISS) program being provided under the COPS account. The Administration requested funding for RISS under the Research, Evaluation, and Statistics account. For FY2018, all funding for the Office on Violence Against Women ($492 million) is provided by a transfer from the CVF. Congress did not adopt the Administration's proposal to supplement appropriations from the General Fund of the Treasury for the State and Local Law Enforcement Assistance and Juvenile Justice Programs accounts with transfers from the CVF. The House and Senate committee reports and the joint explanatory statement to accompany the Consolidated Appropriations Act were silent as to the Administration's workforce rightsizing initiative. However, the explanatory statement notes that any CJS agency that "plans a reduction-in-force shall notify the [House and Senate Appropriations Committees] by letter no later than 30 days in advance of the date of any such planned personnel action." Table 1 summarizes and compares the FY2017 appropriations, the President's FY2018 budget request, and the House-passed, Senate committee-reported, and enacted FY2018 appropriations for DOJ. The amounts in Table 1 reflect only new funding made available at the start of the fiscal year. Therefore, the amounts do not include any rescissions of unobligated or deobligated balances that may be counted as offsets to newly enacted appropriations, nor do they include any scorekeeping adjustments (e.g., the budgetary effects of provisions limiting the availability of the balance in the Crime Victims Fund). The Administration's annual budget submission to Congress is a reflection of its priorities. The Trump Administration has identified national security, violent crime, the opioid epidemic, transnational organized crime, and enforcing immigration laws as priorities for DOJ. These priorities coincide with issues that President Trump raised during the 2016 presidential campaign and the first few months of his Administration, including concerns about "lone wolf" terrorist attacks inspired by foreign terrorist organizations like the Islamic State, increasing violent crime in some U.S. cities, and the need for more stringent enforcement of the nation's immigration laws. The Administration formulated its FY2018 budget request assuming FY2017 funding levels that were based on the FY2017 annualized appropriation under the continuing resolutions (CR, P.L. 114-223 and P.L. 114-254 ). This means that requested program increases were considered relative to that CR and not the FY2017 enacted appropriation ( P.L. 115-31 ). The Administration requested $98 million in program increases for national security efforts at the FBI. Within the $98 million requested by the Administration, $41 million was for the FBI's efforts to combat cyber threats, $22 million was for combatting the threat of "going dark" (i.e., the inability of law enforcement to access certain data due to advancements in technology), $20 million was for addressing threats posed by foreign intelligence and domestic bad actors, $8 million was for additional surveillance of FBI high-priority targets, and $7 million was for the operation and maintenance of the FBI's Biometric Technology Center. In response, the House Committee on Appropriations noted in its report that it provided $48 million more than the FY2017 enacted appropriation for the FBI. The committee explained that the increase was necessary to help the FBI carry out its critical missions, which include supporting work on "confronting threats from foreign intelligence and insiders," and "helping the FBI stop computer intrusions, investigate cybercrime, and improve cybersecurity." The committee also stated that funding for the FBI was to support the programs of the FBI's Criminal Justice Information Services Division, including the Biometric Technology Center. However, the committee did not state if it chose to fund any of the specific program increases requested by the Administration. The Senate Committee on Appropriations noted in its report that within the funding provided for the FBI, the committee supports the requested program increases for cybersecurity activities. The committee's report was silent as to whether it supported any of the other program increases requested by the Administration. The explanatory statement states that Congress expects the FBI to use the funding provided for FY2018 to enhance its investigative and intelligence efforts related to terrorism, national security, and cyber threats. While the explanatory statement did not say whether Congress funded any of the Administration's requested increases, FY2018 funding included a $263 million increase for the FBI's Salaries and Expenses account (not including emergency-designated funding). The enacted appropriation was $308 million more than the Administration's request. The Trump Administration requested approximately $139 million for efforts to reduce violent crime, including the following: $19 million to implement the recommendations of the Task Force on Crime Reduction and Public Safety. Of this amount, $4 million would have been for the ATF, $6 million would be for the DEA, $4 million would be for the FBI, and $6 million would be for the USMS. $19 million for additional Assistant U.S. Attorneys to help prosecute violent crimes. $7 million for the ATF's National Integrated Ballistic Information Network (NIBIN), which allows for the capture and comparison of ballistic evidence to aid in solving violent crimes involving firearms. $4 million for the ATF to support advancements in technology for more accurate and timely firearm registrations. $9 million for the FBI to support additional personnel to conduct background checks submitted through the National Instant Criminal Background Check System (NICS). $70 million for the Project Safe Neighborhoods grant program under the State and Local Law Enforcement Assistance account. $12 million for the USMS to replace body armor, radios, fleet vehicles, light armored vehicles, and electronic surveillance equipment, and to support the U.S. Marshals' Special Operations Group's annual selection, specialty and mandatory recertification training, and related equipment. The House Committee on Appropriations' report noted that it fully funded the requested increase for the ATF's NIBIN program and additional safety equipment for deputy U.S. Marshals. The committee also stated that it provided funding for additional resources at the Office of the U.S. Attorneys for additional prosecutors to target violent crime and gang activity. The committee declined to provide $70 million for Project Safe Neighborhoods (the committee recommended $10 million). As mentioned above, the committee stated that funding for the FBI was to support the programs of the FBI's Criminal Justice Information Services Division, which includes NICS, but the committee did not state whether it provided funding for the program increases requested by the Administration. The committee's report was silent as to whether it provided funding for the other program increases requested by the Administration. The report to accompany S. 1662 was largely silent as to whether the Senate Committee on Appropriations provided funding for the program increases requested by the Administration. For example, the committee stated that its recommended funding supports the ATF's efforts to enforce firearms laws and perform regulatory oversight, including through the NIBIN program, but the report did not state whether the committee funded the Administration's requested program increases for the ATF. The Senate Committee on Appropriations noted that it fully funded the request for the FBI's Criminal Justice Information Services, including continued improvements to NICS. On the other hand, the committee declined to provide $70 million for Project Safe Neighborhoods (the committee recommended $7 million). The explanatory statement states that funding for the requested program increases was provided for the ATF and the USMS. The explanatory statement also states that Congress expects the FBI to adequately address increased demand for background checks for firearms purchases and improve NICS performance, including enhancing system availability, determination rates, and E-Check services. The agreement provided $20 million for Project Safe Neighborhoods instead of the $70 million requested by the Administration. The explanatory statement was silent as to funding for additional Assistant U.S. Attorneys to prosecute violent crimes and implementing the recommendations of the Task Force on Crime Reduction and Public Safety. The Trump Administration requested approximately $40 million at DOJ for efforts related to the opioid epidemic, including the following: $20 million for the DEA to target drug trafficking; support education and training efforts for pharmaceutical drug manufacturers, wholesalers, pharmacies, and practitioners; and support prescription drug take-back events. $9 million for the DEA's efforts to fight organizations engaging in the manufacture and distribution of pharmaceutical controlled substances in violation of the Controlled Substances Act. $9 million for heroin enforcement groups at the DEA. $3 million for the U.S. Attorneys to support a pilot program for Special Assistant United States Attorneys in "hot spots" around the country to provide additional prosecutorial support to federal criminal and civil drug diversion investigations. Funding for this program would be derived from the DEA's Diversion Control Fee Account. The House Committee on Appropriations stated in its report that it provided $15 million under the DEA's Salaries and Expenses account for enhancement of heroin enforcement activities and investigations of transnational criminal organizations involved in drug trafficking. The committee also would have provided $37 million under the DEA's Diversion Control Program for additional diversion investigators and tactical diversion squads, increasing drug take-back efforts, and increasing enforcement and analysis of new synthetic substances. Within this amount, $10 million was for the proposed U.S. Attorneys' "hot spots" pilot program. The report from the Senate Committee on Appropriations is largely silent as to whether the committee provided any of the program increases requested by the Administration for efforts related to the opioid epidemic. However, the committee noted that while it strongly supports efforts to fight heroin and illegal opioid abuse, it does not approve of funding from the DEA's Diversion Control Program being used for the proposed "hot spots" pilot program. The committee believed that the responsibilities of the pilot program are outside of the DEA's mission and that prosecution for overprescribing and illegal diversion of opioids should be handled by the Office of the U.S. Attorneys. In its report, the committee directed DOJ to use no less than $3 million of the funding provided for the Office of the U.S. Attorneys to conduct criminal and civil prosecutions into the illegal prescribing and dispensing of opioids. The explanatory statement states that additional funding was being provided for the DEA to "expand opioid and heroin enforcement efforts, including supporting existing heroin enforcement teams and establishing new ones; invest in the Fentanyl Signature Profiling Program and law enforcement safety; and accelerate efforts to dismantle transnational criminal organizations and cartels." The explanatory statement, by reference, also incorporates the Senate Committee on Appropriations' language regarding the proposed "hot spots" pilot program. Congress chose to provide additional direct support to the U.S. Attorneys Offices to combat opioid abuse. The Trump Administration requested approximately $19 million to target transnational organized crime (TOC), including the following: $6 million in additional OCDETF funding to support investigations and prosecutions that target high-priority TOC, OCDETF's heroin response strategy, and short-term deployment of federal law enforcement personnel to address violent crime. $7 million for the FBI to support ongoing investigations of TOC. $7 million for the DEA to investigate transnational criminal organizations responsible for trafficking large quantities of drugs into the country. The House Committee on Appropriations stated in its report that it provided $15 million under the DEA's Salaries and Expenses account for enhancement of heroin enforcement activities and investigations of transnational criminal organizations involved in drug trafficking. The committee also explained that funds are included under OCDEFT to support interagency task forces that target high-level drug trafficking organizations through coordinated, multijurisdictional investigations. The report from the Senate Committee on Appropriations was silent as to whether the committee provided funding for any of the program increases requested by the Administration. As mentioned above, the agreement provided additional funding to the DEA to help it "dismantle transnational criminal organizations and cartels." The explanatory statement also stated that additional OCDEFT funding was included to "enhance investigations and prosecutions of major drug trafficking organizations with a focus on reducing the availability of opioids." The explanatory statement was silent as to whether there was any additional funding for the FBI to specifically support investigations of TOC. For FY2018, the Trump Administration requested an additional $145 million for enforcing immigration laws, including the following: $75 million for additional EOIR immigration judges and support staff. $9 million for additional Deputy U.S. Marshals to provide court security and timely detainee processing. $50 million for additional housing, medical, and transportation costs for the USMS due to an increased detainee population resulting from expanded immigration law enforcement. $7 million for additional Assistant U.S. Attorneys to help prosecute offenses that are a result of expanded immigration law enforcement. $2 million for the Civil Division for additional personnel to defend challenges to the immigration laws, regulations, and policies. $2 million for the Environment and National Resources Division to help acquire real property along the Southwest border to be used to secure the border between the United States and Mexico. The House Committee on Appropriations noted in its report that it provided $4 million more than the amount requested for EOIR. The total amount provided would have supported 449 immigration judge teams, 65 more than the number of teams funded for FY2017. The committee noted that it fully funded the requested enhancements for immigration enforcement at the Offices of the U.S. Attorneys. The committee also provided the additional funding requested for the U.S. Marshals to support border security and immigration law enforcement. The report was silent as to whether the committee provided the additional funding requested for the Civil and Environmental and Natural Resources divisions. The Senate Committee on Appropriations was silent in its report as to whether it specifically provided funding for additional immigration judges, but it did fund the EOIR account at the level requested by the Administration. The report was silent as to whether the committee provided funding for any of the other program increases the Administration requested for immigration law enforcement. The explanatory statement directs DOJ to hire and deploy at least 100 additional immigration judge teams, with the goal of having 484 teams nationwide by 2019. The explanatory statement was silent as to whether funding was provided for any of the Administration's requested increases. In addition to the request for additional funding, the Administration's budget also proposed legislative language related to immigration enforcement and "sanctuary" jurisdictions that limit law enforcement participation with federal im migration enforcement activities (Section 219 of the general provisions for DOJ). Section 219 would amend Section 642 of the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (codified at 8 U.S.C. §1373) by specifying, and arguably expanding, the type of information that federal, state, and local law enforcement entities may share with the Department of Homeland Security (DHS). The bar to limitations on information sharing would cover an alien's nationality, citizenship status, immigration status, removability, scheduled release date and time (for persons in custody), home address, work address, and contact information. While current law bars limitations on information sharing for any individual, Section 219 would narrow this prohibition to exclude from the bar on information sharing individuals in custody or suspected of violating U.S. law. Section 219 would have also required nonfederal law enforcement entities or officials to honor any lawful requests by DHS pursuant to its mandate to enforce immigration laws, including requests to detain individuals for up to 48 hours in order for DHS to obtain custody of them. Section 219 would have allowed DHS or DOJ to condition any grant of federal funds or cooperative agreements related to immigration, national security, law enforcement, and terrorism prevention and protection on the state's or locality's compliance with the provisions that bar limitations on information sharing. It would have also allowed DOJ and DHS to require state and local law enforcement agencies to honor DHS requests specified in Section 219 as a condition of grant funding. DHS or DOJ could have required that such grant and cooperative agreement applicants certify, as prescribed by DHS or DOJ, that they would comply with such conditions in their applications. Section 219 would also have allowed DHS or DOJ to enforce the above provisions through any lawful means. The Consolidated Appropriations Act, 2018 did not include the proposed Section 219. | The Department of Justice (DOJ) was established in 1870 with the Attorney General as its leader. Since its creation, DOJ has added additional agencies, offices, boards, and divisions to its organizational structure. DOJ, along with the judicial branch, operates the federal criminal justice system. The department enforces federal criminal and civil laws, including antitrust, civil rights, environmental, and tax laws. Through agencies such as the Federal Bureau of Investigation (FBI); the Drug Enforcement Administration (DEA); and the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF), it investigates terrorism, organized and violent crime, illegal drugs, and gun and explosives violations, among others. Through the U.S. Marshals Service (USMS), it protects the federal judiciary, apprehends fugitives, and oversees the detention of alleged offenders who are not granted pretrial release. DOJ prosecutes individuals accused of violating federal laws, and it represents the U.S. government in court. DOJ's Bureau of Prisons (BOP) houses individuals accused or convicted of federal crimes. In addition to its role in administering the federal criminal justice system, the department also provides grants and training to state, local, and tribal law enforcement agencies and judicial and correctional systems. The Consolidated Appropriations Act, 2017 (P.L. 115-31) appropriated $28.962 billion for DOJ. The act provided $2.713 billion for the U.S. Marshals, $9.006 billion for the FBI, $2.103 billion for the DEA, $1.259 billion for the ATF, and $7.142 billion for the BOP. The remaining funding (approximately $6.739 billion) was for DOJ's other offices, such as the U.S. Attorneys Offices, the Executive Office for Immigration Review, and the Attorney General's office. The Trump Administration requested $28.205 billion for DOJ for FY2018. This amount was 2.6% less than the FY2017 enacted appropriation. The Administration proposed reductions for several DOJ accounts, including a $232 million (-2.6%) reduction for the FBI, a $340 million (-26.6%) reduction for State and Local Law Enforcement Assistance, and a $21 million (-8.3%) reduction for Juvenile Justice Programs. While the Administration's FY2018 budget request included several reductions for DOJ accounts, it also included several increases, including an additional $22 million (+1.1%) for the Office of the United States Attorneys, an $82 million (+5.6%) increase for the USMS's Federal Prisoner Detention account, a $76 million (+1.1%) increase for BOP's Salaries and Expenses account, and a $61 million (+2.9%) increase for the DEA. The House-passed bill (H.R. 3354) would have included $29.310 billion for DOJ, which was 1.2% greater than the FY2017 enacted appropriation and 3.5% greater than the Administration's request. The Senate committee-reported bill (S. 1662) would have included $29.068 billion for DOJ, which was 0.4% greater than the FY2017 enacted appropriation and 2.6% greater than the Administration's request. For FY2018, DOJ received a total of $30.384 billion in funding through the annual appropriations process, which included $30.299 billion in regular and $85 million in emergency-designated funding. Total FY2018 funding for the department is 4.9% greater than the FY2017 appropriation (4.6% greater without emergency-designated funding) and 7.3% greater than the Administration's request (7.0% greater without emergency-designated funding). Nearly every DOJ account was funded at a level higher than the FY2017 enacted appropriation and the Administration's request. |
The Pension Benefit Guaranty Corporation (PBGC) is a federal corporation established under Title IV of the Employee Retirement Income Security Act of 1974 (ERISA, P.L. 93-406 ). The PBGC insures private pension beneficiaries against the complete loss of accrued benefits if their defined benefit pension plan is terminated without adequate funding. The PBGC receives no appropriations from general revenue. Its operations are financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income from the assets in its trust fund, and recoveries from the companies formerly responsible for the trusteed plans. There are two kinds of pension plans: "defined benefit" plans and "defined contribution" plans. A participant in a defined benefit plan receives a fixed benefit at retirement prescribed by a formula set forth in the plan, usually based on pay, years of service, or both. The employer makes contributions to the plan based on actuarial calculations designed to ensure that the plan has sufficient funds to pay the future benefit prescribed by the formula. Under a defined contribution plan, no particular benefit is promised. Instead, benefits are based on the balance of an individual account maintained for the benefit of the employee. The benefit received by a participant at retirement is generally dependent on two factors: total contributions made to the plan during the worker's participation in the plan and the investment experience of the amounts contributed on the employee's behalf. Under either type of pension plan, employees may be permitted to make contributions. The PBGC insures qualified defined benefit pensions provided by employers in the private sector. A plan is qualified if it meets the requirements of the Internal Revenue Code and ERISA and is thus eligible for favorable tax treatment. Defined contribution plans and nonqualified defined benefit plans are not insured by the PBGC. In a defined benefit plan, the employer bears the risk of investment losses. The Internal Revenue Code and ERISA contain minimum funding standards that require the employer to make contributions to a defined benefit plan to fund promised benefits. If, for example, the plan experiences poor investment performance or actuarial miscalculations, the employer will be required to make additional contributions to the plan. The minimum funding rules provide for funding over a period of time and do not require the plan to have sufficient assets to pay all the benefits earned under the plan at any particular time. It is possible for a defined benefit plan to terminate without having sufficient assets to pay promised benefits. The PBGC insures defined benefit plan benefits up to certain limits to protect plan participants in the event of such a termination. However, the PBGC may not protect all benefits promised under a plan. Consequently, if a defined benefit plan is terminated while it is not fully funded, the participants might receive less from the PBGC than they were promised under the plan. The PBGC currently insures the pension benefits of 44 million workers and retirees participating in more than 30,000 private-sector defined benefit pension plans. In FY2007, the PBGC paid about $4.3 billion in benefits to almost 1.3 million individuals whose pension plans had failed. The PBGC insures both single-employer and multiemployer pension plans. The PBGC's single-employer program guarantees payment of basic pension benefits when an underfunded plan terminates. When an underfunded pension plan sponsored by a financially distressed company is terminated, the PBGC takes over the plan assets and assumes responsibility for paying retirement benefits to the plan's participants, subject to the statutory benefit limits. In 2007, the PBGC's single-employer program insured the pensions of 33.8 million workers and retirees in about 28,900 plans. The program is directly responsible for the benefits of about 1.2 million workers and retirees in almost 3,800 trusteed pension plans. The PBGC insurance program for single-employer plans reported a deficit of $13.11 billion in FY2007, based on assets of $67.24 billion and liabilities of $80.35 billion. The deficit for 2007 was $5 billion less than the $18.1 billion deficit reported one year earlier. The PBGC reported that the decline in the deficit was due primarily to investment income of $4.7 billion and a $2.8 billion actuarial credit as a result of higher valuation interest factors. Through the end of FY2006, the PBGC's single-employer program had incurred net claims of $29.0 billion (see Table 1 .) Of this amount, nine of the ten largest claims against the PBGC, totaling $19.8 billion, occurred between 2001 and 2005. The PBGC's net claims equal the portion of guaranteed benefit liabilities not covered by plan assets or recovered from the general assets of the employer. These claims will eventually have to be covered through premiums, earnings on PBGC assets, or other sources of revenue. Multiemployer plans are collectively bargained plans to which more than one company makes contributions. The PBGC's multiemployer program provides financial assistance through loans to insolvent plans to enable them to pay benefits. The PBGC does not become the trustee of insolvent multiemployer plans. These loans (which are typically not repaid) generally continue year after year until the plan no longer needs assistance or has paid all promised benefits at the guaranteed level. In 2007, the PBGC's multiemployer program insured the pensions of 9.9 million workers and retirees in about 1,530 plans. The multiemployer program reported a net deficit of $955 million, a $216 million net deterioration from the end of the previous year. The loss for the year was due largely to PBGC's booking of additional probable losses from expected future financial assistance to troubled plans. The program had assets of $1.2 billion and liabilities totaling about $2.2 billion. There is a statutory ceiling on the benefits that are insured by the PBGC. A different benefit limit applies to each program. For plans that terminate in 2008, the annual limit for the single-employer program is $51,750 for a single life annuity payable at age 65. The guarantee for the multiemployer program is much lower. In 2008, for an individual with 30 years of service, the annual guaranteed limit is $12,870. The annual benefit limits are indexed each year to the average annual increase in wages in jobs covered by Social Security. Because the benefit limit is higher than the pensions earned by most participants in insured plans, most workers in single-employer plans taken over by PBGC receive the full benefit earned at the time of termination. However, the lower guarantee limit for the multiemployer program has left most of the retirees in insolvent plans without their full benefits. The PBGC currently has a $14.1 billion deficit in assets necessary to satisfy all claims made through 2007. The Government Accountability Office (GAO) has identified PBGC's single-employer program as "high-risk," stating that "the program remains exposed to the threat of terminations of large underfunded plans in weak industries and of sponsors voluntarily terminating or freezing their [defined benefit] plans." In 2007, the PBGC's estimated potential exposure to future claims was approximately $66 billion, down from $73 billion in 2006. Not all underfunded pension plans are likely to present claims to the PBGC. The estimate of $66 billion represents underfunding of plan sponsors whose credit ratings are below investment grade or meet one or more financial distress criteria. It is not an estimate of likely claims against the PBGC. The PBGC's liabilities are not explicitly backed by the full faith and credit of the federal government. However, should the agency become financially insolvent, the GAO has noted that "Congress could face enormous pressure to bail out the PBGC at taxpayer expense." The PBGC receives no appropriations from general revenues. Instead, by law the agency's operations are financed from four sources: insurance premiums paid by the sponsors of covered private defined benefit pension plans, assets from terminated plans taken over by the PBGC, investment income, and recoveries from sponsors of terminated pension plans in bankruptcy proceedings. In addition, the PBGC has the authority to borrow up to $100 million from the U.S. Treasury. Unlike insurers in the private sector, the PBGC cannot set the premiums for the insurance it provides. Plan sponsors are required by law to purchase insurance from the PBGC, and the insurance premiums are set by Congress. Historically, premiums have been the most reliable source of PBGC revenue. The agency received $1.557 billion in premium revenue in 2007. An employer that maintains a single-employer defined benefit pension plan must pay an annual premium for each participant in the plan. The PBGC's single-employer premium income was $1.48 billion in FY2007. Initially set at $1 per participant by ERISA in 1974, Congress has raised the premium periodically since then. The Omnibus Budget Reconciliation Act of 1987 ( P.L. 100-203 ) imposed an additional variable rate premium on underfunded plans. The variable rate premium was initially set at $6 for each $1,000 of the plan's unfunded vested benefits, up to a maximum of $34 per participant. The Omnibus Budget Reconciliation Act of 1990 ( P.L. 101-508 ) increased the basic per capita premium to $19, and the variable rate premium to $9 for each $1,000 of the plan's unfunded vested benefits, up to a maximum of $53 per participant. Beginning in 1991, the maximum variable rate premium was $72 per participant. The Retirement Protection Act of 1994 ( P.L. 103-465 ) left the per capita premium at $19 per participant. However, the cap on the variable rate premium was phased out over a three-year period beginning in 1994. The Deficit Reduction Act of 2005 (DRA, P.L. 109-171 ) increased the per capita premium from $19 to $30 for 2006 and indexed the premium to the annual rate of growth in the national average wage beginning in 2007. The 2008 premium rate for single-employer plans is $33 per participant. The DRA also created a new premium of $1,250 per participant to be assessed on any underfunded single-employer plan that undergoes a distress termination or is involuntarily terminated by the PBGC, to be paid annually for each of the three years following the date of termination, or if later, the employer's exit from bankruptcy. This premium is in addition to any other PBGC premiums that are due for the plan year. As enacted by the DRA, the special premium would not have applied to plans terminated after December 31, 2010. The Pension Protection Act of 2006 (PPA, P.L. 109-280 ) made the special termination premium permanent for plans that undergo a distress termination or are involuntarily terminated by the PBGC. The PPA also made the variable rate premium of $9 per $1,000 of underfunding more widely applicable. Prior to enactment of the PPA, the variable rate premium was waived for an underfunded plan if it was not underfunded in any two consecutive years out of the previous three years. Under the PPA, the variable premium is assessed on all underfunded plans, regardless of the plan's funding status in earlier years. The premium for multiemployer plans was initially $0.50 per participant. The Multiemployer Pension Plan Amendments Act of 1980 ( P.L. 96-364 ) raised the premium to $1.40 for years after 1980. This premium was set to increase gradually to $2.60. The DRA of 2005 increased the flat-rate per-participant premium for multiemployer defined benefit plans from $2.60 to $8.00. For the 2007 plan year and later plan years, the premium will be adjusted annually by the rate of growth in the national average wage. The PBGC's multiemployer premium income equaled $81 million in FY2007. As shown in Table 2 , since 1998, growth in the PBGC's premium revenue has been outpaced by increases in benefit payments to plan beneficiaries and administrative and investment expenses. Although the PBGC's net position has improved $9.2 billion since 2004, it fell $31.0 billion from 2001 to 2004. Many factors contributed to the large swing in PBGC's funded position, chief among them the terminations in 2002 and 2005 of several large pension plans in the steel and airline industries with high levels of underfunding. Falling interest rates (used to discount future benefit payments) significantly increased the value of PBGC's liabilities, and poor stock market returns in 2001 and 2002 resulted in negative investment income. In part to address the PBGC's deteriorating funded status, Congress passed the Pension Protection Act of 2006, the most comprehensive reform of the nation's pension laws since the enactment of ERISA in 1974. The PPA established new funding rules for defined benefit plans, increased the flat-rate premium paid by pension plan sponsors, and required the variable premium to be assessed on all underfunded plans. The PPA provided for exceptions to some of the new funding rules for plans sponsored by commercial airlines. Although the impact of these reforms is still unclear, the Congressional Budget Office (CBO) has stated that the PPA failed to address the underlying structural problems facing the PBGC, because the increased premiums are not commensurate with the amount of unfunded pension claims from terminated plans that the PBGC is likely to assume in the future. The future financial condition of the PBGC is highly uncertain because it depends greatly on how many private pension plans terminate and on the amount of underfunding in those plans. Both factors are difficult to forecast. Over its history, a relatively few pension plans with very large unfunded liabilities have dominated the PBGC's claims, and its future may likewise depend significantly on the fate of a few large plans. Future terminations will be influenced by overall economic conditions, the prosperity of particular industries, competition from abroad, and a variety of factors that are specific to particular firms—such as their competitiveness in their industries, their agreements with labor groups, and the credit ratings. In addition, the PBGC's losses with respect to future terminations will depend on how well companies fund their plans. The PBGC's exposure to pension plan underfunding can shift dramatically from year to year in response to conditions in the stock market and changes in interest rates. A recent report by Credit Suisse Equity Research estimated that the funded status of defined benefit pension plans operated by companies in the Standard & Poor ' s 500 had declined by about $170 billion from the end of 2007 to the middle of 2008, due primarily to poor investment returns. In the aggregate, pension plans were overfunded by $60 billion at the end of 2007 and were underfunded by $110 billion by the middle of 2008. Pension plan funding levels had seen steady improvement since 2002, when pension plans had more than $200 billion in underfunding. In recent years, investment income from the PBGC's assets has outpaced premium income as a source of revenue, as shown in Figure 1 . The sources of the assets invested by the PBGC are premium revenues, assets of terminated plans, and recoveries from the general assets of plan sponsors. The termination of several large pension plans in 2002 and 2005 contributed to a large increase in the assets in PBGC's investment portfolio. As of September 30, 2007, the value of the PBGC's total investments, including cash and investment income, was approximately $62.6 billion. The PBGC's investment income in FY2007 was $4.76 billion. The rate of return on investment was approximately 7.6%. The PBGC maintains two separate financial programs, each consisting of a revolving fund and a trust fund , to sustain its single-employer and multiemployer plan insurance programs. Premium revenues are accounted for in revolving funds that are included in the federal budget. By law, the PBGC is required to invest certain revolving fund assets in debt obligations issued or guaranteed by the United States, while other assets can be invested in other debt obligations. Current policy is to invest these revolving funds only in Treasury securities. At the end of FY2007, the revolving funds' value was $14.5 billion. The assets from terminated pension plans and recoveries from the general assets of plan sponsors are accounted for in a trust fund that is not included in the federal budget. Trust fund assets were most recently valued at $48.1 billion. There are no statutory limitations on how the PBGC can invest the assets in its trust fund. Figure 2 diagrams the relationship between the PBGC's financing and its payment of guaranteed benefits to plan participants. As shown in Figure 3 , PBGC's trust fund has grown significantly since 2003, while the size of the revolving fund has remained relatively steady, despite recent increases in both the variable premium and flat-rate premium. The assets in PBGC's investment portfolio are only partly accounted for in the federal budget. The revolving fund is a budgetary account, meaning that cash flows into and out of the account appear in the federal budget. In contrast, PBGC's trust fund is nonbudgetary. When the PBGC assumes control of the assets of an underfunded pension plan that has been terminated, those assets do not appear on the federal balance sheet, and transfers of such assets to the PBGC are not treated as receipts to the government. Although investment returns to the revolving fund appear as a receipt or outlay (in the case of negative returns) for the federal government, investment returns to the trust fund do not. Under federal law, the PBGC's investment policy statement must be approved by PBGC's Board of Directors, which consists of the Secretary of Labor, the Secretary of the Treasury, and the Secretary of Commerce. According to PBGC's by-laws, the Board reviews the investment policy statement at least every two years and approves the investment policy statement at least every four years. The PBGC's investment policy is implemented by PBGC's staff, but PBGC does not actively manage its portfolio. Invested assets are managed by professional management firms or are invested in passive market index funds, subject to PBGC oversight. In February 2008, the PBGC announced that it had adopted a new investment policy aimed at generating higher investment returns while providing increased protection against the risk of increasing its deficit over time. As shown in Table 3 , the new policy allocates 45% of the PBGC's assets to fixed-income investments, 45% to equity investments, and 10% to alternative investment classes, including real estate and private equity. The PBGC's previous investment policy, adopted in 2004, set an equity investment target of 15% to 25%, with the remaining assets to be allocated primarily to fixed income investments. In practice, the PBGC's actual asset allocation differed slightly from the target allocations. As shown in Table 4 , the PBGC's new policy significantly expands PBGC's exposure to alternative asset classes and equity securities. Throughout its history, the PBGC has shifted the investment of trust fund assets between bonds and stocks with changes in its leadership and in financial analysts' theories of risk management. From the agency's inception in 1974 until 1990, the PBGC Board approved a policy of investing primarily in equity securities, aiming to maximize investment returns. In 1990, the PBGC reduced its equity exposure and increased its investment in long-term bonds with maturities matched to the agency's liabilities. Beginning in 1994, it switched back to a policy of greater investment in equities. As shown in Figure 4 , the PBGC's investments in equities have ranged between 18% and 40% of assets since 1990. The investment policy announced in February 2008, with a target of investing 45% of assets in equities, would result in the PBGC's highest percentage investment in equities at any time since 1990. The PBGC has stated that the objective of the new investment policy is to "prudently maximize investment returns in order to meet the Corporation's current and future obligations." The PBGC has stated that it expects the policy to generate higher returns and to reduce risk by diversifying its asset allocation, including investment in alternative assets such as private equity. A forecasting model developed by PBGC's investment consultant, Rocaton Investment Advisors, LLC, suggested that shifting the PBGC's allocation from fixed income to equities and/or alternative asset classes would improve the PBGC's financial condition in the long-run. According to the Rocaton analysis, the new asset mix chosen by PBGC gives the agency a 57% likelihood of full funding within ten years, compared to 19% under the previous policy. The study by Rocaton estimated that, compared to the previous policy, the PBGC's expected funded ratio would be higher, and its worst-case funded ratio would be lower, under the new investment policy compared to the previous policy. Other things being equal, higher expected rates of return on investment are associated with higher levels of investment risk. However, the PBGC has asserted that even though its equity exposure is increasing, it expects its new investment policy to reduce its overall risk through asset diversification. Under the new policy, the PBGC would hold 45% of its assets in equities, 45% in bonds, and 10% in alternative investments. The PBGC's previous investment portfolio was less diversified, consisting mainly of long-term, investment-grade bonds. The PBGC also has stated that its long-term investment horizon allows it to benefit from what is sometimes called "time diversification." This is a theory of investment that asserts that the risk associated with investing in stocks decreases over time. In its analysis for the PBGC, Rocaton stated that, "investors with time horizons of 10-20 years and greater seem well-positioned to wait out market volatility and realize the significant long-term rewards of investing in riskier assets." Although there is general agreement among economists on the benefits of asset diversification with respect to portfolio risk, there is a divergence of opinion as to whether or not investment risk associated with a particular asset or class of assets declines as the period of time that the asset is held increases. The changes in the PBGC's investment policy in 2004 and 2008 embody two very different approaches to investment risk that reflect this divergence of opinion. These approaches can be referred to as a "total return" strategy and an "asset-liability matching" strategy. The new PBGC investment strategy, with its emphasis on increasing the proportion of assets invested in equities, is based in part on the assumption that the higher expected rate of return on equities will result in the PBGC's assets growing faster than its liabilities. This approach is used by a majority of the pension plans that the PBGC insures (see Figure 5 ). Asset allocation decisions are based upon what investors believe will deliver the highest possible return for a given level of risk, measured as the likely deviation of rates of return around the average. Common stocks—equities—have a higher expected rate of return than bonds, but they also are riskier in that the actual rates of return vary more around the average than the rates of return on bonds. Investors with long time horizons often invest a greater percentage of assets in equities than investors with shorter-term time horizons. They expect that the higher long-run expected rate of return on equities will offset the risk associated with the greater volatility of the rate of return on equities. The PBGC would now have a significantly higher funded status had the agency recently been more heavily invested in equities than its previous policy allowed. The PBGC is required by the Pension Protection Act of 2006 to estimate the effects of an asset allocation of 60% to the Standard & Poor's 500 equity index and 40% to the Shearson-Lehman Aggregate Bond Index. For the fiscal year ending September 30, 2007, this allocation would have increased the assets of the PBGC by an estimated $2.3 billion. Over the five-year period ending September 30, 2007, the PBGC's assets would have been an estimated $7.3 billion higher with a portfolio invested 60% in stocks and 40% in bonds. Unlike a corporate pension plan, however, the PBGC is fully exposed to the risk of investment losses. Corporate pension plans may be encouraged to invest in equities by the presence of PBGC insurance. A company sponsoring an insured pension has a sort of "heads we win, tails you lose" relationship with the PBGC. In contrast, the PBGC has no other party onto which it can offload its unfunded liabilities except, ultimately, the taxpayers. The GAO has noted that Investments in riskier assets with higher expected rates of return may allow financially weak plan sponsors and their plan participants to benefit from the upside of large positive returns on pension plan assets without being truly exposed to the risk of losses. The benefits of plan participants are guaranteed by PBGC, and weak plan sponsors that enter bankruptcy can often have their plans taken over by PBGC. The assumption that the risk of holding stocks decreases as the period of time that they are held increases is disputed by some economists. These economists assert that the risk associated with stocks actually rises with the length of time that they are held. They note that If stocks were not risky in the long run, then the financial services industry would be quite willing to provide—maybe even for free—long-term financial contracts that provide a rock solid guarantee that investors would not lose money if they held on to a broadly diversified stock portfolio for, say, 30 years. Yet such long-term put option contracts do not even exist, because financial market participants believe that the risk of such a contract is increasing with the time horizon, not decreasing. Modern portfolio theory holds that the higher expected return on stocks is exactly the price of the risk associated with the investment and that the risk-adjusted rates of return on stocks and bonds are equal. Despite the higher expected nominal rate of returns on stocks, the present value of $1 invested in bonds at any given time is equal to the present value of $1 invested in stocks. The higher rate of return on stocks—the so-called "equity premium"—represents compensation to an investor for taking on the additional risk, measured as the standard deviation on the expected rate of return, of holding stocks rather than bonds. Given this risk, a pension fund, for example, should choose an asset allocation that minimizes the risk that the fund will be unable to pay its liabilities when they come due as a result of an untimely decline in the value of equities. This approach—often called asset-liability matching—favors investment in fixed-income instruments, such as bonds, with maturities that are matched to the times at which the pension plan's liabilities will come due for payment. The value of a pension plan's liabilities is greatly influenced by changes in interest rates. Like bonds, changes in pension plan liabilities are inversely related to changes in interest rates. Liabilities increase when interest rates fall and decrease when interest rates rise. Some economists have argued that pension plans should invest all of their assets in bonds that are matched to the plan's expected cash flows in order to avoid the possibility that the pension plan will be forced to sell bonds that have not yet reached maturity at a time of rising interest rates. In contrast, investing assets in equities can be a poor hedge against interest rate swings. Stock prices often rise when interest rates fall, providing protection from interest rate risk, but there have been periods when this was not true, including the period from 2000 to 2002, when a bear market in stocks coincided with falling interest rates. In 2004, soon after experiencing capital losses in equity investment, the PBGC announced that it would adopt an asset-liability matching approach to investing its assets, thus reducing its equity exposure in favor of fixed-income securities matched to its liabilities. At that time, the PBGC noted that adopting a portfolio concentrated in high-quality, long-term bonds would bring it closer to the portfolios held by insurance companies, which have historically limited their equity exposure. According to the American Council of Life Insurers (ACLI), bonds represent the majority of assets held by private life insurance providers. While equity represents about 5% of total insurance company assets, 72% of insurance company assets are in bonds. There is some evidence that corporate pension plans also are exploring asset-liability matching as an investment strategy. Provisions in the PPA and the enactment of Financial Accounting Standard No. 158 provide incentives for pension fund managers to move away from more volatile pension investments such as stocks. The PPA reduced the number of years over which plans can "smooth" (average) their investment gains and loses, and FAS 158 requires corporations that sponsor defined benefit pensions to put the funded status of the plan on their balance sheets, rather than in a footnote as was required before. The pension actuarial firm, Milliman, Inc., reported in a recent study that the percentage of pension plan assets invested in equities declined from 60% in 2006 to 55% in 2007. A recent examination of investment allocations made in 2007 by the defined benefit pension plans of firms in the Standard & Poor's 500 index noted that firms were reducing their pension plans' investment in equities in favor of increased investment in bonds and other assets, including hedge funds and private equity. However, in this survey the median equity allocation in 2007 was still 63%, down only slightly from the 65% median allocation in 2006. Because the pension plans that the PBGC insures are heavily invested in equities, an asset-liability matching approach would help to ensure that the PBGC's own financial condition would not deteriorate at the same time that the assets held by the pension plans it insures are declining in value. If the PBGC invests substantially in equities, it risks having to take over underfunded plans at the same time that its own assets are declining in value because pension plan underfunding often increases during periods of falling stock prices. The PBGC's decision in 2008 to reduce asset-liability matching in favor of a strategy aimed at generating higher expected returns was driven in part by the agency's concerns about its deficit. The PBGC's previous investment policy was not designed to maximize investment income, but to keep the agency's deficit from deteriorating further while policymakers pursued reforms to address PBGC's funding deficit. However, even after the PPA was enacted, the President's Budget for FY2009 noted that "neither the single-employer nor multiemployer program has the resources to satisfy fully the agency's long-term obligations to plan participants." The PBGC has limited authority to adopt policies that could directly affect its financial condition. Unlike insurers in the private sector, it has no authority to set the premiums for the insurance it provides. It cannot strengthen the funding requirements for insured plans, reduce the amount of pension benefits that it insures, or reject companies that it deems excessively risky to insure. All of these authorities rest exclusively with the United States Congress. The companies that sponsor defined benefit pension plans have a financial interest in lobbying Congress to persuade it not to make PBGC premiums too high or plan funding requirements too onerous, because increases in premiums and stricter funding standards directly affect these firms' annual profit-and-loss statements. The PBGC is required by law to invest its income from premiums in securities backed by the full faith and credit of the U.S. government. It has the legal authority, however, to invest its trust fund, consisting mainly of the assets of underfunded plans for which the PBGC has become the trustee, in assets of its choice. In announcing the new investment policy adopted in 2008, the PBGC stated its desire to maximize its investment income, and thus reduce its deficit. However, while the PBGC has asserted that its new policy will be less risky in the long-term than its previous policy, some of the assumptions underlying that assertion are open to question. The PBGC adopted its new investment policy in part in response to an analysis of investment options conducted for the agency by Rocaton Investment Advisors, LLC. The conclusions reached in that analysis are sensitive to the methods and assumptions on which they were based. An assessment of the relative risks of the PBGC's previous investment policy and its new policy, for example, depends largely on how the risk associated with each class of assets in the portfolio is measured, and on the relative weights of each class of asset in the old and new portfolios. The risk associated with holding a given financial asset is that the actual rate of return will deviate from the expected rate of return. This risk is measured as the standard deviation of the rate of return. The more volatile the asset—that is, the more widely actual annual rates of return are dispersed around the average—the greater the standard deviation. In its study for the PBGC, Rocaton assumed that the rate of return on long-term Treasury bonds (with a 15-year average duration ) will have a standard deviation of 11.2%. CRS examined rates of return on long-term Treasury bonds over the period from 1926 through 2007 and found the standard deviation around the mean real rate of return to be 8.4% for 10-year Treasury bonds and 11.2% for 30-year Treasury bonds. The Rocaton study assumed that the rate of return on U.S. equities would have a standard deviation of 15%. CRS examined rates of return on U.S. equities as measured by the Standard & Poor's 500 index over the period from 1926 through 2007 and found the standard deviation around the mean annual real rate of return to be 20%. Rocaton's lower estimate of the volatility of returns on stocks could be significant to the extent that it could appear to make investments in stocks less risky than the historical data indicate. A determination as to whether the PBGC's new, more equity-heavy investment policy will be less risky than the previous, more bond-heavy investment policy depends in part on the estimated volatility of the rates of return on stocks and bonds. It is not clear from the report prepared by Rocaton whether the analysts conducted a sensitivity analysis in which the key assumptions—such as the standard deviations of the rates of return on stocks and bonds—were changed to evaluate the effect on the results of the analysis. To the extent that the relative riskiness of the PBGC's new investment policy compared to its previous policy is directly influenced by these and other key assumptions, it would be prudent for the model used by Rocaton to be subjected to a sensitivity analysis. It is possible that the shift away from asset-liability matching to an investment policy focused on earning higher rates of return on investment could increase the risk that the PBGC will experience a decline in the value of its investments at the same time that the plans it insures are becoming increasingly underfunded. In a stock market downturn, the plans that PBGC stands to inherit are likely to have experienced a drop in the value of their assets. If it were more heavily invested in equities, the PBGC would be exposed to the same investment losses as the plans that it insures, effectively giving the PBGC "double-exposure" to the effect of a stock market decline as the agency's liabilities were increasing. Although the PBGC's statements about the new investment policy have emphasized the Corporation's long-term investment horizon, the PBGC still needs access to cash in the short-run to pay the benefits of beneficiaries in the plans it has trusteed. When looking at the PBGC's current and potential future cash needs, Rocaton noted that the duration of the PBGC's current liabilities allows the Corporation to weather short-term volatility in its investment portfolio. However, Rocaton did not examine PBGC's contingent liabilities—the liabilities that the PBGC has not yet assumed from underfunded plans that have yet to terminate—noting only that these liabilities are uncertain in both timing and magnitude. In contrast to the PBGC's new investment policy, the asset allocation strategy of the Pension Protection Fund (PPF), the government-sponsored guarantor of defined benefit pensions in the United Kingdom, attempts to mitigate the risk of the Fund's assets declining concurrently with an increase in the under-funding of the pension plans it insures. As Table 5 shows, the PPF is invested predominantly in fixed income securities. The PBGC's previous asset-liability matching investment strategy had very little chance of eliminating the PBGC's deficit. According to PBGC's former Director, Steven Kandarian, the previous investment strategy was a tool to keep the program from falling further into deficit while policymakers pursued long-term solutions to the problem of pension underfunding. The new policy will likely generate higher average annual returns than the previous policy. However, it also increases the likelihood that the PBGC will suffer investment losses concurrently with an increase in the underfunding of the plans that it insures. If the PBGC's new investment policy generates higher expected returns, accompanied by reduced risk—as the PBGC and Rocaton have asserted—then U.S. taxpayers, as the de facto guarantors of PBGC insurance, will be better off. If the higher returns are accompanied by commensurately higher risk, then taxpayers are neither better nor worse off, because the PBGC's true financial condition will not have changed. However, if that higher risk results in investment losses that the agency would not have experienced under the previous policy, and the PBGC's deficit grows, then taxpayers will be worse off. Taxpayers also could be worse off if higher investment returns forestall fundamental reforms in PBGC financing, such as adopting risk-based premiums, that could improve the long-term financial condition of the agency and reduce the risk that they will at some point in the future have to bail out an insolvent PBGC. | The Pension Benefit Guaranty Corporation (PBGC) is a federal corporation established under Title IV of the Employee Retirement Income Security Act of 1974 (ERISA, P.L. 93-406). The PBGC insures private pension beneficiaries against the complete loss of accrued benefits if their defined benefit pension plan is terminated without adequate funding. The PBGC receives no appropriations from general revenue. Its operations are financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income from the assets in its trust fund, and recoveries from the companies formerly responsible for the trusteed plans. The PBGC insures the pension benefits of 44 million workers and retirees. In FY2007, the PBGC paid about $4.3 billion in benefits to almost 1.3 million workers whose pension plans had failed. The PBGC currently has a $14.1 billion deficit in assets necessary to satisfy all claims made through FY2007. Although the PBGC's liabilities are not explicitly backed by the full faith and credit of the federal government, Congress could face political pressure to bail out the PBGC at taxpayer expense should the agency become financially insolvent. As of September 30, 2007, the value of the PBGC's total investments, including cash and investment income, was approximately $62.6 billion. Premium income is required by law to be invested in debt obligations guaranteed by the U.S. government. The assets from terminated plans and their sponsors are accounted for in a trust fund that was most recently valued at $48.1 billion. There are no statutory limitations on how PBGC can invest the assets in its trust fund. In February 2008, the PBGC announced that it had adopted a new investment policy aimed at generating higher investment returns. The new policy allocates 45% of the assets to fixed-income investments, 45% to equity investments and 10% to alternative investment classes, including real estate and private equity. The PBGC's previous investment policy, adopted in 2004, set an equity investment target of 15% to 25%, with the remaining assets allocated primarily to fixed income investments. If the PBGC's higher expected investment returns are accompanied by reduced risk—as the PBGC has asserted—then U.S. taxpayers, as the ultimate guarantors of PBGC insurance, will be better off. However, if the higher returns are accompanied by commensurately higher risk, then taxpayers are neither better nor worse off, because the PBGC's true financial condition will not have changed. Taxpayers would be worse off under the new policy if higher investment returns forestall fundamental reforms in the pension insurance system—such as adopting risk-based premiums—that could result in improving the long-term financial condition of the agency. Taxpayers, who would benefit from reduced exposure to the risk of having to bail out the PBGC if fundamental reforms in PBGC financing and governance were enacted, will be worse off if the agency does not achieve the reduction in its deficit that it has predicted the new investment policy will attain. |
RS21606 -- NASA's Space Shuttle Columbia: Synopsis of the Report of the Columbia Accident InvestigationBoard September 2, 2003 The following synopsis focuses on what appear to be the major questions being asked about the CAIB's findings about the tragedy and recommendations on thefuture of the shuttle program. All quotations are from the CAIB report unless otherwise noted. What Caused the Columbia Accident? The Board "recognized early on that the accident was probably not ananomalous, random event, but rather likely rooted to some degree in NASA's history and the human space flightprogram's culture." (p. 9) Therefore, it alsolooked at "political and budgetary considerations, compromises, and changing priorities over the life" of the shuttleprogram, and "places as much weight onthese causal factors as on the ... physical cause...." (p. 9) The physical cause was damage to Columbia' s left wing by a 1.7 pound piece of insulating foam that detached from the left "bipod ramp" that connects theExternal Tank (1) to the orbiter, and struck the orbiter'sleft wing 81.9 seconds after launch. The foam strike created a hole in a Reinforced Carbon-Carbon(RCC) panel on the leading edge of the wing, allowing superheated air (perhaps exceeding 5,000 o F)to enter the wing during reentry. The extreme heat causedthe wing to fail structurally, creating aerodynamic forces that led to the disintegration of the orbiter. (Described indetail in Chapters 2 and 3.) Regarding organizational causes , the Board concluded the accident was -- ... rooted in the Space Shuttle Program's history and culture, including the original compromises that were requiredto gain approval for the Shuttle, subsequent years of resource constraints, fluctuating priorities, schedule pressures,mischaracterization of the Shuttle asoperational rather than developmental, and lack of an agreed national vision for human space flight. Cultural traitsand organizational practices detrimental tosafety were allowed to develop, including: reliance on past success as a substitute for sound engineering practices...,organizational barriers that preventedeffective communication of critical safety information and stifled professional differences of opinion; lack ofintegrated management across program elements;and the evolution of an informal chain of command and decision-making processes that operated outside theorganization's rules. (p.9) The Board found that there is a "broken safety culture " at NASA (pp. 184-189). Schedule pressure (pp. 131-139) related to construction of the InternationalSpace Station, budget constraints (pp. 102-105), and workforce reductions (pp. 106-110) also were factors. The Board concluded that the shuttle program"has operated in a challenging and often turbulent environment...." (p. 118) "It is to the credit of Space Shuttlemanagers and the Shuttle workforce that thevehicle was able to achieve its program objectives for as long as it did." (p. 119) Should the Shuttle Continue to Fly? The Board concluded that "the present Shuttle is not inherently unsafe"but the "observations and recommendations in this report are needed to make the vehicle safe enough to operate inthe coming years." (p. 208) CAIB "supportsreturn to flight for the Space Shuttle at the earliest date consistent with an overriding consideration: safety." (p. 208) NASA has a target of March/April 2004for return to flight, and Adm. Gehman stated in an interview on PBS' The NewsHour with Jim Lehrer on August26 that he saw no reason why NASA could notmeet that schedule. The CAIB report contains 29 recommendations (listed below) -- 23 technical and six organizational -- of which 15 must be implemented before the shuttlereturns to flight status. The others are "continuing to fly" recommendations assuming the shuttle will be used foryears to come. The Board recommended that,if the shuttle is to be used beyond 2010, that it be recertified (p. 209). But the Board said it reached an "inescapableconclusion" -- Because of the risks inherent in the original design of the Space Shuttle, because the design was based in manyaspects on now-obsolete technologies, and because the Shuttle is now an aging system but still developmental incharacter, it is in the nation's interest toreplace the Shuttle as soon as possible as the primary means for transporting humans to and from Earth orbit. (p. 210-211. Emphasis inoriginal.) Why Did NASA Decide Not to Obtain Imagery from DOD Satellites to Assess the Damage? A centralquestion during the investigation was why NASA did not ask the Department of Defense (DOD) to image the shuttlewith its high resolution ground- orspace-based systems to help assess whether the orbiter had been damaged by the foam. The Board found (pp.140-172) that three requests for imagery weremade by NASA engineers but through incorrect channels, plus there were several "missed opportunities"whenmanagers could have pursued the issue. Onerequest did reach the appropriate DOD personnel, but NASA canceled the request 90 minutes later. The Boardconcluded that the likely sequence of events wasthat the chair of STS-107's Mission Management Team (MMT), after informally learning that there had been a"request" for imagery, called three other MMTmembers and determined that none knew of a "requirement" for imagery. CAIB cited a flawed analysis of the extentto which the orbiter might have beendamaged by the foam that was too readily accepted by program managers, a low level of concern by programmanagers, a lack of clear communication, a lack ofeffective leadership, and a failure of the role of safety personnel as reasons why the imagery was not obtained. Whether such images would, in fact, have shownthe damage remains unclear, but the Board recommended that such images now be taken on all shuttle missions. Could the Crew Have Been Saved? The Board concluded that the crew died from "blunt trauma andhypoxia" (lack of oxygen) after the crew cabin separated from the rest of the disintegrating shuttle and, itself,disintegrated; there was no explosion. (p. 77) TheBoard asked NASA to evaluate two options for returning the crew safely if the degree of damage had beenunderstood early in the mission: repairing thedamage on-orbit, or rescuing the crew with another shuttle mission. The repair option "while logisticallyviable....relied on so many uncertainties that NASArated this option 'high risk.'" (p. 173) The rescue option "was considered challenging but feasible." (p. 174) What Are the "Echoes" of Challenger? Former shuttle astronaut Sally Ride served on the RogersCommission that investigated the January 1986 Challenger accident, which claimed the lives of sevenastronauts, and on CAIB. During the Columbia investigation, she said she heard "echoes" of Challenger as it became clear that the accidentresulted from NASA failing to recognize that a technical failure(bipod ramp foam shedding) that had occurred on previous shuttle flights could have safety-of-flight implicationseven if the earlier missions were completedsuccessfully. In the case of Challenger , it was erosion of seals (O-rings) between segments of the SolidRocket Booster, which had been noted on previousmissions. Some engineers warned NASA not to launch Challenger that day because unusually coldweather could have weakened the resiliency of the O-rings. They were overruled. CAIB concluded that "both accidents were 'failures of foresight'" and the parallels betweenthem demonstrate that: "the causes of theinstitutional failure responsible for Challenger have not been fixed"; "if these persistent, systemic flawsare not resolved, the scene is set for another accident";and that while individuals must be accountable for their actions, "NASA's problems cannot be solved simply byretirements, resignations, or transferringpersonnel." (p. 195) CAIB's 29 recommendations are compiled in Chapter 11 of its report. Adm. Gehman stated at the Board's August 26 press conference that there is no hierarchyin the recommendations -- all have equal weight. The Board also made 27 "observations" in Chapter 10. Followingare abbreviated versions of therecommendations -- separated into those that must be implemented prior to Return to Flight, and those that are"continuing to fly" recommendations -- andobservations. Some have been combined for brevity. Return to Flight (RTF) Recommendations. CAIB recommends that NASA: initiate an aggressive program to eliminate all External Tank foam shedding; initiate a program to increase the orbiter's ability to sustain minor debris damage; develop and implement a comprehensive inspection plan to assess the structural integrity of the RCC panels,supporting structure, and attaching hardware; develop a practical capability to inspect and effect emergency repairs to the orbiter's thermal protection system(TPS) both when near the International SpaceStation and when operating away from it, and accomplish an on-orbit TPS inspection; upgrade the ability to image the shuttle during its ascent to orbit; obtain and downlink high resolution images of the External Tank after it separates from the orbiter, and ofcertain orbiter thermal protection systems; ensure that on-orbit imaging of each shuttle flight by Department of Defense satellites is a standardrequirement; test and qualify "bolt catchers" used on the shuttle; require that at least two employees attend final closeouts and intertank area hand-spraying procedures whenapplying foam to the External Tank; require NASA and its contractors to use the industry-standard definition of "foreign object debris"; adopt and maintain a shuttle flight schedule that is consistent with available resources; implement an expanded training program for the Mission Management Team; prepare a detailed plan for creating an independent Technical Engineering Authority, independent safetyprogram, and reorganized space shuttle integrationoffice; and develop an interim program of closeout photographs for all critical sub-systems that differ from engineeringdrawings. Continuing to Fly Recommendations. The Board recommends thatNASA: increase the orbiter's ability to reenter the atmosphere with minor leading edge damage to the extentpossible; develop a better database to understand the characteristics of Reinforced Carbon-Carbon (RCC) by destructivetesting and evaluation; improve the maintenance of launch pad structures to minimize leaching of zinc primer onto RCC; obtain sufficient RCC panel spares so maintenance decisions are not subject to external pressures relating toschedules, costs, or other considerations; develop, validate, and maintain physics-based computer models to evaluate Thermal Protection Systemdamage from debris impacts; maintain and update the Modular Auxiliary Data System (MADS) on each orbiter to include current sensorand data acquisition technologies, and redesignthe MADS so they can be reconfigured during flight; develop a state-of-the-art means to inspect orbiter wiring; operate the shuttle with the same degree of safety for micrometeoroid and orbital debris as is used in the spacestation program, and change guidelines torequirements; establish an independent Technical Engineering Authority that is responsible for technical requirements andall waivers to them, which should be fundeddirectly from NASA Headquarters and have no connection to or responsibility for schedule or program cost; give direct line authority over the entire shuttle safety organization to the Headquarters Office of Safety andMission Assurance, which should beindependently resourced; reorganize the Space Shuttle Integration Office to make it capable of integrating all elements of the SpaceShuttle Program, including the Orbiter; develop and conduct a vehicle recertification prior to operating the shuttle beyond 2010 and includerecertification requirements in the Shuttle Life ExtensionProgram; and provide adequate resources for a long-term program to upgrade shuttle engineering drawings. Observations. Chapter 10 lists 27 observations -- "significant issues thatare potentially serious matters thatshould be addressed ... because they fall into the category of 'weak signals' that could be indications of futureproblems." Therefore, NASA should: develop and implement a public risk acceptability policy for launch and reentry of space vehicles andunmanned aircraft; develop and implement a plan to mitigate the risk that shuttle flights pose to the general public; study the Columbia debris to facilitate realistic estimates of the risk to the public during orbiterreentry; incorporate knowledge gained from Columbia in requirements for future crewed vehicles inassessing the feasibility of vehicles that could ensure crewsurvival even if the vehicle is destroyed; perform an independent review of the Kennedy Space Center (KSC) Quality Planning Requirements Documentto address the quality assurance program andits administration, consolidate KSC's Quality Assurance programs under one Mission Assurance Office that reportsto the Center Director, require qualityassurance managers to work with NASA and perhaps DOD to develop training programs, and examine which areasof ISO 9000/9001 truly apply to a20-year old research and development system like the space shuttle; use statistical sampling for Quality and Engineering review of work documents for the next shuttle flight(STS-114); implement United Space Alliance's (USA's) suggestions for process improvement; create an oversight process to statistically sample the work performed by USA technicians to ensure processcontrol, compliance, and consistency; make every effort to achieve greater stability, consistency, and predictability in Orbiter Major Modificationplanning, scheduling, and work standards; better understand workforce and infrastructure requirements, match them against capabilities, and take actionsto avoid exceeding thresholds; continue to work with the Air Force on aging systems, service life extension, planning and scheduling,workforce management, training, and qualityassurance; determine how the shuttle program office will meet the challenges of inspecting and maintaining an agingshuttle fleet; include non-destructive analysis of the potential impacts on structural integrity when evaluating corrosiondamage, make long-term corrosion detection afunding priority, develop non-destructive inspections to find hidden corrosion, and establish orbiter-specificcorrosion rates for orbiter-specificenvironments; do not use Teflon and Molybdenum Disulfide in the carrier panel bolt assembly; mitigate galvanic coupling between aluminum and steel alloys; review the use of Room Temperature Vulcanizing 560 and Koropon; assure the continued presence of compressive stresses in A-286 bolts in their acceptance and qualificationprocedures; consider a redesign of the "hold-down" bolt system; reinstate a safety factor of 1.4 for the solid rocket booster attachment rings; assess whether upgrading to digital test equipment will provide the reliability and accuracy needed to maintainthe shuttle through 2020; and implement an agency-wide strategy for leadership and management training that provides a more consistentand integrated approach to career development. Air Force Brig. Gen. Duane Deal, a CAIB member, wrote a "supplement" that is scheduled to be published in Volume II as Appendix D. Some of the views inthe supplement were reported by the media on August 27. CAIB supplied a copy of the document to CRS,emphasizing that it represents supplemental, notdissenting, views. Gen. Deal expressed concern that NASA may not fully implement the CAIB's recommendations, and particularly its observations. "History shows that NASAoften ignores strong recommendations; without a culture change, it is overly optimistic to believe NASA will tacklesomething relegated to an 'observation'when it has a record of ignoring recommendations." He said the supplement is written from the perspective ofsomeone "who fears the [CAIB] report hasbypassed some items that could prevent 'the next accident' from occurring -- the 'next' O-ring or the 'next' bipodramp." He believes the observations shouldhave been characterized as "'strong signals' that are indications of present and future problems" rather than "weaksignals" that could indicate future problems.Among the areas he listed as needing further attention are: Quality Assurance (unresponsive management, staffinglevels, grade levels, inspector qualifications,employee training, providing necessary tools, government inspections, and quality program surveillance); OrbiterCorrosion; Solid Rocket Booster ExternalTank Attach Ring; Crew Survivability; Shiftwork and Overtime; security of Redesigned Solid Rocket Motors whenthey are shipped from the manufacturer; andsecurity at NASA's Michoud Assembly Facility where the External Tanks are assembled. | NASA's space shuttle Columbia broke apart on February 1, 2003 as itreturned to Earth from a 16-day sciencemission. All seven astronauts aboard were killed. NASA created the Columbia Accident InvestigationBoard (CAIB), chaired by Adm. (Ret.) Harold Gehman,to investigate the accident. The Board released its report (available at http://www.caib.us) on August 26, 2003,concluding that the tragedy was caused bytechnical and organizational failures. The CAIB report included 29 recommendations, 15 of which the Boardspecified must be completed before the shuttlereturns to flight status. This report provides a brief synopsis of the Board's conclusions, recommendations, andobservations. Further information on Columbiaand issues for Congress are available in CRS Report RS21408. This report will not be updated. |
Between 1948 and 1951, the United States undertook what many consider to be one of its more successful foreign policy initiatives and most effective foreign aid programs. The Marshall Plan (the Plan) and the European Recovery Program (ERP) that it generated involved an ambitious effort to stimulate economic growth in a despondent and nearly bankrupt post-World War II Europe, to prevent the spread of communism beyond the "iron curtain," and to encourage development of a healthy and stable world economy. It was designed to accomplish these goals by achieving three objectives: the expansion of European agricultural and industrial production; the restoration of sound currencies, budgets, and finances in individual European countries; and the stimulation of international trade among European countries and between Europe and the rest of the world. It is a measure of the positive impression enduring from the Economic Recovery Program that, ever since, in response to a critical situation faced by some regions of the world or some problem to be solved, there are periodic calls for a new Marshall Plan. In the 1990s, some Members of Congress recommended "Marshall Plans" for Eastern Europe, the former Soviet Union, and the environment. Meanwhile, international statesmen suggested Marshall Plans for the Middle East and South Africa. In the 21 st century, there continue to be recommendations for Marshall Plan-like assistance programs—for refugees, urban infrastructure, Iraq, countries affected by the Ebola epidemic, the U.S.-Mexican border, Greece, and so on. Generally, these references to the memory of the Marshall Plan are summonses to replicate its success or its scale, rather than every, or any, detail of the original Plan. The replicability of the Marshall Plan in these diverse situations or in the future is subject to question. To understand the potential relevance to the present of an event that took place decades ago, it is necessary to understand what the Plan sought to achieve, how it was implemented, and its resulting success or failure. This report looks at each of these factors. The Marshall Plan was proposed in a speech by Secretary of State George Marshall at Harvard University on June 5, 1947, in response to the critical political, social, and economic conditions in which Europe found itself at that time. Recognizing the necessity of congressional participation in development of a significant assistance package, Marshall's speech did not present a detailed and concrete program. He merely suggested that the United States would be willing to help draft a program and would provide assistance "so far as it may be practical for us to do so." In addition, Marshall called for this assistance to be a joint effort, "initiated" and agreed by European nations. The formulation of the Marshall Plan, therefore, was, from the beginning, a work of collaboration between the Truman Administration and Congress, and between the U.S. Government and European governments. The crisis that generated the Plan and the legislative and diplomatic outcome of Marshall's proposal are discussed below. European conditions in 1947, as described by Secretary of State Marshall and other U.S. officials at the time, were dire. Although industrial production had, in many cases, returned to prewar levels (the exceptions were Belgium, France, West Germany, Italy, and the Netherlands), the economic situation overall appeared to be deteriorating. The recovery had been financed by drawing down on domestic stocks and foreign assets. Capital was increasingly unavailable for investment. Agricultural supplies remained below 1938 levels, and food imports were consuming a growing share of the limited foreign exchange. European nations were building up a growing dollar deficit. As a result, prospects for any future growth were low. Trade between European nations was stagnant. Having already endured years of food shortages, unemployment, and other hardships associated with the war and recovery, the European public was now faced with further suffering. To many observers, the declining economic conditions were generating a pessimism regarding Europe's future that fed class divisions and political instability. Communist parties, already large in major countries such as Italy and France, threatened to come to power. The potential impact on the United States was severalfold. For one, an end to European growth would block the prospect of any trade with the continent. One of the symptoms of Europe's malaise, in fact, was the massive dollar deficit that signaled its inability to pay for its imports from the United States. Perhaps the chief concern of the United States, however, was the growing threat of communism. Although the Cold War was still in its infancy, Soviet entrenchment in Eastern Europe was well under way. Already, early in 1947, the economic strain affecting Britain had driven it to announce its withdrawal of commitments in Greece and Turkey, forcing the United States to assume greater obligations to defend their security. The Truman Doctrine, enunciated in March 1947, stated that it was U.S. policy to provide support to nations threatened by communism. In brief, the specter of an economic collapse of Europe and a communist takeover of its political institutions threatened to uproot everything the United States claimed to strive for since its entry into World War II: a free Europe in an open-world economic system. U.S. leaders felt compelled to respond. Three main hurdles had to be overcome on the way to developing a useful response to Europe's problems. For one, as Secretary of State Marshall's invitation indicated, European nations, acting jointly, had to come to some agreement on a plan. Second, the Administration and Congress had to reach their own concordance on a legislative program. Finally, the resulting plan had to be one that, in Marshall's words, would "provide a cure rather than a mere palliative." Most European nations responded favorably to the initial Marshall proposal. Insisting on a role in designing the program, 16 nations attended a conference in Paris (July 12, 1947) at which they established the Committee of European Economic Cooperation (CEEC). The committee was directed to gather information on European requirements and existing resources to meet those needs. Its final report (September 1947) called for a four-year program to encourage production, create internal financial stability, develop economic cooperation among participating countries, and solve the deficit problem then existing with the American dollar zone. Although Europe's net balance of payments deficit with the dollar zone for the 1948-1951 period was originally estimated at roughly $29 billion, the report requested $19 billion in U.S. assistance (an additional $3 billion was expected to come from the World Bank and other sources). Cautious not to appear to isolate the Soviet Union at this stage in the still-developing Cold War, Marshall's invitation did not specifically exclude any European nation. Britain and France made sure to include the Soviets in an early three-power discussion of the proposal. Nevertheless, the Soviet Union and, under pressure, its satellites, refused to participate in a common recovery program on the grounds that the necessity to reveal national economic plans would infringe on national sovereignty and that the U.S. interest was only to increase its exports. CEEC formulation of its proposal was not without U.S. input. Its draft proposal had reflected the wide differences existing between individual nations in their approach to trade liberalization, the role of Germany, and state controls over national economies. As a result of these differences, the United States was afraid that the CEEC proposal would be little more than a shopping list of needs without any coherent program to generate long-term growth. To avoid such a situation, the State Department conditioned its acceptance of the European program on participants' agreement to 1. make specific commitments to fulfill production programs, 2. take immediate steps to create internal monetary and financial stability, 3. express greater determination to reduce trade barriers, 4. consider alternative sources of dollar credits, such as the World Bank, 5. give formal recognition to their common objectives and assume common responsibility for attaining them, and 6. establish an international organization to act as coordinating agency to implement the program. The final report of the CEEC contained these obligations. After the European countries had taken the required initiative and presented a formal plan, both the Administration and Congress responded. Formulation of that response had already begun soon after the Marshall speech. As a Democratic President facing a Republican-majority Congress with many Members highly skeptical of the need for further foreign assistance, Truman took a two-pronged approach that greatly facilitated development of a program: he opened his foreign policy initiative to perhaps the most thorough examination prior to launching of any program and, secondly, provided a perhaps equally rare process of close consultation between the executive and Congress. From the first, the Truman Administration made Congress a player in the development of the new foreign aid program, consulting with it throughout the process (see text box ). A meeting on June 22, 1947, between key congressional leaders and the President led to creation of the Harriman, Krug, and Nourse committees. Secretary of Commerce Averell Harriman's committee, composed of consultants from private industry, labor, economists, etc., looked at Europe's needs. Secretary of Interior Julius A. Krug's committee examined those U.S. physical resources available to support such a program. The group led by Chairman of the Council of Economic Advisers Edwin G. Nourse studied the effect an enlarged export burden would have on U.S. domestic production and prices. The House of Representatives itself formed the Select Committee on Foreign Aid, led by Representative Christian A. Herter, to take a broad look at these issues. Before the Administration proposal could be submitted for consideration, the situation in some countries deteriorated so seriously that the President called for a special interim aid package to hold them over through the winter with food and fuel, until the more elaborate system anticipated by the Marshall Plan could be authorized. Congress approved interim aid to France, Italy, and Austria amounting to $522 million in an authorization signed by President Truman on December 17, 1947. West Germany, also in need, was still being assisted through the Government and Relief in Occupied Areas (GARIOA) program. State Department proposals for a European Recovery Program were formally presented by Truman in a message to Congress on December 19, 1947. He called for a 4¼-year program of aid to 16 West European countries in the form of both grants and loans. Although the program anticipated total aid amounting to about $17 billion, the Administration bill, as introduced by Representative Charles Eaton, chairman of the House Committee on Foreign Affairs, in early 1948 (H.R. 4840) provided an authorization of $6.8 billion for the first 15 months. The House Foreign Affairs and Senate Foreign Relations Committees amended the bill extensively. As S. 2202, it passed the Senate by a 69-17 vote on March 13, 1948, and the House on March 31, 1948, by a vote of 329 to 74. The bill authorized $5.3 billion over a one-year period. On April 3, 1948, the Economic Cooperation Act (title I of the Foreign Assistance Act of 1948, P.L. 80-472) became law. The Appropriations Committee conference allocated $4 billion to the European Recovery Program in its first year. By restricting the authorization to one year, Congress gave itself ample opportunity to oversee European Recovery Program implementation and consider additional funding. Three more times during the life of the Marshall Plan, Congress would be required to authorize and appropriate funds. In each year, Congress held hearings, debated, and further amended the legislation. As part of the first authorization, it created a joint congressional "watchdog" committee to follow program implementation and report to Congress. In its legislative form as the European Recovery Program (ERP), the Marshall Plan was originally expected to last four and one-quarter years from April 1, 1948, until June 30, 1952. However, the duration of the "official" Marshall Plan, as well as amounts expended under it, are matters of some disagreement. In the view of some, the program ran until its projected end-date of June 30, 1952. Others date the termination of the Plan approximately six months earlier, when its administrative agent, the Economic Cooperation Agency (ECA), was terminated and its recovery programs were meshed with those of the newly established Mutual Security Agency (a process that began during the second half of 1951). Estimates of amounts expended under the Marshall Plan range from $10.3 billion to $13.6 billion. Variations can be explained by the different measures of program longevity and the inclusion of funding from related programs which occurred simultaneously with the ERP. Table 1 contains one estimate of funds made available for the ERP (to June 1951 and omitting the interim funding) and lists the sources of those funds in detail. Table 2 lists recipient nations and gives an estimate, based on U.S. Agency for International Development figures, of amounts received at the time. According to this estimate, the top recipients of Marshall Plan aid were the United Kingdom (roughly 25% of individual country totals), France (21%), West Germany (11%), Italy (12%), and the Netherlands (8%) (see Figure 1 ). The European Recovery Program assumed the need for two implementing organizations, one American and one European. These were expected to continue the dialogue on European economic problems, coordinate aid allocations, ensure that aid was appropriately directed, and negotiate adoption of effective policy reforms. Due to the complex nature of the recovery program, the magnitude of the task, and the high degree of administrative flexibility desired with regard to matters concerning procurement and personnel, Congress established a new agency—the Economic Cooperation Administration (ECA)—to implement the ERP. As a separate agency, it could be exempted from many government regulations that would impede flexibility. Another reason for its separate institutional status was a strong distrust by many members of the Republican-majority Congress of a State Department headed by a Democratic Administration. However, because many in Congress were also concerned that the traditional foreign policy authority of the Secretary of State not be impinged, it required that full consultation and a close working relationship exist between the ECA Administrator and the Secretary of State. Paul G. Hoffman was appointed as Administrator by President Truman. A Republican and a businessman (President of the Studebaker Corporation), both requirements posed by the congressional leadership, Hoffman is considered by historians to have been a particularly talented administrator and promoter of the ERP. A 600-man regional office located in Paris played a major role in coordinating the programs of individual countries and in obtaining European views on implementation. It was the most immediate liaison with the organization representing the participating countries. Averell Harriman headed the regional office as the U.S. Special Representative Abroad. Missions were also established in each country to keep close contact with local government officials and to observe the flow of funds. Both the regional office and country missions had to judge the effectiveness of the recovery effort without infringing on national sovereignty sensitivities. As required by the ERP legislation, the United States established bilateral agreements with each country. These were fairly uniform—they required certain commitments to meet objectives of the ERP such as steps to stabilize the currency and increase production, as well as obligations to provide the economic information upon which to evaluate country needs and results of the program. A European body, the Organization for European Economic Cooperation (OEEC), was established by agreement of the participating countries in order to maintain the "joint" nature by which the program was founded and reinforce the sense of mutual responsibility for its success. Earlier, the participating countries had jointly pledged themselves to certain obligations (see above). The OEEC was to be the instrument that would guide members to fulfill their multilateral undertaking. To advance this purpose, the OEEC developed analyses of economic conditions and needs, and, through formulation of a Plan of Action, influenced the direction of investment projects and encouraged joint adoption of policy reforms such as those leading to elimination of intra-European trade barriers. At the ECA's request, it also recommended and coordinated the division of aid among the 16 countries. Each year the participating countries would submit a yearly program to the OEEC, which would then make recommendations to the ECA. Determining assistance allocations was not an easy matter, especially since funding declined each year. As a result, there was much bickering among countries, but a formula was eventually reached to divide the aid. The framers of the European Recovery Program envisioned a number of tools with which to accomplish its ends (see Table 3 ). These are discussed below. Grants made up more than 90% of the ERP. The ECA provided outright grants that were used to pay the cost and freight of essential commodities and services, mostly from the United States. Conditional grants were also provided requiring the participating country to set aside currency so that other participating countries could buy their export goods. This was done to stimulate intra-European trade. The ECA also provided loans. ECA loans bore an interest rate of 2.5% starting in 1952, and matured up to 35 years from December 31, 1948, with principal repayments starting no later than 1956. The ECA supervised the use of the dollar credits. European importers made purchases through normal channels and paid American sellers with checks drawn on American credit institutions. The legislation funding the first year of the ERP provided that $1 billion of the total authorized should be available only in the form of loans or guaranties. In 1949, Congress reduced the amount available only for loans to $150 million. The Administrator had decided that loans in excess of these amounts should not be made because of the inadvisability of participating countries assuming further dollar obligations, which would increase the dollar gap the Plan was attempting to close. As of June 30, 1949, $972.3 million of U.S. aid had been in the form of loans, while $4.948 billion was in the form of grants. Estimates for July 1949 to June 1950 were $150 million in loans and $3.594 billion for grants. The content of the dollar aid purchases changed over time as European needs changed. From a program supplying immediate food-related goods—food, feed, fertilizer, and fuel—it eventually provided mostly raw materials and production equipment. Between early 1948 and 1949, food-related assistance declined from roughly 50% of the total to only 27%. The proportion of raw material and machinery rose from 20% to roughly 50% in this same time period. Project financing became important during the later stages of the ERP. ECA dollar assistance was used with local capital in specific projects requiring importation of equipment from abroad. The advantage here was leveraging of local funds. By June 30, 1951, the ECA had approved 139 projects financed by a combination of U.S. and domestic capital. Their aggregate cost was $2.25 billion, of which only $565 million was directly provided by Marshall Plan assistance funds. Of these projects, at least 27 were in the area of power production and 32 were for the modernization and expansion of steel and iron production. Many others were devoted to rehabilitation of transport infrastructure. Each country was required to match the U.S. grant contribution: a dollar's worth of its own currency for each dollar of grant aid given by the United States. The participating country's currency was placed in a counterpart fund that could be used for infrastructure projects (e.g., roads, power plants, housing projects, airports) of benefit to that country. Each of these counterpart fund projects, however, had to be approved by the ECA Administrator. In the case of Great Britain, counterpart funds were deemed inflationary and simply returned to the national treasury to help balance the budget. By the end of December 1951, roughly $8.6 billion of counterpart funds had been made available. Of the approximately $7.6 billion approved for use, $2 billion was used for debt reduction as in Great Britain and roughly $4.8 billion was earmarked for investment, of which 39% was in utilities, transportation, and communication facilities (electric power projects, railroads, etc.), 14% in agriculture, 16% in manufacturing, 10% in coal mining and other extractive industries, and 12% in low-cost housing facilities. Three countries accounted for 80% of counterpart funds used for production purposes—France (half), West Germany, and Italy/Trieste. Five percent of the counterpart funds could be used to pay the administrative expenses of the ECA in Europe as well as for purchase of scarce raw materials needed by the United States or to develop sources of supply for such materials. Up to August 1951, more than $160 million was committed for these purposes, mostly in the dependent territories of Europe. For example, enterprises were set up for development of nickel in New Caledonia, chromite in Turkey, and bauxite in Jamaica. Technical assistance was also provided under the ERP. A special fund was created to finance expenses of U.S. experts in Europe and visits by European delegations to the United States. Funds could be used only on projects contributing directly to increased production and stability. The ECA targeted problems of industrial productivity, marketing, agricultural productivity, manpower utilization, public administration, tourism, transportation, and communications. In most cases, countries receiving such aid had to deposit counterpart funds equivalent to the dollar expenses involved in each project. Through 1949, $5 million had been set aside for technical assistance under which 350 experts had been sent from the United States to provide services and 481 persons from Europe had come to the United States for training. By the end of 1951, with more than $30 million expended, over 6,000 Europeans representing management, technicians, and labor had come to the United States for periods of study of U.S. production methods. Although it is estimated that less than one-half of 1% of all Marshall Plan aid was spent on technical assistance, the effect of such assistance was significant. Technical assistance was a major component of the "productivity campaign" launched by the ECA. Production was not merely a function of possessing up-to-date machinery, but of management and labor styles of work. As one Senate Appropriations staffer noted, "Productivity in French industry is better than in several other Marshall-plan countries but it still requires four times as many man-hours to produce a Renault automobile as it does for a Chevrolet, and the products themselves are hardly comparable." To attempt to bring European production up to par, the ECA funded studies of business styles, conducted management seminars, arranged visits of businessmen and labor representatives to the United States to explain American methods of production, and set up national productivity centers in almost every participating country. Guaranties were provided for convertibility into dollars of profits on American private sector investments in Europe. The purpose of the guaranties was to encourage American businessmen to invest in the modernization and development of European industry by ensuring that returns could be obtained in dollars. The original ERP Act covered only the approved amount of dollars invested, but subsequent authorizations broadened the definition of investment and increased the amount of the potential guaranty by adding to actual investment earnings or profits up to 175% of dollar investment. The risk covered was extended as well to include compensation for loss of investment due to expropriation. Although $300 million was authorized by Congress (subsequently amended to $200 million), investment guaranties covering 38 industrial investments amounted to only $31.4 million by June 1952. The individual components of the European Recovery Program contributed directly to the immediate aims of the Marshall Plan. Dollar assistance kept the dollar gap to a minimum. The ECA made sure that both dollar and counterpart assistance were funneled toward activities that would do the most to increase production and lead to general recovery. The emphasis in financial and technical assistance on productivity helped to maximize the efficient use of dollar and counterpart funds to increase production and boost trade. The importance to future European growth of this infusion of directed assistance should not be underestimated. During the recovery period, Europe maintained an investment level of 20% of GNP, one-third higher than the prewar rate. Since national savings were practically zero in 1948, the high rate of investment is largely attributable to U.S. assistance. But the aims of the Marshall Plan were not achieved by financial and technical assistance programs alone. The importance of these American-sponsored programs is that they helped to create the framework in which the overall OEEC European program of action functioned. American aid was leveraged to encourage Europeans to come together and act, individually and collectively, in a purposeful fashion on behalf of the three themes of increased production, expanded trade, and economic stability through policy reform. The first requirement of the Marshall Plan was that European nations commit themselves to these objectives. On an individual basis, each nation then used its counterpart funds and American dollar assistance to fulfill these objectives. They also, with the analytical assistance of both fellow European nations under the OEEC and the American representatives of the ECA, closely examined their economic systems. Through this process, the ECA and OEEC sought to identify and remove obstacles to growth, to avoid unsound national investment plans, and to promote adoption of appropriate currency levels. Thanks to American assistance, many note, European nations were able to undertake recommended and necessary reforms at lesser political cost in terms of imposing economic hardship on their publics than would have been the case without aid. In this regard, some argue that it was Marshall Plan aid that enabled economist Jean Monnet's plan of modernization and reform of the French economy to succeed. However, contending with deeply felt sensitivities regarding European sovereignty, U.S. influence on European economic and social decisionmaking as a direct result of European Recovery Program assistance was restricted. Where it controlled counterpart funds for use in capital projects, American influence was considerable. Where counterpart funds were simply used to retire debt to assist financial stability, there was little such influence. Some analysts suggest the United States had minimal control over European domestic policy since its assistance was small relative to the total resources of European countries. But while it could do little to get Europe to relinquish control over exchange rates, on less sensitive issues the United States, many argue, was able to effect change. On a few occasions, the ECA did threaten sanctions if participating countries did not comply with their bilateral agreements. Italy was threatened with loss of aid for not acting to adopt recommended programs and, in April 1950, aid was actually withheld from Greece to force appropriate domestic action. As a collective of European nations, the OEEC generated peer pressure that encouraged individual nations to fulfill their Marshall Plan obligations. The OEEC provided a forum for discussion and eventual negotiation of agreements conducive to intra-European trade. For Europeans, its existence made the Plan seem less an American program. In line with the American desire to foster European integration, the OEEC helped to create the "European idea." As West German Vice-Chancellor Blucher noted, "The OEEC had at least one great element. European men came together, knew each other, and were ready for cooperation." The ECA provided financial assistance to efforts to encourage European integration (see below), and, more importantly, it provided the OEEC with some financial leverage of its own. By asking the OEEC to take on a share of responsibility for allocating American aid among participating countries, the ECA elevated the organization to a higher status than might have been the case otherwise and thereby facilitated achievement of Marshall Plan aims. Assistance to Europe was not new with the Marshall Plan. In fact, during the 2½-year period from July 1945 to December 1947, roughly $11 billion had been provided to Europe, compared with the estimated $13 billion in 3½ years of the Marshall Plan. Two factors that distinguish the Marshall Plan from its predecessors are that the Marshall Plan was the result of a thorough planning process and was sharply focused on economic development. Because the earlier, more ad hoc and humanitarian relief-oriented assistance had made little dent on European recovery, a different, coherent approach was put forward. The new approach called for a concerted program with a definite purpose. The purpose was European recovery, defined as increased agricultural and industrial production; restoration of sound currencies, budgets, and finances; and stimulation of international trade among participating countries and between them and the rest of the world. The Marshall Plan, as illustrated in the preceding section, ensured that each technical and financial assistance component contributed as directly as possible to these long-range objectives. Other aspects of its deliberate character were distinctive. It had definite time and monetary limits. It was made clear at the start that the U.S. contribution would diminish each year. In addition to broad objectives, it also supported, by reference to the CEEC program in the legislation and, more specifically, in congressional report language, the ambitious quantitative targets assumed by the participating countries. The Marshall Plan was also a "joint" effort. By bringing in European nations as active participants in the program, the United States ensured that their mutual commitment to alter economic policies, a necessity if growth was to be stimulated, would be translated into action and that the objective of integration would be further encouraged. The Marshall Plan promoted recognition of the economic interdependence of Europe. By making Congress a firm partner in the formulation of the program, the Administration ensured continued congressional support for the commitment of large sums over a period of years. Further, the Marshall Plan was a first recognition by U.S. leaders of the link between economic growth and political stability. Unlike previous postwar aid, which was two-thirds repayable loans and one-third relief supplies, Marshall Plan aid was almost entirely in the form of grants aimed at productive, developmental purposes. The reason for this large infusion of grants in peacetime was that U.S. national security had been redefined as containment of communism. Governments whose citizens were unemployed and unfed were unstable and open to communist advancement. Only long-term economic growth could provide stability and, as an added benefit, save the United States from having to continue an endless process of stop-gap relief-based assistance. The unique nature of the Marshall Plan is perhaps best emphasized by what replaced it. The Cold War, reinforced by the Korean War, signaled the end of the Marshall Plan by altering the priority of U.S. aid from that of economic stability to military security. In September 1950, the ECA informed the European participants that henceforth a growing proportion of aid would be allocated for European rearmament purposes. Although originally scheduled to end on June 30, 1952, the Plan began to wind down in December 1950 when aid to Britain was suspended. In the following months, Ireland, Sweden, and Portugal graduated from the program. The use of counterpart funds for production purposes was phased out. To attack inflation, which resulted from the shortage of materials due to the Korean War, the ECA had begun to release counterpart funds. In the fourth quarter of 1950, $1.3 billion was released, two-thirds of which were used in retiring public debt. Under the Mutual Security Act of 1951 and subsequent legislation, although in lesser quantities and in increasing proportions devoted to defense, aid continued to be provided to many European countries. In the 1952-1953 appropriations, for example, France received $525 million in grants, half of which was for defense support and the other as budget support. The joint nature of the Marshall Plan disappeared as national sovereignty came to the fore again. France insisted on using post-Marshall Plan counterpart funds as it wished, commingling them with other funds and only later attributing appropriate amounts to certain projects to satisfy American concerns. To many analysts and policymakers, the effect of the Marshall Plan policies and programs on the economic and political situation in Europe appeared broad and pervasive. While, in some cases, a direct connection can be drawn between American assistance and a positive outcome, for the most part, the Marshall Plan may be viewed best as a stimulus which set off a chain of events leading to the accomplishments noted below. The Marshall Plan agencies, the ECA and OEEC, established a number of quantitative standards as their objectives, reflecting some of the broader purposes noted earlier. The overall production objective of the European Recovery Program was an increase in aggregate production above prewar (1938) levels of 30% in industry and 15% in agriculture. By the end of 1951, industrial production for all countries was 35% above the 1938 level, exceeding the goal of the program. However, aggregate agriculture production for human consumption was only 11% above prewar levels and, given a 25 million rise in population during these years, Europe was not able to feed itself by 1951. Viewed in terms of the increase from 1947, the achievement is more impressive. Industrial production by the end of 1951 was 55% higher than only four years earlier. Participating countries increased aggregate agricultural production by nearly 37% in the three crop-years after 1947-1948. Total average GNP rose by roughly 33% during the four years of the Marshall Plan. The 1948 Senate report on the ERP authorization had noted a set of production goals that the Europeans had set for themselves, goals that they noted "seem optimistic to many American experts." The participating countries, for example, had wanted to increase steel production to 55 million tons yearly, 20% above prewar production. By 1951, they had achieved 60 million. It was proposed that oil refining capacity be increased by 2½ times that in 1938. In the end, they managed a four-fold increase. The goal for coal production was 584 million tons, an increase of 30 million over prewar production. By 1951, production was still slightly below that of 1938, but 27% higher than in 1947. In 1948, participating countries could pay for only half of their imports by exporting. An objective of the ERP was to get European countries to the point where they could pay for 83% of their imports in this manner. Although they paid for 70% by exporting in 1938, the larger ratio was sought under ERP because earnings from overseas investment had declined. Even though trade rose substantially, especially among participants, the volume of imports from the rest of the world rose substantially as well, and prices for these imports rose faster than did prices of exports. As a result, Europe continued to be strained. One obstacle to expansion of exports was breaking into the U.S. and South American markets, where U.S. producers were entrenched. OEEC exports to North America rose from 14% of imports in 1947 to nearly 50% in 1952. Related to the overall balance of trade was the deficit vi s- a - vis the dollar area, especially the United States. In 1947, the total gold and dollar deficit was over $8 billion. By 1949, it had dropped to $4.5 billion, by 1952 to half that figure, and by the first half of 1953 had reached an approximate current balance with the dollar area. In 1949, the OEEC Council asked members to take steps to eliminate quantitative import restrictions. By the end of 1949, and by February 1951, 50% and 75% of quota restrictions on imports were eliminated, respectively. By 1955, 90% of restrictions were gone. In 1951, the OEEC set up rules of conduct in trade under the Code of Liberalization of Trade and Invisible Transactions. At the end of 1951, trade volume within Europe was almost double that of 1947. Some benefits of the Marshall Plan are not easily quantifiable, and some were not direct aims of the program. Many believe that the role of the Marshall Plan in raising morale in Europe was as great a contribution to the prevention of communism and stimulation of growth as any financial assistance. As the then-Director of Policy Planning at the State Department George Kennan noted, "The psychological success at the outset was so amazing that we felt that the psychological effect was four-fifths accomplished before the first supplies arrived." The United States had a view of itself as a model for the development of Europe, with individual countries equated with American states. As such, U.S. leaders saw a healthy Europe as one in which trade restraints and other barriers to interaction, such as the inconvertibility of currencies, would be eliminated. The European Recovery Program required coordinated planning for recovery and the establishment of the OEEC for this purpose. In 1949, the ERP Authorization Act was amended to make it the explicit policy of the United States to encourage the unification of Europe. Efforts in support of European integration, integral to the original Marshall Plan, were strengthened at this time. To encourage intra-European trade, the ECA in its first year went so far as to provide dollars to participating countries to finance their purchase of vitally needed goods available in other participating countries (even if these were available in the United States). In a step toward encouraging European independence from the dollar standard, it also established an intra-European payments plan whereby dollar grants were made to countries that exported more to Europe as a group than they imported, on condition that these creditor countries finance their export balance in their own currencies. The European Payments Union (EPU), an outgrowth of the payments plan, was established in 1950 by member countries to act as a central clearance and credit system for settlement of all payments transactions among members and associated monetary areas (such as the sterling area). At ECA request, the 1951 congressional authorization withheld funds specifically to encourage the pursuit of this program since successful conclusion of the EPU depended on an American financial contribution. In the end, the United States provided $350 million to help set up the EPU and another $100 million to assist it through initial difficulties. Many believe that these and other steps initiated under the ERP led to the launching of the European Coal and Steel Community in 1952 and eventually to the European Union of today. Perhaps the greatest inducement to the United States in setting up the Marshall Plan had been the belief that economic hardship in Europe would lead to political instability and inevitably to communist governments throughout the continent. In essence, the ERP allowed economic growth and prosperity to occur in Europe with fewer political and social costs. Plan assistance allowed recipients to carry a larger import surplus with less strain on the financial system than would be the case otherwise. It made possible larger investments without corresponding reductions in living standards and could be anti-inflationary by mopping up purchasing power through the sale of imported assistance goods without increasing the supply of money. The production aspects of the Plan also helped relieve hunger among the general population. Human food consumption per capita reached the prewar level by 1951. In West Germany, economically devastated and besieged by millions of refugees from the East, one house of every five built since 1948 had received Marshall Plan aid. Perhaps as a result of these benefits, communism in Europe was prevented from coming to power via the ballot box. It is estimated that communist strength in Western Europe declined by almost one-third between 1946 and 1951. In the 1951 elections, the combined pro-Western vote was 84% of the electorate. Champions of the Marshall Plan hold that its authorizing legislation was free of most of the potential restrictions sought by private interests of the sort to later appear in foreign aid programs. Nevertheless, restrictions were enacted that did benefit the United States and U.S. business in particular. Procurement of surplus goods was encouraged under the Economic Recovery Program legislation, while procurement of goods in short supply in the United States was discouraged. It was required that surplus agriculture commodities be supplied by the United States; procurement of these was to be encouraged by the ECA Administrator. The ERP required that 25% of total wheat had to be in the form of flour, and half of all goods had to be carried on American ships. In the end, an estimated 70% of European purchases using ECA dollars were spent in the United States. Types of commodities purchased from the United States included foodstuffs (grain, dairy products), cotton, fuel, industrial and raw materials (iron and steel, aluminum, copper, lumber), and industrial and agricultural machinery. Sugar and nonferrous metals made up the bulk of purchases from outside the United States. U.S. prestige and power in Europe were already strong following World War II. In several respects, however, the U.S. role in Europe was greatly enhanced by virtue of the Marshall Plan program. U.S. private sector economic relations grew substantially during this period as a consequence of the program's encouragement of increased exports from Europe and ERP grants and loans for the purchase of U.S. goods. The book value of U.S. investment in Europe also rose significantly. Furthermore, while the Marshall Plan grew out of a recognition of the economic interdependence of the two continents, its implementation greatly increased awareness of that fact. The OEEC, which, in 1961, became the OECD (Organization for Economic Co-operation and Development) with the United States as a full member, endured and provided a forum for discussion of economic problems of mutual concern. Finally, the act of U.S. support for Europe and the creation of a diplomatic relationship which centered on economic issues in the OEEC facilitated the evolution of a relationship centered on military and security issues. In the view of ECA Administrator Hoffman, the Marshall Plan made the Atlantic Alliance (NATO) possible. Many of the operational methods and programs devised and tested under the Marshall Plan became regular practices of later development efforts. For example, the ECA was established as an independent agency with a mission in each participating country to ensure close interaction with governments and the private sector, a model later adopted by the U.S. Agency for International Development (USAID). Unlike previous aid efforts, the Plan promoted policy reform and used commodity import programs and counterpart funds to ease adoption of those reforms and undertake development programs, a practice of USAID programs in later decades. The Marshall Plan also launched the first participant training programs bringing Europeans to the United States for training and leveraged private sector investment in recipient countries through the use of U.S. government guaranties. Hundreds of American economists and other specialists who implemented the Marshall Plan gained invaluable experience that many later applied to their work in developing countries for the ECA's successor foreign aid agencies. Not everyone agrees that the Marshall Plan was a success. One such appraisal was that Marshall Plan assistance was unnecessary. It is, for example, difficult to demonstrate that ERP aid was directly responsible for the increase in production and other quantitative achievements noted above. Critics have argued that assistance was never more than 5% of the GNP of recipient nations and therefore could have little effect. European economies, in this view, were already on the way to recovery before the Marshall Plan was implemented. Some analysts, pointing out the experimental nature of the Plan, agree that the method of aid allocation and the program of economic reforms promoted under it were not derived with scientific precision. Some claim that the dollar gap was not a problem and that lack of economic growth was the result of bad economic policy, resolved when economic controls established during the Nazi era were eventually lifted. Even at the time of the Marshall Plan, there were those who found the program lacking. If Marshall Plan aid was going to combat communism, they felt, it would have to provide benefits to the working class in Europe. Many believed that the increased production sought by the Plan would have little effect on those most inclined to support communism. In congressional hearings, some Members repeatedly sought assurances that the aid was benefiting the working class. Would loans to French factory owners, they asked, lead to higher salaries for employees? Journalist Theodore H. White was another who questioned this "trickle" (now called the "trickle down") approach to recovery. "The trickle theory had, thus far," White wrote in 1953, "resulted in a brilliant recovery of European production. But it had yielded no love for America and little diminution of Communist loyalty where it was entrenched in the misery of the continental workers." In addition, many did not want the United States to appear to be assisting colonial rule. Considerable concern was expressed that the aid provided to Europe would allow these countries to maintain their colonies in Africa and Asia. The switch in emphasis from economic development to military development that began in the third year of the Plan was also the subject of criticism, especially in view of the limited time frame originally allowed for the aid program. A staff member of the Senate Appropriations Committee's Special Subcommittee on Foreign Economic Cooperation believed that the original intent of the Marshall Plan could not be accomplished under these conditions. The tactics employed to achieve Marshall Plan objectives were often questioned as well. "Much of our effort in France has been contradictory," reported the committee staffer. "On the one hand we have been working toward the abolition of trade barriers between European countries and on the other we have been fostering, or rebuilding, uneconomic industries which cannot survive unhampered international competition." Another concern was the proportion of funding that went to the public rather than private sector. One contemporary writer noted that public investments from the Italian counterpart fund obtained twice the amount of assistance as did the private sector in that country. Another analyst has argued that the ECA promoted government intervention in the economy. In the 1950 authorization hearings, U.S. businessmen urged that assistance be provided directly to foreign business rather than through European governments. Only in this way, they said, could free enterprise be promoted in Europe. From its inception, some Members of Congress voiced fears that the ERP would have a negative effect on U.S. business. Some noted that the effort to close the trade gap by encouraging Europeans to export and limit their imports would diminish U.S. exports to the region. Amendments, most defeated, were offered to ERP legislation to ensure that certain segments of the private sector would benefit from Marshall Plan aid. That strengthening Europe economically meant increased competition for U.S. business also was not lost on legislators. The ECA, for example, helped Europeans rebuild their merchant marine fleets and, by the end of 1949, had authorized over $167 million in European steel mill projects, most using the more advanced continuous rolling mill process that had previously been little used in Europe. As the congressional "watchdog" committee staff noted, "The ECA program involves economic sacrifice either in direct expenditure of Federal funds or in readjustments of agriculture and industry to allow for foreign competition." In the end, the United States seemed to be willing to make both sacrifices. The Marshall Plan was viewed by Congress, as well as others, as a "new and far-reaching experiment in foreign relations." Although in many ways unique to the requirements of its time, analysts have attempted over the years to draw from it various lessons that might possibly be applied to present or future foreign aid initiatives. These lessons represent what observers believe were some of the primary strengths of the Plan: Strong leadership and well-developed argument overc a me opposition . Despite growing national isolationism, polls showing little support for the Marshall Plan, a Congress dominated by budget cutters, and an election looming whose outlook was unfavorable to the President, the Administration decided it was the right thing to do and led a campaign—with national commissions set up and Cabinet members travelling the country—to sell the Plan to the American people. Congress was included at the beginning to formulate the program . Because he faced a Congress controlled by the opposition party, Truman made the European Recovery Program a cooperative bipartisan creation, which helped garner support and prevented it from becoming bogged down with private-interest earmarks. Congress maintained its active role by conducting detailed hearings and studies on ERP implementation. Country ownership ma de reforms sustainable . The beneficiaries were required to put together the proposal. Because the Plan targeted changes in the nature of the European economic system, the United States was sensitive to European national sovereignty. European cooperation was critical to establishing an active commitment from participants on a wide range of delicate issues. The collective approach facilitated success . Recovery efforts were framed as a joint endeavor, with the Europeans joining together in the CEEC to propose the program and the OEEC to implement key features, including collaborating to make grant allocation decisions and cooperating to lower trade barriers. The Marshall Plan had specific goals . Resources were dedicated to meeting the goals of increased production, trade, and stability. The Marshall Plan fit the objective . In the main, the Plan was not a short-term humanitarian relief program. It was a multiyear plan designed specifically to bring about the economic recovery of Europe and avoid the repeated need for relief programs that had characterized U.S. assistance to Europe since the War. The countries to be assisted, for the most part, had the capacity to recover . They, in fact, were recovering, not developing from scratch. The human and natural resources necessary for economic growth were largely available; the chief thing missing was capital. Trade supplemented aid . Aid alone was insufficient to assist Europe economically. A report in October 1949 by the ECA and Department of Commerce found that the United States should purchase as much as $2 billion annually in additional goods if Europe was to balance its trade by the close of the recovery program. Efforts to increase intra-European trade, such as funding the European Payments Union, were meant to bolster bilateral efforts. Parochial congressional tendencies to put restrictions on the program on behalf of U.S. business were kept under control for the good of the program . American businessmen, for example, were not happy that the ECA insisted Europeans purchase what was available first in Europe using soft currency before turning to the United States. Technical assistance, including exchanges, while inexpensive relative to capital block grants, may have a significant impact on economic growth . Under the Marshall Plan, technical assistance helped draw attention to the management and labor factors hindering productivity. It demonstrated American know-how and helped develop in Europe a positive feeling regarding America. The long-term foreign policy value of foreign assistance cannot be adequately measured in terms of short-term consequences . The Marshall Plan continues to have an impact: in NATO, the OECD, the European Community, the German Marshall Fund, in European bilateral aid donor programs, and in the stability and prosperity of modern Europe. Although many disparate elements of Marshall Plan assistance speak to the present, the circumstances faced now by most other parts of the world are so different and more complex than those encountered by Western Europe in the period 1948-1952 that the solution posed for one is not entirely applicable to the other. As noted earlier, calls for new Marshall Plans have continued ever since the first, but the first was unique, and today's proposals share little detail with their predecessor apart from the suggestion that a problem should be solved with the same concentrated energies, if not funds, applied decades ago. Even if there exist countries whose needs are similar in nature to what the Marshall Plan provided, the position of the United States has changed since the late 1940s as well. The roughly $13.3 billion provided by the United States to 16 nations over a period of less than four years equals an estimated $143 billion in 2017 currency. That sum surpasses the amount of development and humanitarian assistance the United States provided from all sources to 212 countries and numerous international development organizations and banks in the four-year period 2013-2016 ($138 billion in 2017 dollars). In 1948, when the United States appropriated $4 billion for the first year of the Marshall Plan, outlays for the entire federal budget equaled slightly less than $30 billion. For the United States to be willing to expend 13% of its budget on any one program (versus 0.8% in FY2016 for foreign assistance), Congress and the President would have to agree that the activity was a major national priority. Nevertheless, in pondering the difficulties of new Marshall Plans, it is perhaps worth considering the views of the ECA Administrator, Paul Hoffman, who noted 20 years after Secretary Marshall's historic speech that even though the Plan was "one of the most truly generous impulses that has ever motivated any nation anywhere at any time," the United States "derived enormous benefits from the bread it figuratively cast upon the international waters." In Hoffman's view: Today, the United States, its former partners in the Marshall Plan and—in fact—all other advanced industrialized countries ... are being offered an even bigger bargain: the chance to form an effective partnership for world-wide economic and social progress with the earth's hundred and more low-income nations. The potential profits in terms of expanded prosperity and a more secure peace could dwarf those won through the European Recovery Program. Yet the danger that this bargain will be rejected out of apathy, indifference, and discouragement over the relatively slow progress toward self-sufficiency made by the developing countries thus far is perhaps even greater than was the case with the Marshall Plan. For the whole broadscale effort of development assistance to the world's poorer nations—an effort that is generally, but I think quite misleadingly, called "foreign aid"—has never received the full support it merits and is now showing signs of further slippage in both popular and governmental backing. Under these circumstances, the study of the Marshall Plan's brief but brilliantly successful history is much more than an academic exercise. Arkes, Hadley. Bureaucracy, the Marshall Plan, and the N ational I nterest . Princeton University Press, 1972. 395 p. Behrman, Greg. The Most Noble Adventure: the Marshall Plan and How America Helped Rebuild Europe , New York, Simon and Shuster, 2007, 448 p. Brookings Institution. 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Foreign Policy Association, Headline Series 236, June 1977. 64 p. | The European Recovery Program (ERP), more commonly known as the Marshall Plan (the Plan), was a program of U.S. assistance to Europe during the period 1948-1951. The Marshall Plan—launched in a speech delivered by Secretary of State George Marshall on June 5, 1947—is considered by many to have been the most effective ever of U.S. foreign aid programs. An effort to prevent the economic deterioration of postwar Europe, expansion of communism, and stagnation of world trade, the Plan sought to stimulate European production, promote adoption of policies leading to stable economies, and take measures to increase trade among European countries and between Europe and the rest of the world. Since its conclusion, some Members of Congress and others have periodically recommended establishment of new "Marshall Plans"—for Central America, Eastern Europe, sub-Saharan Africa, and elsewhere. Design. The Marshall Plan was a joint effort between the United States and Europe and among European nations working together. Prior to formulation of a program of assistance, the United States required that European nations agree on a financial proposal, including a plan of action committing Europe to take steps toward solving its economic problems. The Truman Administration and Congress worked together to formulate the European Recovery Program, which eventually provided roughly $13.3 billion ($143 billion in 2017 dollars) of assistance to 16 countries. Implementation. Two agencies implemented the program, the U.S.-managed Economic Cooperation Administration (ECA) and the European-run Organization for European Economic Cooperation. The latter helped ensure that participants fulfilled their joint obligations to adopt policies encouraging trade and increased production. The ECA provided dollar assistance to Europe to purchase commodities—food, fuel, and machinery—and leveraged funds for specific projects, especially those to develop and rehabilitate infrastructure. It also provided technical assistance to promote productivity, offered guaranties to encourage U.S. private investment, and approved the use of local currency matching funds. Accomplishments. While, in some cases, a direct connection can be drawn between American assistance and a positive outcome, for the most part, the Marshall Plan may be viewed best as a stimulus that set off a chain of events leading to a range of accomplishments. At the completion of the Marshall Plan period, European agricultural and industrial production were markedly higher, the balance of trade and related "dollar gap" much improved, and significant steps had been taken toward trade liberalization and economic integration. Historians cite the impact of the Marshall Plan on the political development of some European countries and on U.S.-Europe relations. European Recovery Program assistance is said to have contributed to more positive morale in Europe and to political and economic stability, which helped diminish the strength of domestic communist parties. The U.S. political and economic role in Europe was enhanced and U.S. trade with Europe boosted. Although the Marshall Plan has its critics and occurred during a unique point in history, many observers believe it offers lessons that may be applicable to contemporary foreign aid programs. This report examines aspects of the Plan's formulation and implementation and discusses its historical significance. The Appendix lists numerous related studies and publications. |
Public safety agencies include the nation's first responders (such as firefighters, police officers, and ambulance services), 911 call center staff, and a number of local, state, federal—and sometimes regional—authorities. Communications, often wireless radios, are vital to these agencies' effectiveness and to the safety of their members and the public. Wireless technology requires radio frequency capacity in order to function, and existing wireless technology is designed to work within specified frequency ranges. Different operations, different applications, different rules and standards, and different radio frequencies are among the problems first responders face in trying to communicate with each other. Interoperability, also referred to as compatibility or connectivity, refers to the capability for different systems to readily connect to each other. Facilitating interoperability has been a policy concern of public safety officials for a number of years. However, public safety agencies—especially at the local level—tend to rely on vendors for technical expertise. Interoperable solutions, therefore, are often based on proprietary systems, limiting the scope of connectivity. One way to bypass the vendor-driven planning that characterizes, and limits, public safety communications could be to implement a national plan that encouraged resource-sharing and standardized interfaces, while promoting the transition to open source architecture. At the level of national policy for emergency planning and response, for example, goals for interoperability could include interchangeability, assuring that equipment from any agency, state, or community could be used to replace or supplement equipment in any area of the country, as needed. Since September 11, 2001—when communications failures added to the horror of the day—achieving interoperability for public safety communications has become an important policy concern for Congress. The damage to communications infrastructure caused by Hurricane Katrina and subsequent flooding has revealed the extent to which the concerns of Congress, as expressed in legislation, have yet to be acted upon. Although many replacements for lost communications equipment were rushed to critical sites in the Gulf Coast states, they were usually different systems using different radio frequencies, with little or no capability for cross-communication. Although interoperability in communications is correctly perceived as a subset of the larger problem of providing comprehensive communications support, it is a pivotal solution. Interoperability provides redundancy and back-up capacity, key elements for a robust network. Some have suggested that the current definition widely used in discussing interoperability may be too general, and that a fuller articulation of planning goals should be developed to guide policy. Many experts agree that—at this point in what can only be described as an ongoing crisis in communications capacity—a critical missing element is planning at the national level. In this view, national planning—whether undertaken at the federal level, through a consortium of states, or other means—is needed to transcend proprietary solutions and bring about consensus on common interfaces with uniform standards that permit full interoperability and interchangeability for newer, digital equipment. Federal policy also could guide public safety communications purchases toward a transition to open source platforms. Standardized interfaces can link existing, non-standard (e.g. proprietary) systems and networks; for planning purposes this could require, for example, a federal mandate for interoperable standards for "cross talk" systems provide by companies such as M/A Com, Motorola and Raytheon. Open architecture standards would ensure that systems were fully interoperable, with equipment that was fully interchangeable; an example of planning would be a program to encourage the development and use of open source architectures. Federalization of emergency response for disasters or catastrophic events could become inevitable unless states and communities have adequate resources to act in a timely manner. Current disaster response plans of the Federal Emergency Management Agency (FEMA) are built on the assumption that local resources will be adequate after a disaster strikes until additional resources arrive. The destructive chaos that followed in the wake of Hurricanes Katrina and Rita revealed many weakness in current assumptions and plans, such as those in the National Response Plan and the National Incident Management System. Two critical pieces of infrastructure failed early on: electrical power and communications. A well-planned and robust emergency communications system should be sustainable at reasonable levels of operation even after electrical power is lost. Resources to sustain operations include back-up generators and fuel, redundant systems, self-healing networks, access to multiple communications channels, common radio frequencies for wireless communications, sufficient spectrum bandwidth to support communications needs, and the proper equipment and infrastructure to make it all work. As testimony before Congress has regularly substantiated, industry plans for disasters, prepares to the best of its capacity, and carries out the plans as needed; similar levels of planning and capacity to respond need to be achieved for emergency communications (and other public safety services) in communities. Since September 11, 2001, Congress has passed important legislation to respond to problems revealed after the attacks on the World Trade Center and the Pentagon, including problems of communications at the disaster sites. Provisions of the Homeland Security Act of 2002 ( P.L. 107-296 ) instruct the Department of Homeland Security (DHS) to address some of the issues concerning public safety communications in emergency preparedness and response and in providing critical infrastructure. Telecommunications for first responders is mentioned in several sections, with specific emphasis on technology for interoperability. Acting on recommendations made by the National Commission on Terrorist Attacks Upon the United States (9/11 Commission), Congress included several sections regarding improvements in communications capacity—including clarifications to the Homeland Security Act—in the Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L. 108-458 ). By requirements it included in the Intelligence Reform and Terrorism Act—for studies on interoperability strategies, use of technology, spectrum use, and more—Congress has assigned itself a number of specific tasks of oversight regarding emergency communications. Congress also has recognized the many dilemmas faced by its constituents in supporting communications interoperability. It has in many ways taken on the role of champion in support of programs for interoperability that benefit local communities, states and tribes. Some steps have been taken, particularly within DHS, and Congress has demanded further advances. Despite indications of progress, much remains to be done. Issues that could be addressed—collectively or singly—by Congress, the Administration, the private sector, or others include the development of a long term strategy that coordinates both public safety spectrum needs and interoperable communications needs, and the coordination of the various studies requested by Congress and by the Administration. The findings and recommendations from these studies could be valuable in the advancement of policy for public safety. The achievement of a comprehensive set of solutions for interoperability outside the federal government's own communications needs appears to remain elusive. Participation of the federal government in a national solution for interoperability does not necessarily require federal ownership. The federal government is an important component, however, of any network that might be put in place to provide interoperable communications. In light of the critical role of federal participation, Congress could decide to extend its oversight role; proposed legislation also includes provisions that set higher standards for performance from federal agencies, notably the Department of Homeland Security. Two reports from Congressional investigations into shortcomings in planning and response for disasters such as Hurricane Katrina have been published. The administration also has released an account of the federal response to the disaster. All of these reports recognize the need for a national strategy for emergency communications and data networks. The devastation caused by the 2005 hurricane season, especially the impact of Hurricane Katrina on the Gulf Coast states, brought home to many how large the gap is between intentions and execution. As noted in another CRS report, after FEMA was absorbed by DHS it was effectively "stripped" of responsibilities for planning for emergency communications. The leadership role for preparing a national strategy for communications interoperability was assigned to the Office of Interoperability and Compatibility within DHS, resting primarily with the SAFECOM program. The decision was made at the executive level that SAFECOM would be the lead agency for communications interoperability, a position that was strengthened by organizational changes within DHS, and ratified by Congress with the passage of the Intelligence Reform and Terrorism Prevention Act. With the passage of the 21 st Century Emergency Communications Act of 2006 ( P.L. 109-295 , Title V, Subtitle D), this authority is shifted to a new Administrator for Emergency Communications—within a newly fortified FEMA—that has authority for the direction of most of SAFECOM's programs as well as the Department's responsibilities for the Integrated Wireless Network (see below). The 9/11 Commission has proposed using a signal corps solution to improve communications capacity, without elaborating on how this might be achieved. (Some information on signal corps organization and technology appears later in this report.) Many experts familiar with the macro-level concepts of signal corps communications support suggest that one approach for public safety could be to upgrade the type of emergency communications equipment that can be brought to a disaster site so that it resembles the far-reaching capabilities and capacity of the Army Signal Corps yet is readily accessible to local first responders and other officials "on the ground." In many situations, search and rescue teams in New Orleans and other devastated communities could not communicate with each other because their radios did not use the same frequencies. The difficulties in coordination placed an extra burden on relief efforts. Rescue efforts improved after military forces arrived in part because of their units' superior communications resources. Effective command-and-control operations depend on communications links. Just as the 9/11 Commission looked at the Army Signal Corps as a possible resource for improving interoperable communications, many are now weighing the possibility of giving a greater role to the military for emergency response within the United States. Bottom line, in this view, today the military has the communications equipment to do the job of emergency response while FEMA, the states, and first responders do not. The technology exists, but it has not been deployed at meaningful levels. Although the stories of the failures in organization in responding to disasters on the Gulf Coast are legion, in the area of emergency communications it was usually the inadequate technology that failed first, not the people. The Balanced Budget Act of 1997 requires the FCC to allocate 24 MHz of spectrum at 700 MHz to public safety, without providing a hard deadline for the transfer. The channels designated for public safety are among those currently held by TV broadcasters; they are to be cleared as part of the move from analog to digital television (DTV). The 9/11 Commission urged that Congress take prompt action to assure the release of spectrum at 700 MHz—allocated for public safety, but not released—to support needed interoperable network and more robust communications capacity. Provisions in the Deficit Reduction Act ( P.L. 109-171 ) plan for the release of spectrum by February 18, 2009 and would create a fund to receive spectrum auction proceeds and disburse designated sums to the Treasury and for other purposes. $7,363 million from these auctions would go to reduce the budget deficit as specified in H.Con.Res. 95 . Other disbursements from the fund include a grant program of up to $1,000 million for public safety agencies to deploy systems on 700 MHz spectrum they will receive as part of the transition. The fund and disbursements are to be administered by the National Telecommunications and Information Administration (NTIA). The act also requires the release of spectrum by February 2009. For the funds to be used effectively, therefore, states would benefit from completed plans for using 700 MHz. Although there are a number of provisions for funding programs for communications and planning, none of the existing programs is designed to profit from the new grants program. Effective October 1, 2006, the NTIA will be able to borrow funds for communications interoperability grants. The Congressional Budget Office has projected that the grants program will receive $100 million in FY2007, $370 million in 2008, $310 million in 2009 and $220 million in 2010. The grants are to go for interoperability programs that use or are interoperable with communications systems that can work at 700 MHz. A key criteria is that at least 20% of the costs for acquisition and deployment come from non-federal sources. H.R. 5252 as amended in committee by the Senate ( S. 2686 ) includes detailed language on the dispersal of funds designated for interoperable communications and 911. The 109 th Congress, in its closing hours, passed a bill with a provision requiring that the interoperability grants program receive "no less than" $1 billion to be provided "no later than" September 30, 2007, effectively advancing the full amount immediately. The National Commission on Terrorist Attacks Upon the United States (9/11 Commission) analysis of communications difficulties on September 11, 2001 was summarized in the following recommendation. Congress should support pending legislation which provides for the expedited and increased assignment of radio spectrum for public safety purposes. Furthermore, high-risk urban areas such as New York City and Washington, D.C., should establish signal corps units to ensure communications connectivity between and among civilian authorities, local first responders, and the National Guard. Federal funding of such units should be given high priority by Congress. The Commission, in this paragraph, recognized the important link between access to spectrum and the effectiveness of communications technology. Briefly, the recommendation says: free up and assign more spectrum for public safety use; establish communications support (the role of a signal corps typically is to provide information systems and networks for real-time command and control); with interoperable communications (connectivity); and prioritize funding these communications operations for high-risk urban areas . Although, cumulatively, radio frequencies designated for non-federal public safety total over 90 MHz, the characteristics of these frequencies are dis-similar, requiring different technological solutions. The fragmentation of spectrum assignments for public safety is a significant barrier to achieving needed capacity for the future, and is presently among the technical problems that plague public safety communications, such as out-of-date equipment, proprietary solutions, congestion, and interference. An immediate barrier to interoperability is—simply put—that UHF and VHF frequencies cannot connect directly with each other, and that older, analog equipment widely used below 512 MHz cannot connect with newer digital equipment at 800 MHz. Technology for new frequencies at 4.9 GHz is still in the early stage of development but these frequencies appear suitable primarily for local-area (short-range) transmission. None of the above frequency assignments can, using current technology, support wide-area communications relying on high-speed, data-rich transmissions. Providing new spectrum at 700 MHz for broadband communications capabilities, including interoperable connections, is viewed by many as the optimal solution for overcoming problems caused by incompatible radio frequencies and technologies. With the passage of the Deficit Reduction Act, Congress achieved an important milestone in providing a date certain for the release of spectrum at 700 MHz for public safety use by February 2009. The Intelligence Reform and Terrorism Prevention Act required the FCC, in consultation with the Secretary of Homeland Security and the National Telecommunications and Information Administration (NTIA), to conduct a study on the spectrum needs for public safety, including the possibility of increasing the amount of spectrum at 700 MHz. This provision is responsive to the many public safety officials who believe that additional spectrum should be assigned for public safety use—and not exclusively for first responders. In addition to providing spectrum for other types of users, the spectrum available for public safety should be able to support high-speed transmissions capable of quickly sending data (such as photographs, floor plans and live video). This requires providing frequencies with greater bandwidth to enable wireless broadband and new-generation technologies. Although radio frequencies have been designated for state and local public safety use in the 700 MHz range, there are no allocations specifically for federal use at 700 MHz and the bandwidth assignments are judged by most experts to be too narrow for full broadband. Many have advocated that additional spectrum be allocated at 700 MHz to accommodate federal users and to support newer, broadband wireless technologies as part of a nationwide network for public safety communications. The Spectrum Coalition for Public Safety, for example, has circulated proposals that would allocate additional spectrum at 700 MHz for use by state and local first responders, critical infrastructure industries, and federal public safety agencies. In the study requested by Congress, the FCC sought comment on whether additional spectrum should be made available for public safety, possibly from the 700 MHz band. Comments received from the public safety community overwhelmingly supported the need for additional spectrum, although other bands besides 700 MHz were also mentioned. The FCC did not make a specific recommendation for additional spectrum allocations in the short-term although it stated that it agreed that public safety "could make use of such an allocation in the long-term to provide broadband services." It qualified this statement by observing that spectrum is only one factor in assuring access to mobile broadband services for emergency response. It further announced that it would move expeditiously to see whether the current band plan for the 24 MHz at 700 MHz currently designated for public safety could be modified to accommodate broadband applications. On March 17, 2006, the FCC issued a request for comment on a new band plan that would allocate spectrum for broadband use by first responders within the 24 MHz currently assigned for public safety. The same proposed rulemaking also asked for additional comment on the possible adaptation of a wireless broadband standard for interoperability. The FCC received over 1,000 responses by December 2006, with many comments from the public safety community and commercial wireless interests. One petition, from a company called Cyren Call Communications Corporation, received widespread publicity in the press and through lobbying to Congress. The petition requested the reallocation of 30 MHz (half of the 60MHz currently designated for auction for commercial use by the Deficit Reduction Act) to a "Public Safety Broadband Trust." According to the proposal, the trust would lease capacity not used by public safety to commercial operators that would provide the network infrastructure. The FCC denied Cyren Call's petition, citing, among other reasons, the Congressional mandate to auction the spectrum Cyren Call proposed to use. Other proposals for joint operations were also submitted. One proposal, developed by Access Spectrum and Pegasus Communications Corporation, suggested accommodating broadband wireless by rebanding the 24 MHz allocated to public safety and adding 3 MHz from existing guardband allocations, with some of the spectrum shared with commercial operators. Verizon Wireless reportedly proposed to build a broadband network for public safety use on half of the 24 MHz of spectrum assigned to public safety, using the other 12 MHz for mixed use, with the cost of building the infrastructure recovered through leasing arrangements and fees. In December 2006, the FCC issued a Notice of Proposed Rulemaking that proposed to turn over management of the 24MHz of spectrum designated for public safety to a not-for-profit group that would, among other responsibilities, hold a national license that would support public safety with a broadband wireless backbone. In the NPRM, the FCC states that it is responding to "an opportunity to put in place a regulatory framework that would ensure the availability of effective spectrum in the 700 MHz band for interoperable, public safety use." To achieve this, the FCC is presenting a "plan that we believe may best promote the rapid deployment of a nationwide, interoperable broadband public safety network ...[with] a centralized and national approach to maximize public safety access...." The NPRM outlines seven points. Allocate 12 MHz from the 700 MHz band assigned to public safety for broadband use by state and local public safety members. Assign this 12 MHz of spectrum to a single licensee, nationwide. Permit this licensee to operate commercially on the remaining 12 MHz allotted to public safety with public safety having priority access when needed. Permit the licensee to provide public safety broadband access on a fee for service basis. Permit the licensee to provide unconditionally preemptible access to commercial operators. Facilitate the shared use of commercial mobile infrastructure. Establish "performance requirements for interoperability, build out, preemptibility of commercial access, and system robustness." In the NPRM, the FCC states its case for how the proposal meets objectives for "public safety communications in the twenty-first century" and provides some information about the selection of a national licensee and the license-holder's obligations. The FCC proposes that the licensee should meet criteria such as not-for-profit status, experience with public safety frequency coordination, and the ability to directly represent all public safety interests. Responsibilities would include the design and implementation, build-out, and maintenance of a national network, the coordination of eligibility for access for public safety, and the leasing of capacity to commercial users. The licensee would be able to charge fees for the use of its services, such as access to the network, to both public safety and commercial users. The NPRM also seeks comments on secondary operations by commercial users on the remaining 12 MHz of spectrum assigned by Congress for public safety use. Currently the FCC permits public safety licensees to lease spectrum assigned to them only for use by other public safety entities. The FCC uses the NPRM to propose exempting the new, national public safety licensee from limitations it imposes on existing public safety entities. Public safety's demand for spectrum fluctuates from modest during routine operations to high during times of crisis. Many would agree that sharing frequencies and access to networks with commercial operations makes sense. The FCC is proposing to share spectrum by halving public safety's allotment of exclusive spectrum from 24MHz to 12MHz in the 700 MHz band. Alternative solutions for spectrum sharing could be achieved through relocation in other bands or by designating other 700 MHz frequencies for shared use. The 9/11 Commission recommendation to use signal corps to assure connectivity in high-risk areas is apparently a reference to the Army Signal Corps. In testimony before Congress, Commissioner John F. Lehman commented on the lack of connectivity for first responders and referred to the "tremendous expertise" of the Department of Defense (DOD) and its capabilities in procurement, technology, and research and development. Referring specifically to the Army Signal Corps, Mr. Lehman suggested that the DOD should have responsibility to provide "that kind of support to the first responders in the high-target, high risk cities like New York." The role of a signal corps typically is to provide information systems and networks for real-time command and control. The Army maintains mobile units to provide capacity and specialized support to military operations, worldwide. According to the U.S. Army Info Site on the Internet The mission of the Signal Corps is to provide and manage communications and information systems support for the command and control of combined arms forces. Signal support includes Network Operations (information assurance, information dissemination management, and network management) and management of the electromagnetic spectrum. Signal support encompasses all aspects of designing, installing, maintaining, and managing information networks to include communications links, computers, and other components of local and wide area networks. Signal forces plan, install, operate, and maintain voice and data communications networks that employ single and multi-channel satellite, tropospheric scatter, terrestrial microwave, switching, messaging, video-teleconferencing, visual information, and other related systems. They integrate tactical, strategic and sustaining base communications, information processing and management systems into a seamless global information network that supports knowledge dominance for Army, joint and coalition operations. The Army Signal Corps is intended to provide a communications backbone, a core network, with important elements such as spectrum management, the operation of communications centers, and support of communications networks that include both large area regional communications and radio coverage for local wireless interoperability. The Corps' communication backbone delivers connectivity on site among combined forces and connectivity to command centers. These operations are scalable and can be deployed when and where needed. Responsibility to coordinate and rationalize federal networks, and to support interoperability, has been assigned to SAFECOM by the Office of Management and Budget (OMB) as an e-government initiative. This role has been supported by the Administration and confirmed by Congress with language in the National Intelligence and Terrorism Prevention Act. Programs at SAFECOM, now placed within the DHS Office for Interoperability and Compatibility, are primarily consultative in nature and focused on administrative issues. While it makes important contributions to testing equipment and working on technical and operational standards for interoperable equipment, SAFECOM does not appear to be planning for a standardized approach that can encompass state networks for public safety communications. Separately, an Integrated Wireless Network (IWN) for law enforcement is being planned as a joint program by the Departments of Justice, the Treasury, and Homeland Security. DHS is represented in the IWN Joint Program Office through the Wireless Management Office of the Chief Information Officer. IWN, from its description, will have limited interoperability at the state and local level. The described objective of IWN is network integration for "the nation's law enforcement wireless communication, and data exchange capability through the use of a secure integrated wireless network." Most of the parameters of the IWN program—equipment, technologies, standards, use of spectrum, etc.—will be established through the final choice of vendor or vendors and the network solutions proposed. There are some specific requirements, such as for open standards or standards that are readily available to all—such as Project 25— and use of VHF frequencies already assigned to federal users. For Phase I, five companies were asked to submit a detailed system design and an implementation plan and encouraged to provide "innovative, big-picture, solution sets." Two of the competitors have been selected to advance to Phase II, announced June 9, 2006. General Dynamics and Lockheed Martin have been awarded contracts to participate in an open-market competition in which they will submit non-proprietary designs and implementation plans for designated geographic areas. It is expected that the government will select one of these companies to act as systems integrator for the wireless communications services network. The departmental objectives for coverage are: major metropolitan areas; major highways; U.S. land and sea border areas; and ports of entry. The reported estimated cost for IWN is $10 billion. Funding is provided jointly from budgeted sums designated for the upgrading of communications equipment to meet NTIA requirements for narrowbanding and interoperability. Although the network being sought is intended to serve law enforcement users within the three sponsoring departments, descriptions of the program invoke the possibility that IWN will provide the template for national interoperability. In terms of achieving interoperability for the nation's first responders, the deployment of IWN could be viewed by some as a glass that is either half empty or half full. Among the positive contributions that IWN will provide to public safety communications are: the eventual adoption, on a massive scale, of a network architecture that can be emulated by all—presumably with standardized interfaces; coordination of communications and interoperability among important components of homeland security; and significant improvements in communications technology and the efficient use of spectrum. There could be questions as to how this project, running parallel with plans from the Office of Interoperability and Compatibility, will impact the goal that Congress has set for nationwide interoperability. Will it, for example, delay work on standards development until the process of vendor selection is complete and the standards for IWN have been fully established? Will the proposed interface between federal law enforcement personnel and selected state and local officials be extendable to, say, interoperability between those officials and local firefighters or EMS personnel? Should other federal networks be built along functional lines and then linked with IWN, possibly providing the connectivity needed at the state and local level among different types of responders? Will there be a link to emergency alert and warning systems? Could IWN serve as a connecting link between state and local first responder networks and the military? The specification to use federal frequencies apparently solves the problem of spectrum access for IWN but does not appear to move toward the solution to the vexing problem of providing suitable radio frequencies for interoperability for first responders. The frequencies currently designated for IWN to use are the same frequencies that were generally not available to those responding to terrorist attacks on September 11, 2001. Congress responded to recommendations for improvements in programs to support communications and foster interoperability with language in the Intelligence Reform and Terrorism Prevention Act that raises the bar for performance and accountability, as well as easing some of the obstacles to performance. Among the program goals the act sets for the Department of Homeland Security and the Federal Communications Commission (FCC) are the following. Develop a comprehensive, national approach for achieving interoperability. Coordinate with other federal agencies. Establish appropriate minimum capabilities for interoperability. Accelerate development of voluntary standards. Encourage open architecture and commercial products. Assist other agencies with research and development. Prioritize within DHS for research, development, testing and related programs. Establish coordinated guidance for federal grant programs. Provide technical assistance. Develop and disseminate best practices. Establish performance measurements and milestones for systematic measurement of progress. The Department of Homeland Security Appropriations Act for 2007 ( H.R. 5441 , Representative Rogers) included provisions from S. 3595 (Senator Collins) that were accepted by the Senate as S.Amdt. 4560 , with final language agreed though compromise. Many of the provisions incorporated in S.Amdt. 4560 are based on provisions in H.R. 5351 (Representative Reichert). The House passed H.R. 5351 , the National Emergency Reform and Enhancement Act, on July 25, 2006. The appropriations bill was agreed in conference and signed by the President on October 4, 2006 ( P.L. 109-295 ). The sections that deal with emergency communications (Title VI, Subtitle D) add substantive language for improving emergency communications to the Homeland Security Act, building on provisions included in the Intelligence Reform and Terrorism Prevention Act ( P.L. 108-458 ). The provisions of P.L. 109-295 that deal with emergency communications place responsibility for developing a national program and plan with a new Administrator, appointed by the Secretary for Homeland Security, reporting to the Assistant Secretary for Cyber Security and Telecommunications. Other responsibilities of the Director include conducting outreach programs, providing technical assistance, coordinating regional working groups, promoting the development of standard operating procedures and best practices, establishing non-proprietary standards for interoperability, working with the National Communication System to establish a national response capability, developing a National Communications Plan, working to assure operability and interoperability of communications systems for emergency response, and reviewing grants. The amendment specifies required elements of the National Emergency Communications Plan, establishes requirements for assessments and reports, and, in particular, requires an evaluation of the feasibility of developing a mobile communications capability modeled on the Army Signal Corps. General rules are provided for coordination of emergency communication grants, and for a Regional Emergency Communications Coordination (RECC) Working Group. An Emergency Communications Preparedness Center would be established. Specific provisions are included covering urban and other high risk communications capabilities. The responsibilities of the Office of Interoperability and Compatibility are clarified regarding standards development, research, developing and assessing new technology, coordination with the private sector, and other duties. The development of a comprehensive research and development program is required. The viability of 911 networks is also addressed, with a requirement for the FCC to report to Congress on plans for rerouting 911 calls when 911 capabilities are impaired after a disaster. Grants that have helped to pay for programs for interoperability have come from a number of federal sources, notably from Department of Justice programs and, within the Department of Homeland Security (DHS), from the Federal Emergency Management Administration (Emergency Preparedness and Response Directorate) and the Office for Domestic Preparedness (ODP) in the Border and Transportation Security Directorate. Grant programs such as those at ODP for Urban Area Security and High-Threat Urban Areas are on-going. Provisions of the Intelligence Reform and Terrorism Prevention Act permit federal funding programs to make multi-year commitments for interoperable communications for up to three years, with a ceiling of $150 million for future obligations. The act authorizes annual sums for a period of five years to be used for programs to improve interoperability and to assist interoperable capability in high-risk urban areas; the 2005 authorization is $22,105,000; the amount rises each year to $24,879,000 in 2009. To facilitate the clearing of spectrum for revenue-generating auctions, Congress included measures in the budget reconciliation process to create special funds to hold part of spectrum auction proceeds for special purposes; the balance would go to reduce the budget deficit. The Deficit Reduction Act of 2005 ( P.L. 109-171 ) creates a single fund, the Digital Television Transition and Public Safety Fund, to hold all auction proceeds and make disbursements to several programs. $7,363 million from any auction(s) of spectrum at 700 MHz, is slated go to reduce the budget deficit as specified in H.Con.Res. 95 . Other disbursements from the fund include a program that would expend up to $1,500 million on coupons for households toward the purchase of TV set top boxes that can convert digital broadcast signals for display on analog sets; a grant program of up to $1,000 million for public safety agencies to deploy systems on 700 MHz spectrum they will receive as part of the transition; payments of up to $30 million toward the cost of temporary digital transmission equipment for broadcasters serving the Metropolitan New York area; payments of up to $10 million to help low-power television stations purchase equipment that will convert full-power broadcast signals from digital to analog (Sec. 3008); a program funded up to $65 million to reimburse low-power television stations in rural areas for upgrading equipment from analog to digital technology; up to $106 million to implement a unified national alert system and $50 million for a tsunami warning and coastal vulnerability program; contributions totaling no more than $43.5 million for a national 911 improvement program established by the ENHANCE 911 Act of 2004; and up to $30 million in support of the Essential Air Service Program. The fund and disbursements are to be administered by the National Telecommunications and Information Administration. Effective October 1, 2006, the NTIA will be able to borrow some of the authorized funds from the Treasury, secured by the expected proceeds of the auction required by the bill. These funds can be used to implement transition programs for digital television and for some public safety projects. The Advanced Telecommunications And Opportunity Reform Act, ( H.R. 5252 as amended in committee by the Senate) would impose guidelines for expenditures of the $ 1 billion designated for interoperable communications—and would include interoperability for 911 operations. Authority for the grants program would be transferred to the Department of Homeland Security. The debate about public safety communications and the role of federal policy is long running. The framework for current discussions—which accommodate recent advances in technology—most likely dates to a report in 1996 by the Public Safety Wireless Advisory Committee (PSWAC). Listed below are some key components of a desirable public safety communications policy for first responders described in the PSWAC study and in more recent reports, testimony, and other comments cited in this report. According to these sources, a national policy for public safety communications needs to address and correlate a myriad of complex goals, such as Coordinated assignment and use of spectrum at various frequencies. Muscular and sustained efforts to complete the development and application of technical and operational standards. Public sector adaptation of new technologies already available in the private sector such as for high-speed, data rich, and video or image transmissions. Long-term support of research and development for new technology. Coherent goals that encourage private investment in technology development. Nationwide network of communications operations centers (regional signal corps) that can serve as back-up facilities to each other and to state and interstate centers and networks. Interoperability of communications among first responders and public safety agencies. Managerial structure that can successfully coordinate not only disparate federal, state, and local agencies but also the different cultural and technical needs of independent first responder units. Framework to match policy goals with implementation needs to assure the effectiveness of federal funding for programs and grants. Beginning in 2003, President George W. Bush has issued several memoranda to establish and guide a national Spectrum Policy Initiative, lead by the Secretary of the Department of Commerce. As required by the President, the Secretary submitted a plan to implement recommendations previously provided by the Federal Government Spectrum Task Force. The planning process is being guided by the NTIA, which has established seven projects dealing with aspects of spectrum policy. These projects are: A. Improve Stakeholder Participation and Maintain High Qualifications of Spectrum Managers B. Reduce International Barriers to U.S. Innovations in Technologies and Services C. Modernize Federal Spectrum Management Processes with Advanced Information Technology D. Satisfy Public Safety Communications Needs and Ensure Interoperability E. Enhance Spectrum Engineering and Analytical Tools F. Promote Efficient and Effective Use of Spectrum G. Improve Long-term Planning and Promote Use of Market-based Economic Mechanisms in Spectrum. Project D, dealing with public safety needs, has two components. As part of Project D, DHS, as directed by the President, will conduct an inventory of the spectrum requirements of the public safety community, identify the major public safety requirements for spectrum-dependent services at local, regional and state government agencies, and analyze the efficiency and effectiveness of the spectrum used by the public safety community. The NTIA, in coordination primarily with the FCC, will examine the feasibility of sharing spectrum among commercial, federal and local public safety, and critical infrastructure applications. The FCC is seeking comment on goals for the test-bed, which will designate radio frequencies for shared use between federal and non-federal users. The lead federal program for fostering interoperability is administered by the Wireless Public SAFEty Interoperable COMmunications Program, dubbed Project SAFECOM, part of the Department of Homeland Security. The key federal agencies for spectrum management in first responder communications are the Federal Communications Commission (FCC) and the National Telecommunications and Information Administration (NTIA). Among other responsibilities, the FCC supervises spectrum for non-federal public safety agency communications. The NTIA—part of the Department of Commerce—administers spectrum used by federal entities. SAFECOM has not to date played a major role in spectrum policy. DHS has created an Office of Interoperability and Compatibility (OIC) of which SAFECOM is a part. In June 2004 DHS announced the creation of a Regional Technology Integration Initiative. DHS has also announced the organization of a National Incident Management System (NIMS) in response to a Presidential Directive (HSPD-5). A NIMS Integration Center is planned to deal with compatibility and could be responsible for at least some interoperable communications. National Telecommunications and Information Administration To address the need for interoperability spectrum, in June 1999 the NTIA designated certain federally-allocated radio frequencies for use by federal, state, and local law enforcement and incident response entities. The frequencies are from exclusive federal spectrum, and are adjacent to spectrum used by state and local governments. NTIA's "interoperability plan,"—developed in coordination with the Interdepartmental Radio Advisory Committee (IRAC) —is used to improve communications in response to emergencies and threats to public safety. In 1996, the NTIA created a public safety program to coordinate federal government activities for spectrum and telecommunications related to public safety. Today, its successor, the Public Safety Division of the Office of Spectrum Management, participates in various initiatives to improve and coordinate public safety communications. The Division is preparing a Spectrum Efficiency Study and an Interoperable Communications Summary Guide . Two forums on public safety and spectrum use have been sponsored by the NTIA, one in June 2002 and another in February 2004. Additionally, evaluating spectrum for public safety use has been included in the NTIA's ongoing work in support of President George W. Bush's Spectrum Initiative Policy. Federal Communications Commission Over roughly the last 20 years, the FCC has initiated several programs that involve state, local, tribal and—usually—private sector representatives. In 1986, it formed the National Public Safety Planning Advisory Committee to advise it on management of spectrum in the 800 MHZ band, newly designated for public safety. The following year, the FCC adopted a Public Safety National Plan that, among other things, established Regional Planning Committees (RPC) to develop plans that met specific needs. The FCC encourages the formation of RPCs with a broad base of participation. The RPCs have flexibility in determining how best to meet state and local needs, including spectrum use and technology. The regional planning approach is also being applied to spectrum in the Upper 700 MHz band. Technical and operational standards, including interoperability standards, were developed and recommended to the FCC through the Public Safety National Coordination Committee (NCC). Standards for narrowband radio applications, for example, were recommended to the FCC and adopted in early 2001. Established by the FCC in 1999 and ended in 2003, the NCC had a Steering Committee from government, the public safety community, and the telecommunications industry. Homeland Security After Hurricane Katrina, the FCC established a panel to examine the impact of Hurricane Katrina and make recommendations to the FCC regarding actions it might take to improve public safety operations, disaster preparation, and network reliability. The independent panel has issued a report with recommendations for changes in communications preparedness and response that might be considered by the FCC or others. The FCC has solicited comments on the panel's recommendations. In September 2006, the FCC established a Public Safety and Homeland Security Bureau within the agency. The new bureau brings together public-safety and communications functions previously dispersed throughout the agency. The announced goal of the bureau is to promote "robust, reliable and resilient communications in times of emergency." Among past actions by the FCC specifically in support of homeland security were the chartering of the Media Security and Reliability Council (MSRC) and the renewal of the charter for the Network Reliability and Interoperability Council (NRIC). Both of these are Federal Advisory Committees. MSRC has been active in evaluating the effectiveness of the Emergency Alert System. The primary role of NRIC is to develop recommendations for best practices for private sector telecommunications to insure optimal reliability, interoperability, and connectivity of networks. The current NRIC focus groups are: Near Term Issues, E911; Long Term Issues, E911; Best Practices, E911 and Public Safety; Emergency Communications Beyond E911; Best Practices, Homeland Security - Infrastructure; Best Practices, Homeland Security - CyberSecurity; Best Practices, Wireless Industry; Best Practices, Public Data Networks; and Broadband. Spectrum and Interoperability The FCC's strategic goal for spectrum is to "Encourage the highest and best use of spectrum domestically and internationally in order to encourage the growth and rapid deployment of innovative and efficient communications technologies and services." Regarding interoperability, the FCC describes its role as "directing efforts toward allocating additional spectrum for public safety systems, nurturing technological developments that enhance interoperability and providing its expertise and input for interagency efforts such as SAFECOM." However, the FCC asserts that there are limitations on what it can do. "The Commission is only one stakeholder in the process and many of the challenges facing interoperability are a result of the disparate governmental interests ... making it difficult to develop and deploy interoperable strategies uniformly." Department of Homeland Security National Response Plan The National Response Plan lays out organization charts for authority and responsibility in Incidents of National Significance and after the declaration of a disaster or an emergency. One of the key players for emergency communications is the National Communications System (NCS). The primary role of NCS is to assure federal communications and the integrity of certain vital networks, such as for banking. It also is prepared to assist in recovery and restoration of service for commercial and emergency services. The NCS has no significant role in providing emergency communications support for first responders. The job of coordinating communications is assigned by the National Response Plan to the Federal Emergency Communications Coordinator. As described in the plan, the power of this position to command and deliver needed communications support is limited, and in any event, it occurs after the fact. Office of Interoperability and Compatibility The function of the Office of Interoperability and Compatibility (OIC) is to address the larger issues of interoperability. Among the goals of the OIC is the "leveraging" of "the vast range of interoperability programs and related efforts spread across the Federal Government" to "reduce unnecessary duplication" and "ensure consistency" in "research and development, testing and evaluation (RDT&E), standards, technical assistance, training, and grant funding related to interoperability." To achieve this, DHS will create within OIC "a series of portfolios to address critical issues." The OIC's initial priorities are for communications (SAFECOM), equipment, training and "others as required." To fulfill the portfolios, OIC will use a "systems engineering or lifestyle approach" to create "action plans." These will be "developed through a collaborative process that brings together the relevant stakeholders to provide clear direction on a path forward." This "end-user" input is expected to produce "a strategy and action plan" for each portfolio. No time line for accomplishing these planned steps has of yet been provided. SAFECOM With the support of the Administration, Project SAFECOM was designated the umbrella organization for federal support of interoperable communications. It was agreed within DHS that SAFECOM would be part of the Science and Technology Directorate, in line with a policy for placing technology prototype projects under a single directorate; this decision was reportedly based on the research-oriented nature of the programs envisioned for SAFECOM by its administrators. The Intelligence Reform and Terrorism Prevention Act affirmed this decision by giving DHS the authority to create an office for interoperability within the Science and Technology Directorate and to manage SAFECOM as part of that effort. SAFECOM has released a template for interoperability planning that can be used by states to establish a strategy for interoperability. It prepared a methodology to establish a baseline for interoperability achievements as an evaluation tool to measure the success of future interoperability programs. The methodology was applied in a study with voluntary participation. The study sent surveys to fire response/emergency services and law enforcement in all 50 states and the District of Columbia. The agencies were asked to rate the level of interoperability within their jurisdictions, not including federal authorities. The findings from this survey were published in December 2006. SAFECOM absorbed the Public Safety Wireless Network (PSWN) Program, previously operated jointly by the Departments of Justice and the Treasury. PSWN was created to respond to recommendations made by the Public Safety Wireless Advisory Committee regarding the improvement of public safety communications over wireless networks. PSWN operated as an advocate for spectrum management policies that would improve wireless network capacity and capability for public safety. SAFECOM, however, has no authority over spectrum management decisions. The following quote is a summary of SAFECOM's position on spectrum policy. Spectrum policy is an essential issue in the public safety communication arena. Unfortunately, State and local public safety representatives are frequently not included in spectrum policy decisions, despite their majority ownership of the communications infrastructure and their importance as providers of public and homeland security. SAFECOM will hence play a role in representing the views of State and local stakeholders on spectrum issues within the Federal Government. Last year, SAFECOM was appointed to an interagency Spectrum Task Force to contribute such views, and the ongoing working relationship that has developed between SAFECOM and the FCC will, we believe, pay huge dividends in the future. SAFECOM was chosen in October 2001 as one of 24 e-government initiatives. It was categorized as a government-to-government initiative in the original strategizing for e-government programs. When SAFECOM was created in 2001, the managing partner for SAFECOM was the Department of the Treasury. Subsequently, the program was assigned to the Federal Emergency Management Agency (FEMA), following FEMA when it moved to the Emergency Preparedness and Response Directorate of the Department of Homeland Security (DHS). Once at DHS, SAFECOM was assigned to the Directorate of Science and Technology. As the Government Accountability Office (GAO) has noted in testimony and reports, the change in leadership has delayed progress at SAFECOM. The GAO has also expressed concern over a lack of leadership and focus and raised questions of governance. Testimony by David Boyd has stressed the importance to SAFECOM of more authority in certain funding decisions and in its interactions with other federal agencies, and the need for an in-depth gap analysis—the assessment of current levels of interoperable communications capability compared to requirements. The GAO has recommended that the Director of the Office of Management and Budget work with DHS to review SAFECOM's functions and establish a long-term program with appropriate authority and funding to coordinate interoperability efforts across the federal government. Other notable observations from the GAO include: The fragmented federal grant structure for first responders does not support statewide interoperability planning. SAFECOM has developed grant guidance for interoperability, but cannot require that consistent guidance be incorporated in all federal first responder grants. The federal government can provide the leadership, long-term commitment, and focus to help state and local governments meet interoperability goals. For example, the federal government can provide the leadership and support for developing (1) a national database of interoperable communications frequencies, (2) a common nomenclature forthose frequencies, (3) a national architecture that identifies communications requirements and technical standards, and (4) statewide interoperable communications plans. SAFECOM, however, articulated a different approach in testimony and its 2003 Strategy Planning Session. In its strategy summary, it reported that it intends, over the course of 10 to 20 years, to "Adopt a national strategy from the bottom up to incorporate effective public safety communications." Boyd also reaffirmed his belief that "any effort to improve communications interoperability must be driven from the bottom up." This approach necessitates a focus on communications at the incident level. At this level, SAFECOM appears to be giving the greatest attention to improving radio interoperability, particularly through the deployment of cross-talk hardware. This decision in turn leads to an emphasis on increasing the amount of equipment standardization, improving operating standards and protocols, and consulting on how to install and use new equipment. According to Boyd's testimony, the focus for SAFECOM is on three areas: creation of an architectural framework, the development of standards, and the coordination of federal activities. The architectural framework is intended to aid SAFECOM in determining priorities for the development of standards. The framework "will reflect a system-of-systems approach to develop interface standards to help improve the problem of communications interoperability." It appears that it will be modeled along the lines of a pyramid, with decision-making starting at the base and building up. The organic nature of the SAFECOM model for infrastructure development apparently requires a long time-line (usually extending, in testimony, to 20 years) and resists description in terms of long-term goals and deadlines. By describing its achievements and plans within the framework of short-term milestones, many of which involve the preparation of studies by outside consultants, SAFECOM appears to have avoided addressing many of the strategic goals originally envisioned for its mission, without an official explanation for the shift in emphasis. SAFECOM Strategy as an E-Government Initiative In 2002 and 2003, OMB sequentially described SAFECOM's mission, milestones and goals. It appears that many of these goals have not been met, or have been modified. The 2002 E-Government Strategy document described SAFECOM's mission as follows: For public safety officials to be effective in their daily responsibilities, as well as before, during and after an emergency event, public safety agencies throughout all levels of government, i.e. federal, state and local, must be able to communicate with each other. This initiative would address the Nation's critical shortcomings in efforts by public safety agencies to achieve interoperability and eliminate redundant wireless communications infrastructures. At the same time, it would assist state and local interoperability and interoperability between federal public safety networks. Value to Citizen: Coordinated public safety/law enforcement communication will result in saved lives, as well as better-managed disaster response. Consolidated networks will yield cost savings through reduction in communication devices, management overhead of multiple networks, maintenance and training. Value to the Government: Billions of dollars could be saved through a right-sized set of consolidated, interoperable federal networks, linked to state wireless networks, resulting in a reduction in communications infrastructure, overhead, maintenance and training. Milestones - 2002 In February 2002, SAFECOM milestones, all planned for completion by the end of that year, included the following: Define the communications concept of operations for interaction that identifies the communications requirements to address the two highest probable threat scenarios: Bio terrorism and natural disasters. Develop an integrated public safety response solution that addresses the top two threat scenarios by using existing infrastructure augmented by available commercial capability. Complete a gap analysis of existing inventories of public safety wireless communications at federal, state and local level. Goals - 2003 In the April 2003 E-Government Strategy Report, the immediate (2003) goals for SAFECOM were restated, as follows: Define the requirements for first responder interoperability at state, local, tribal, and federal levels to develop a long-term architecture. Identify gaps between existing wireless systems and interoperability requirements. Develop national architecture Develop concept of operations for interoperability. Many Goals Not Met Comparing the stated goals of SAFECOM as an e-government program, with its current progress and programs, it appears that the emphasis has been on short-term goals. There is virtually no indication, in testimony, of long-term planning for national interoperability. Among its accomplishments, SAFECOM has partly met the goal of developing a requirements statement with the qualitative assessment of communications needs at the incident level, as provided in the March 2004 "Requirements" document. A gap analysis is reportedly underway, a delivery date of late 2005 has been extended to mid-2006. The "concept of operations" for "interaction" (2002) or "interoperability" (2003) could be equated with the pyramid structure advocated by SAFECOM, discussed below, and this may provide the framework for an "integrated public safety response solution." An integrated response solution and a national architecture are promised for the future. The 2002 milestone of providing a plan to use "existing infrastructure augmented by available commercial capability" is being addressed if infrastructure is defined as local radio communications equipment bolstered by cross-patch hardware. It is not being met, and seems to have been rejected by SAFECOM, if infrastructure is meant to include wide-area networks, Internet communications backbones and other regional or national communications capacity that would provide broad-based communications the support. In testimony, OMB described SAFECOM goals as including the provision of "interoperable wireless solutions for Federal, state, and local public safety organizations," that would include "coordination of all Federal interoperability efforts." In OMB's description of long-term strategic goals, as outlined in the 2003 e-gov plan, there appears to be an implicit assumption that there are redundant wireless communications infrastructures that can be identified and eliminated. This planning document describes the SAFECOM initiative as addressing "critical shortcomings," including two significant points where communications interoperability is lacking; interoperability between state and local authorities, as well as interoperability between federal public safety networks. The plan indicates that some (unidentified) networks would be consolidated to yield costs savings. Further "Billions of dollars" in savings are presumed by creating a right-sized set of consolidated, interoperable federal networks, linked to state wireless networks. To date, there appears to be no information on SAFECOM plans for improving wireless communications networks at the national or regional level; the focus of the program on hardware solutions at the incident level would seem to preclude plans for network interoperability or the establishment of standards for new interoperable technologies such as mesh networks or cognitive radios. Work at the incident level is primarily local, focused on short-range interoperability solutions. Wide area networks and nationwide, end-to-end communications rely on technologies not being tested or evaluated by SAFECOM at the incident level. In particular, the build-from-the-bottom-up approach for interoperability, advocated by SAFECOM, would appear to be at odds with the e-government goal of achieving efficiencies at the communications network level. Modern networks, with their incorporation of software programs on chips, other software-programmable technologies, nanotechnology, and meshed communications systems, to cite some examples, are generally built out from a common design, requiring some degree of centralization. In that respect, the goals of the IWN appear to be more aligned to the original goals of the e-government strategy. Its intentions include the construction of a national network, the identification and prioritization of end-user functional requirements, and the use of open standards that would be adapted by other public safety agencies. Evolution of SAFECOM's Goals The explanation of SAFECOM provided in 2002 by OMB, would suggest that the original mission was much broader than the milestones that have been used to chart progress. It is possible, therefore, that SAFECOM has not merely suffered delays because of changes in the managing partner, as the GAO has observed, but also because it has changed course, redefining its purpose. Regional Technology Integration Initiative In June 2004, the Directorate of Science and Technology introduced a new initiative to facilitate the transition of innovative technologies and organizational concepts to regional, state, and local authorities. The initiative has selected four urban areas from among those currently part of the Homeland Security Urban Area Security Initiative. Two of the areas that have been reported as choices are Cincinnati, Ohio and Anaheim, California. Each area will reportedly receive $10 million to expand new systems that test more advanced technologies for public safety communications, including interoperability. Anaheim, for example, reportedly has created a virtual operations center (instead of a building), relying on network technology to connect police, fire, medical services and public utilities in case of an emergency. The announced goal is to get all who respond to disasters and other emergencies to work from a common base. National Incident Management System (NIMS) NIMS also has announced plans to address questions of interoperability and communications, although no mention of spectrum policy is mentioned in the DHS report on NIMS issued March 1, 2004. The objective for communications facilitation is summarized as "development and use of a common communications plan and interoperable communications processes and architectures." NIMS envisions mandatory compliance with "national interoperable communications standards, once such standards are developed." These standards will include interoperable wireless communications for "Federal, State, local and tribal public safety organizations." Integrated Wireless Network The Integrated Wireless Network (IWN) for law enforcement is being planned as a joint program by the Departments of Justice, the Treasury, and Homeland Security. DHS is represented in the IWN Joint Program Office through the Wireless Management Office of the Chief Information Officer. IWN, from its description, will have limited interoperability at the state and local level. The described objective of IWN is network integration for "the nation's law enforcement wireless communication, and data exchange capability through the use of a secure integrated wireless network." National Communications System The National Communications System is assigned responsibility for telecommunications under the Secretariat of Information Analysis and Infrastructure Protection within DHS. It was originally within the Department of Defense, established by Executive Order in 1984 "to assist the President ... in 1) the exercise of the telecommunications functions and responsibilities, and (2) the coordination of the planning for and provision of national security and emergency preparedness communications..." It consults with the National Security Telecommunications Advisory Committee (NSTAC), among others, on issues related to national security and emergency preparedness telecommunications. It is closely linked to the White House through NSTAC, which advises the President on national security telecommunications matters, and the National Security Council. Its primary functions for National Security and Emergency Preparedness are to assure critical telecommunications access for selected federal and state agencies, to coordinate restoration of service with the private sector, and to establish priorities in the restoration of service. Among its services in time of disaster, NCS operates the National Coordinating Center (NCC) for Telecommunications—which coordinates public and private sector efforts to restore telecommunications—and manages an Individual Mobilization Augmentee program to in bring civilian and military reservists to assist recovery efforts. Other Coordinating Bodies SAFECOM has created a Federal Interoperability Coordination Council (FICC), made up of "all the federal agencies with programs that address interoperability." Previously, as part of its e-government mandate to rationalize federal programs for interoperability, SAFECOM met with representatives from 60 different programs operated by the federal government or funded by or partnered with a federal agency. Many of these programs include state committees and national associations such as the Association of Public-Safety Communications Officials - International (APCO). Part of the National Coordination Committee's mission was to encourage the creation of Statewide Interoperability Executive Committees (SIEC), to take part in coordination efforts. The National Public Safety Telecommunications Council (NPSTC) is another important coordinating body. NPSTC unites public safety associations to work with federal agencies, the NCC, SIECs and other groups to address public safety communications issues. It has been supported by the AGILE Program, created by the National Institute of Justice (NIJ). AGILE has addressed interim and long-term interoperability solutions in part by testing standards for wireless telecommunications and information technology applications. The AGILE Program also has provided funding to Regional Planning Committees for start-up costs and the preparation and distribution of regional plans. AGILE has been restructured, replaced by a more limited function in Communications Technology, CommTech. CommTech is not designed to play a primary role in coordinating interoperability policy within the public safety community. The SIECs, NPSTC, Regional Planning Committees and other federally-supported but not federally-directed organizations play key roles as facilitators in advancing programs for public safety communications. In recent testimony quoted above, both SAFECOM and the FCC have described their roles primarily as facilitators also. SAFECOM and DHS, in its plans for the Office of Interoperability and Cpatibility, seem to place a high priority on consultative functions. It appears that OIC policy will focus on portfolios of recommendations for achieving interoperability at an incident site and not on establishing the higher levels of interoperability provided by network support and back-up from regional communications command centers. In its discussions of Emergency Operations Centers and Incident Command Systems, however, NIMS seems to indicate the need for a national network architecture and fixed as well as mobile operations centers for communications network support. The Regional Technology Integration Initiative has been established to Act as a catalyst between existing technology used by first responders and the innovative technology needed in the future. It seeks to work at the local, state and regional levels but appears to favor solutions that can be applied on a regional basis. | Since September 11, 2001, the effectiveness of America's communications capabilities in support of the information needs of first responders and other public safety workers has been a matter of concern to Congress. The Intelligence Reform and Terrorism Prevention Act of 2004 (P.L. 108-458) included sections that responded to recommendations made by the 9/11 Commission, in its report of July 2004, and by others in recent years, regarding public safety communications. Most public safety advocates consider that the communications failures following the onslaught of Hurricane Katrina demonstrate that there is much still to be done to provide the United States with adequate communications capabilities in emergencies. Senator Susan M. Collins introduced a bill (S. 3595), to reinforce the authority of the Federal Emergency Management Agency within the Department of Homeland Security (DHS), including planning and organizational responsibilities for emergency communications. The Department of Homeland Security Appropriations Act for 2007 (H.R. 5441, Representative Rogers) incorporated provisions from S. 3595 that were accepted by the Senate as S.Amdt. 4560. Many of the provisions in the agreed version of S.Amdt. 4560 were based on provisions in H.R. 5351 (Representative Reichert). The House passed H.R. 5351, the National Emergency Reform and Enhancement Act, on July 25, 2006. The appropriations bill was agreed in conference and signed by the President on October 4, 2006 (P.L. 109-295). The sections that deal with emergency communications (Title VI, Subtitle D) add substantive language for improving emergency communications to the Homeland Security Act, building on provisions included in the Intelligence Reform and Terrorism Prevention Act. Many of the proposed bills introduced in the 109th Congress that would have aided public safety and emergency communications were written to strengthen the federal government's capabilities in responding to emergencies. Bills introduced include S. 3721 (Senator Collins); H.R. 5852 (Representative Reichert ); S. 3172 (Senator Clinton); H.R. 5759 (Representative Harris); S. 1725 (Senator Lieberman) and S. 1703 (Senator Kerry). The Deficit Reduction Act of 2005 (P.L. 109-171) includes provisions for up to $1 billion for interoperable communications, as well as for improvements in 911 and emergency alert systems. H.R. 5252 as amended in committee by the Senate, re-titled the Advanced Telecommunications and Opportunities Reform Act, includes detailed language on the dispersal of funds designated for interoperable communications, including 911. This report has been updated to cover key events through December 31, 2006. It is a reference document, only. |
Secretary of Agriculture Mike Johanns, at a public meeting on January 31, 2007, described the Administration's 65 recommendations for a new farm bill. These recommendations were published by the U.S. Department of Agriculture (USDA) in a report subsequently transmitted to Congress titled 2007 Farm Bill Proposals . The report and related USDA materials are available on the Department's website at http://www.usda.gov/wps/portal/!ut/p/_s.7_0_A/7_0_1OB?navid=FARM_BILL_FORUMS . In the following pages, Congressional Research Service analysts summarize current policy and programs, describe the USDA recommendations, and pose questions related to the policy, program, and/or budgetary impact of the recommendations. The organization of this report parallels that of the USDA report. The USDA report presumes a new five-year farm bill covering the 2008-2012 time frame. However, consistent with U.S. government annual baseline budgeting, the spending authority and spending outlay estimates of the Administration's farm bill are projected for 10 years. The 2002 farm bill mandated support for a group of commodities (grains, oilseeds, cotton, sugar, and milk) that long have received support, and it added six more commodities (dry peas, lentils, small chick peas, wool, mohair, and honey) to the list. The Commodity Credit Corporation (CCC) pays the costs of commodity support under a $30 billion line of credit from the U.S. Treasury. Congress annually appropriates funds to the CCC that are used to pay down its loans from the Treasury. Commodity support expenditures are estimated to have averaged about $12.6 billion per year over the six-year life of the current farm bill (FY2002-FY2007). The Congressional Budget Office (CBO) forecasts that future spending for commodity support under current law would amount to about $7 billion per year over the next five years (FY2008-FY2012). The decline from past spending levels is due to current and anticipated high market prices for supported crops well into the future. USDA ' s proposed 2007 farm bill outlines modifications to the commodity programs that are claimed to save $4.494 billion from the Office of Management and Budget (OMB) 10-year current services baseline of $74.566 billion for commodity support. In addition to the financial savings, the modifications to current law, according to the Secretary of Agriculture, are designed to make the programs "more market-oriented, more predictable, less market distorting and better able to withstand challenge" in the World Trade Organization. Current law specifies support prices for 25 commodities, including corn and other feed grains, wheat, cotton, rice, soybeans and other oilseeds, peanuts, dry peas, lentils, small chickpeas, wool, mohair, honey, and milk. The Secretary asserts that crop loan rates (one of the support price mechanisms) are set at such high levels that they encourage overproduction and cause lower market prices. In contrast, according to the Secretary, the USDA proposal would minimize market distortions and encourage farmers to plant crops based on market prices instead of subsidy prices. Loan rates for each commodity would be set at the lesser of (a) 85% of the five-year Olympic average of market prices (i.e., the average of the last five years excluding the high and low year), or (b) the loan rates specified in the House-passed version of the 2002 farm bill (which are lower than current law for feed grains, wheat, cotton, oilseeds, and peanuts). This proposal is claimed by the Administration to save $4.5 billion over 10 years ($450 million per year) compared to baseline spending of $8.807 billion ($880.7 million per year) on marketing assistance loan program operations. 1. How much higher or lower would federal outlays have been if the proposal had been in place over the past five crop years? 2. Over the past five years, which commodities have experienced season average market prices below the levels proposed for the new loan rate formula? 3. How much of a decrease in savings would result if the loan rates specified in current law were used in the new formula instead of loan rates in the 2002 House-passed farm bill? 4. Has the idea of replacing nonrecourse loans with recourse loans been considered as a mechanism to eliminate commodity certificate gains or the forfeiture of commodities to the government? How much has been paid to farmers in the form of commodity certificate gains over the past five years? Are certificates used in order to circumvent payment limits? Under current law, farmers are allowed to sign up for loan deficiency payments (LDPs) to secure the benefits of the marketing assistance loan program instead of taking out nonrecourse loans. Farmers can capture LDP gains when posted county prices (PCPs), which serve as proxies for county market prices, are lower than loan rates. This opportunity is available daily. The Secretary asserts that there are substantial difficulties and inequities in calculating daily PCPs. Additionally, short-term market price declines create windfall opportunities for farmers that are costly and inconsistent with the fundamental income support objectives of the marketing loan program. The proposed change would replace daily PCPs with monthly PCPs. Additionally, farmers would receive LDPs based on the monthly PCPs in effect on the days producers lose beneficial interest in the commodities. Currently, farmers can collect LDPs and hold onto commodities and market them at a later time when market prices are higher than the loan rates. The USDA proposal is claimed to save $250 million over 10 years ($25 million per year) compared to an unspecified OMB baseline spending level. 1. Over the six-year life of the current farm bill, LDPs are estimated by USDA to cost an annual average of about $2.547 billion. How much would the new proposal have saved had it been in place in the current farm bill? Direct payments were enacted in the 2002 farm bill as a replacement for production flexibility contract payments, which were first enacted in the 1996 farm bill. Direct payments are made on land with a history of production (called base acres) of feed grains (largely corn), wheat, upland cotton, rice, oilseeds (largely soybeans), and peanuts. The payment rate for each commodity is specified in the law. The annual payment to a farm is its commodity base acres times program yield times the payment rate. The direct payment program is designed to cost about $5 billion per year. The payment is made for each eligible farm based on historic production and yield, and not on actual production or market prices. Hence, it was envisioned as not trade-distorting and not subject to WTO spending limits on subsidies. The Secretary has proposed to continue the direct payments and, except for upland cotton, to keep the current payment rates in place from 2008 through 2009, and then increase them by about 7% in 2010 for the three-year period through 2012. Uniquely, the upland cotton direct payment rate would immediately increase about 7% and remain at the higher level. 1. Is the increase in direct payments for program commodities a mechanism to maintain payments to farmers that otherwise would decline under conditions of high market prices and reduced marketing loan program payments? If market prices do remain high, what would be the economic justification for higher direct payments? Would these higher payments be capitalized into higher land prices and rents? 2. A high proportion of the increase in direct payments would be for one commodity, upland cotton. USDA's recommendations report states that "[t]he combination of increases in upland cotton yields per acre and declining U.S. upland cotton textile production is expected to limit price gains and result in substantial cotton program expenditures, compared to other commodities." Why would a declining domestic textile industry have a depressing impact on prices given that in the past, increased exports have offset any decline in domestic use? Are the loan rate and target price for cotton substantially out of line with markets, and the cost of production? Are marketing loan and counter-cyclical program costs likely to be high in the future compared to other commodities? 3. Over the past five years, crop disaster payments amounted to about $1.3 billion per year, and no payments yet have been made on disaster losses for 2005 and 2006. Would farmers be better served if the $5.5 billion proposed increase in direct payments were instead used for crop disaster assistance (or possibly through crop insurance) over the coming 10 years? When it comes to eligibility and payment rates for direct payments, current law makes no distinction among farmers with regard to age, longevity as farm operators, or ownership status. The eligibility requirement is that a person must be actively engaged in farming on an operation that has program commodity base acres. The sharing of direct payments between tenants and landlords is a matter agreed to among the parties in a manner consistent with local custom. The Secretary ' s farm bill proposal would give beginning farmers direct payments at a rate that is 20% higher than for other farmers for the first five years. The expected cost is $250 million over 10 years. 1. How does the USDA intend to define a beginning farmer? 2. How many beginning farmers are expected to benefit from this program? 3. Is it likely that sellers of farmland will raise the asking price or the beginning farmers will raise the offer price to acquire cropland by the amount of the increased direct payment? In other words, could the higher direct payment be bid into higher cropland prices and higher rental rates, as has been the case with regular direct payments? Counter-cyclical payments were adopted in the 2002 farm bill as a way of providing certainty and stability to ad hoc emergency market loss payments enacted in years following low market prices. The five-year (FY2003-FY2007) average annual cost of counter-cyclical payments is estimated at about $2.5 billion. The payments are made when the season average farm market price of a program crop are below the effective target price. The counter-cyclical payments, like direct payments, are paid on base acres without regard to what or how much of any crop is grown on the base acres. The Secretary has proposed that counter-cyclical payments be triggered by a shortfall in national crop revenue rather than a shortfall in the national average price. This change would bring crop yields and production into the equation. There have been years when prices were high but yields were low, so farmers were in need of support but the program made no payments. In contrast, there have been years when the price was low but yields were high so payments were made even though farmers did not need the support. This change is estimated to generate savings of $3.7 billion under the OMB 10-year current services baseline of $11.245 billion. 1. Historically, commodity support programs have been designed to absorb risks on the price side of the farm income equation, while crop insurance and disaster assistance have addressed yield risks. Does the idea of revenue-based counter-cyclical payments integrate the two sides of risk management in a way that could serve as a model to integrate commodity support with disaster assistance and crop insurance? What are the risks and benefits of integration? 2. What are the fundamental economic, business, trade agreement, or political barriers to creating a national counter-cyclical revenue program to replace commodity support programs, crop insurance, and disaster assistance for at least the subsidized crops? 3. With few exceptions over the past 20 years, Congress has provided disaster assistance to the nation's farmers and ranchers whenever weather-related losses have been substantial. Some would argue that the Administration's farm bill proposal does not appear to offer what the Secretary of Agriculture might call an "equitable, predictable" alternative for any farmers not producing program crops. Could the revenue-based counter-cyclical program contained in the farm bill proposal for program crops serve as a starting point for a similar program for unsupported crops? In 1970, Congress first enacted annual limits on commodity support program payments. Currently, there is a per person limit of $40,000 on direct payments, $65,000 on counter-cyclical payments, and $75,000 on marketing loan gains/loan deficiency payments. The combined limit of $180,000 can be doubled to $360,000 under the spouse allowance or the three-entity allowance (a person can receive payments on three farms but at half the value on the second two). There is no limit on commodity certificate gains or marketing loan gains from the forfeiture of collateral under the nonrecourse loan program. Also, there is an adjusted gross income (AGI) eligibility cap of $2.5 million. In practice, according to the 2002 farm bill-authorized Commission on the Application of Payment Limitations for Agriculture, most farmers pushing up against the limits have devised ways to avoid the limits. In general, cotton and rice farmers (because of the higher per acre value of their crops and their large size) feel threatened by payment limits, in contrast to corn, soybean, and wheat farms, introducing a regional factor (north vs. south) into the debate. For some proponents of lower and more effective payment limits, it is an issue of equity and a concern that large payments accelerate the consolidation of farms into ever larger units. Opponents argue that the payments are fundamental to the safety net for agriculture and that large efficient farms are equally subject to risks as smaller farms. The Secretary has proposed eight changes that would make it difficult to evade a $360,000 per individual payment limit and would exclude anyone with more than $200,000 in adjusted gross income from eligibility for commodity program payments. The proposal is expected to save $1.5 billion under the OMB current services 10-year baseline of about $75 billion for commodity support. 1. The projected savings of $1.5 billion from tightening the eligibility and payment limits appears small compared to the roughly $75 billion 10-year baseline. How many farms and how many individuals are expected to be affected? 2. How much of the savings would come from reduced cotton and sugar payments, the commodities likely to be most impacted? 3. A large proportion of commercial farms are managed by operators who own some land, but not even a majority of the acres they farm. In crop share arrangements, absentee landlords are receiving commodity program payments. To what extent would absentee landlords be impacted by the new $200,000 AGI limit? Could this lead to changes in tenant-landlord lease contracts toward cash rent? Would a further shift to cash rent be good for U.S. agriculture? Section 1031 is a feature of the federal tax code that allows a seller of income-producing property to acquire like-kind property and treat the transaction as a tax deferred exchange. The capital gains on the disposed property are transferred to the basis of the acquired property, and taxes on the gains are deferred until the acquired property is sold at a later date. This feature of the tax code is well known and used by owners of rental housing, but the rule applies to all income producing property, including farmland. The Secretary ' s proposal would prohibit commodity subsidy benefits to any farm acquired through a 1031 exchange. Justification is based on the argument that tax-deferred farmland exchanges are contributing to the escalation of farmland prices, making it difficult for new entrants to purchase land and small farms to expand. 1. Do farmers ever use the 1031 exchange to geographically consolidate their holdings for efficiency purposes? If so, has the Administration considered exempting these farmers from the proposed new policy? 2. Might there be cases where beginning farmers would use the 1031 exchange to acquire farmland? Should an exemption be made to the proposed prohibition in cases of beginning farmers? 3 Can the argument that Section 1031 creates economic distortions, contributing to increased farmland prices, be applied to other parts of the economy that utilize that feature of the tax code? 4. Several studies, including work done in the USDA, conclude that commodity subsidies are substantially capitalized into land prices and higher rental rates. What has a greater impact on farmland price escalation, commodity subsidies or 1031 exchanges? Is redesigning commodity programs to eliminate their effect on land prices something that should be considered, or not? 5. Have the Secretary of the Treasury and the Ways and Means Committee been consulted about changing the tax code to eliminate 1031 exchanges in general or for farmland in particular? The federal government long has mandated that the farm price of milk be supported. The 2002 farm bill continued the Dairy Price Support Program at the then-current support price of $9.90 per hundredweight (cwt.) of farm milk. Support is achieved through a standing offer to purchase cheese, butter, and nonfat dry milk at prices equivalent to the milk support price. The Administration proposal recommends continuation of the program at the current support level of $9.90 per cwt. The 2002 farm bill authorized a new counter-cyclical dairy payment program, called the Milk Income Loss Contract (MILC) program. Under the MILC program, dairy farmers nationwide are paid whenever the minimum monthly market price for farm milk used for fluid consumption in Boston falls below $16.94/cwt. As amended by the FY2006 Budget Reconciliation Act, farmers receive 34% of the difference between the $16.94 target price and the lower market price on up to 2.4 million lbs. of annual production. The program expires August 31, 2007, so there is no funding in the budget baseline. The Administration recommends renewing the MILC program at the current 34% payment rate for FY2008, and then gradually reducing the rate to 20% over the coming six years. 1. A July 2004 USDA study on the "Economic Effects of U.S. Dairy Policy and Alternative Approaches to Milk Pricing" concludes that "current dairy programs are limited in their ability to change the long-term economic viability of dairy farms" and that the MILC program contributes to dairy surpluses and reduces the farm milk price. Some observers would argue that the price support program (which removes milk from the market) and the MILC program (which encourages more production) appear to be working at cross-purposes. Why does USDA recommend a continuation of current dairy policy? 2. Since the MILC program's inception, large dairy farms have contended that the 2.4 million lb. payment limit (a herd size of about 125 cows) is biased against them, given that 2.4 million lbs. represents a small portion of their production. What is the federal government's response to their concerns? 3. Under our current WTO trade obligations, the aggregate measure of support for dairy is based on how much higher the domestic support price is set above a fixed world reference price, and this imputed subsidy is applied to all domestic milk production. Using this formula, the WTO views the aggregate measure of support for the dairy price support program to be more than $4.5 billion annually (even though federal outlays are well below $1 billion), and classifies it as "amber box" (the most trade-distorting category). The current U.S. proposal in the Doha Round is to reduce its total amber box support from the current $19.1 billion to $7.6 billion. With dairy support contributing so much toward the proposed new maximum, did the USDA consider proposing an alternative to current policy that is decoupled from price and production? 4. Since the MILC program's inception in 2002, it has provided total counter-cyclical payments of $2.4 billion over five marketing years (2002-2006). USDA estimates that the 10-year total cost of extending and revising the MILC program under its proposal is $793 million (FY2008-FY2017). Why is the cost estimate so far below historical expenditures on the program? Is it due to projections for improved dairy market conditions, or do proposed revisions to the program significantly reduce expenditures? Why are changes to the other commodity support programs being proposed that would save money, but the status quo would be maintained for dairy policy that will cost additional money over baseline? 5. The current MILC program calculates payments based on current monthly production levels. The Administration's farm bill proposal would base payments on 85% of the three-year average of milk marketed during FY2004-FY2006, instead of on current production. The proposal states that such a change would make the MILC program consistent with other farm bill counter-cyclical programs. What is the rationale for making this change to the MILC program? What are the trade implications of making this change (i.e., will it be enough to consider the program decoupled and the payment categorized as "green box")? Support for raw cane sugar and refined beet sugar are mandatory under the 2002 farm bill at $0.18 and $0.229 per pound respectively. The prices are guaranteed by nonrecourse loans available to cane processors and beet refiners. However, because the United States is a net importer of sugar, market prices usually can be maintained above the mandatory support levels by limiting supplies through import barriers. The United States is authorized a global tariff rate quota of 1.256 million short tons under WTO rules that is allocated among sugar exporting countries around the world. Mexico separately is limited to shipping 276,000 short tons through calendar year 2007, and then has open access to the U.S. market under the North American Free Trade Agreement (NAFTA). An additional supply control feature of the law allows for imposition of domestic marketing allotments on U.S. sugar, but only when imports are less than 1.532 million short tons. The suspension of allotments when imports increase was adopted in the 2002 farm bill at the urging of the domestic sugar industry. With no limit on Mexican sugar imports after 2007, and several bilateral free trade agreements adopted or in process that would allow in more sugar, the United States is faced with the likelihood of imports exceeding 1.532 million short tons. The imports in excess of 1.532 million short tons likely will go under price support loan and eventual forfeiture to the CCC at an estimated cost of $1.107 billion over the next 10 years, according to USDA. The farm bill proposal would continue the sugar support program and the current nonrecourse loan rates, but would eliminate the provision in current law requiring the Secretary to suspend marketing allotments when sugar imports are projected to exceed 1.532 million short tons. This change in the law is projected to save $1.107 billion over 10 years. 1. If current law is extended, how much sugar would the CCC likely acquire under the loan program and what would be the disposal outlets? 2. If the government savings of $1.107 billion from the imposition of sugar allotments were translated into reduced revenues for sugar farmers, what would that amount to? 3. Has USDA examined a direct payments program on sugar base acres as an alternative to current policy? What would a direct payment program likely cost if it were designed to leave sugar producers in an equivalent net cash income situation, assuming they have flexibility to earn revenue from other crops? The 2002 farm bill included three provisions to enhance cotton export competitiveness but protect domestic textile mills from high prices. Step 1 allowed for a downward adjustment under specific circumstances in the adjusted world price (AWP, which is analogous to the posted county price for grains) for upland cotton, which increases the loan deficiency payment (LDP) to producers. Step 2 mandated offsetting payments to exporters and domestic users of cotton when U.S. prices were higher than world prices so that the buyers were not disadvantaged by buying U.S. cotton. The Step 2 provision for upland cotton was repealed by Congress following a ruling that it violated the WTO Agreement on Agriculture. Step 3 allowed for a special additional import quota for upland cotton when high world prices for U.S. cotton and Step 2 export subsidies created tight supplies for domestic mills. The USDA ' s farm bill proposes to eliminate Step 1 because it has been used infrequently. When it has been used the result has been increased costs for cotton LDPs. Step 3 would be eliminated because its purpose has disappeared with the elimination of Step 2. Additionally, Step 2 for extra long staple (ELS) cotton would be eliminated because it is analogous to Step 2 for upland cotton, which was eliminated after being found in violation of WTO rules. 1. How much has been spent (in total and per pound) on Step 2 for ELS cotton under the current farm bill? 2. Would elimination of Step 1 and Step 3 have any adverse consequences for upland cotton producers or domestic textile mills? Current law (first adopted in the 1996 farm bill and continued by the 2002 farm bill) prohibits, except in certain limited circumstances, the planting of fruits, vegetables, and wild rice on program crop base acres. Violation of this restriction results in the loss of direct and counter-cyclical payments. With the exception of these commodities, farmers do have planting flexibility on base acres. Practically, this means that corn base acres can be planted to any other subsidized crop and vice versa, but not to fruits or vegetables. The limitation was put in place because producers of unsubsidized, but high value, specialty crops objected to likely competition from subsidized land. For purposes of meeting its WTO obligations, the United States has considered direct payments on base acres to be minimally production- and trade-distorting because they are decoupled from production decisions and market prices. Consequently, direct payments have been reported to the WTO as "green box" and not counted against the $19.1 billion limit on "amber box" trade-distorting subsidies. A WTO ruling on the U.S. cotton program reasoned that the planting flexibility restriction does not meet criteria for decoupled income support. The USDA farm bill proposal would eliminate the restriction on planting fruits, vegetables, and wild rice on base acres in order to make direct payments fully compliant with the WTO green box rules. 1. What impact would elimination of the base acre planting restriction have on fruit, vegetable, or wild rice producers? If there are impacts, where would they be most severe? 2. Does this situation demonstrate that U.S. agriculture is an integrated sector that cannot be divided up easily into independent components for special treatment, or not? 3. Does this interaction between farms and commodities lend support to a policy of whole farm revenue insurance instead of a patchwork of subsidies and rules that generate inefficiencies and inequities? Under current law, cropland that is converted to nonagricultural uses does not retain eligibility for commodity program subsidies. However, it is possible to convert cropland to nonagricultural uses without losing base acre benefits that were tied to the converted cropland. USDA points out that an owner of two farms can transfer the base acreage benefits from a farm being sold to another farm being retained so long as the farm receiving the transferred base is sufficiently large in size to accommodate the increased base. Another example is the retention of all of the base even though part of the farm is sold. The USDA ' s farm bill proposal would proportionally reduce base acreage whenever all or part of a farm is sold for nonagricultural uses. 1. Was the base acreage retirement provision made to achieve equity among farmers or as a disincentive to convert cropland to nonagricultural uses? 2. Could it be argued that the proposal encourage farmers to sell entire farms to developers instead of small parts of the farm and thereby accelerate the conversion of cropland to nonagricultural uses? The currently operating Conservation Security Program (CSP) provides technical and financial assistance to participants who address, at a minimum, water and soil resources concerns, through conservation, protection, and improvement. Larger payments are made to participants who address additional resource concerns on their entire operation. All farmers are eligible to apply for the program. However, limited funding of $502 million (between FY2004 and FY2006) has constrained the program to 14% of the nation's 2,119 watersheds, and many farmers have found the administrative burden to be excessive. To date, 19,291 contracts have enrolled 15,411,134 acres into CSP in 298 watersheds. The Secretary proposes that farms with program crop base acres be offered a " conservation enhanced payment " equal to 10% of the commodity program direct payment for adopting conservation and environmental practices equivalent to the Progressive Tier requirement of the Conservation Security Program (CSP). Farmers electing this option would forgo their counter-cyclical payments and marketing loan benefits for the duration of the 2007 farm bill. 1. Is this Conservation Enhanced Payment Option effectively a pilot effort to convert "amber box" commodity programs into "green box" payments? 2. Some farms with commodity base acres now have CSP contracts, plus they receive direct and counter-cyclical payments as well as marketing loan benefits. Would the Conservation Enhanced Payment Option create two categories of CSP participants with substantially different benefits? 3. Some observers may ask why would a farmer give up the commodity program safety net of potentially large counter-cyclical payments and marketing loan benefits for the certainty of only a 10% increase in the direct payment. What is the federal government's response? 4. Are any farmer costs associated with achieving the Progressive Tier requirement, and, if so, would those costs be more than covered by the 10% "enhancement" or would there be other federal assistance for those expenses? The 2002 farm bill includes "circuit breaker" authority for the Secretary of Agriculture to make adjustments in domestic commodity support expenditures when needed to comply with Uruguay Round Agreements. The U.S. annual limit on trade distorting (amber box) subsidies is $19.1 billion. The Secretary has proposed that the circuit breaker authority be modified to accommodate any new agreements from the Doha round of negotiations or other agreements concluded under the auspices of the World Trade Organization (WTO). 1. Has the circuit breaker authority ever been invoked by the Secretary in order to avoid exceeding the $19.1 billion U.S. amber box limit? 2. Has the United States ever exceeded its amber box limit? What has been the size of U.S. amber box subsidies each year since the Uruguay Round Agreements were adopted? Before the 1985 farm bill, few conservation programs existed and only two, the Agricultural Conservation Program and Watershed and Flood Prevention Operations, would be considered large by today's standards. In total, conservation programs were funded at less than $1 billion annually. The current conservation portfolio includes more than 20 distinct programs with annual spending of about $5.2 billion. Most are enacted through recent farm bills with mandatory funding supplied by USDA's Commodity Credit Corporation (CCC). The 2002 farm bill authorized large increases in mandatory funding for several agricultural conservation programs. The two largest, the Conservation Reserve Program (CRP) and the Environmental Quality Incentives Program (EQIP), make up almost 55% of the $5.2 billion in current annual spending. The Administration ' s proposed 2007 farm bill has outlined an overall increase in funding for agricultural conservation programs, which the Administration estimates is $7.825 billion over the 10-year current services baseline of $48.698 billion. Much of this additional funding is attributed to an increase in the proposed consolidated Environmental Quality Incentives Program (EQIP) and an increase in the acreage limit for the Wetlands Reserve Program (WRP). Many of the Administration's proposed changes would consolidate existing programs, with the goal of increasing administrative efficiencies and reducing participant confusion. 1. Several program consolidation changes are proposed. What level of savings can be expected by these consolidations and are there any specific plans for using those "savings?" 2. Given the continued growth of the conservation effort, what additional evaluation measures, if any, are planned to keep Congress informed about accomplishments and spending efficiencies? 3. Based on the Administration's budget plan and the farm bill proposal, there may appear to some to be inconsistencies within working lands conservation programs. The Administration proposed increasing funding for CSP and EQIP by a combined $475 million annually in the farm bill proposal. The FY2008 budget proposal, meanwhile, proposes to reduce both CSP and EQIP. EQIP is authorized at $1.27 billion and the President's budget requests $1.0 billion (a $270 million reduction). CSP is estimated by the CBO at $451 million and the President's budget requests $316 million (a $135 million difference). Would the proposed increases in mandatory conservation programs authorized by the farm bill supersede the cuts in those same programs if the Administration's budget were adopted? How should the differences between the farm bill and the budget proposal be interpreted? EQIP offers agricultural producers cost-share payments, technical assistance, and incentive payments to implement conservation practices on private working-lands. Three sub-programs are implemented through EQIP: the Ground and Surface Water Conservation Program (GSWC), the Klamath Basin Program, and Conservation Innovation Grants (CIG). The GSWC program targets areas with extensive agricultural water needs to achieve a net savings in water consumption. While the Klamath Basin program is similar in nature, it is limited to a single basin that straddles the California-Oregon border. CIG, a grant program, is intended to foster the development and adaptation of innovative conservation approaches. Other conservation programs utilize cost-sharing mechanisms similar to EQIP, including the Wildlife Habitat Incentives Program (WHIP), which focuses on developing and restoring wildlife habitat on all land; the Agricultural Management Assistance (AMA) Program, which seeks to mitigate risks through diversification and resource conservation practices; and the Forest Land Enhancement Program, which addresses resource concerns on private forest lands. Citing duplication in eligibility requirements, regulations, policies, applications, and administrative actions, the Secretary recommends consolidating existing cost-share programs (EQIP, GSWC, WHIP, AMA, Forest Land Enhancement Program, and the Klamath Basin Program) into a newly designed EQIP program. The proposal also would create a Regional Water Enhancement Program (RWEP) to address water quality and quantity issues on a regional scale. The CIG program would receive additional funding. This newly constructed program would receive an increase of $4.25 billion over the OMB 10-year current services baseline. 1. Interest in participating in many conservation programs has been high, leading to a large backlog of unfunded applications. EQIP alone reported 32,633 unfunded applications, worth more than $636 million, in FY2006. With such a large application backlog in EQIP along with the other proposed programs for consolidation, would the additional authorized funding be used primarily in addressing the application backlog? Would USDA have the workforce capacity to handle the workload added by this increase in funding? 2. USDA's farm bill spending estimates show that EQIP grows modestly until it reaches its full spending authority in 2014. This would occur after a new five-year farm bill has expired. Is there an explanation as to why EQIP, a program with a standing backlog of applications would require seven years to "ramp up" to its fully authorized spending level? 3. Some of the programs proposed for consolidation have very specific programmatic purposes and eligibility requirements targeted at specific resource concerns on different components of the landscape (WHIP focuses on wildlife habitat on all lands, while GSWC focuses on water quantity on only agricultural lands). How would specific resource problems be targeted in the absence of specialized programs? If the consolidation of these programs requires a single definition of eligible lands, what definition would the Department prefer? The Conservation Security Program (CSP) provides technical and financial assistance to participants who address, at a minimum, water and soil resources concerns, through conservation, protection, and improvement. It was widely touted as the first conservation entitlement and the first "green payments" program when enacted in 2002. The program operates with three conservation and funding tiers, Tier III being the highest. Larger payments are made to participants who address additional resource concerns on their entire operation (Tier III). There are currently four components to CSP financial assistance payments: (1) stewardship, or base payments for the number of acres enrolled, (2) maintenance payments for existing conservation practices, (3) cost-share payments for new practices, and (4) enhancement payments for conservation effort and additional activities beyond a prescribed level. All farmers in eligible watersheds may apply for the program. Limited funding of $502 million (between FY2004 and FY2006) has constrained the program to 298 of the nation's 2,119 watersheds, and many farmers state that they have found the administrative burden to be excessive. To date, more than 19,000 contracts (averaging 800 acres) have enrolled 15.4 million acres into CSP. The Secretary proposes the following adjustments: elimination of stewardship, maintenance, and cost-share financial assistance payments; consolidation of three tiers into two tiers; creation of a ranking system in place of the current watershed approach; and expansion of funding to $8.5 billion during FY2008-FY2017. 1. How would the proposed changes alter the pattern and scale of participation? 2. Will the proposed Conservation Enhancement Option in the commodity provisions of Title I overlap or replace CSP for producers of program crops? 3. Current law limits technical assistance spending in conjunction with CSP to 15% of the program cost. Some observers claim this level is inadequate. No recommendation was made to repeal the 15% limitation on technical assistance in current law. How can CSP be successfully implemented with what some would argue is such a small level of technical assistance? The proposed Private Lands Protection Program would consolidate three existing programs. The Farmland Protection Program (FPP) purchases conservation easements to limit nonagricultural uses of land. The Grasslands Reserve Program (GRP) seeks to restore and protect rangeland, pastureland, and other grassland while continuing grazing sustainability. The Healthy Forest Reserve Program (HFRP) addresses forest land that provides habitat for threatened and endangered species. Citing common goals and unique eligibility requirements, regulations, policies, applications, and administrative actions, the Secretary recommends consolidating these three existing easement programs (FRPP, GRP, and HFRP) into a new private lands protection program. This proposal also would increase funding by an additional $900 million over the 10-year baseline for this new program. 1. Some consider FPP a working lands program that keeps farming viable, while GRP is more closely related to a land restoration program. How would these fundamental differences be resolved in a consolidated program? The Conservation Reserve Program (CRP) and Conservation Reserve Enhancement Program (CREP) remove active cropland into conservation uses, typically for 10 years, and provide annual rental payments (based on the agricultural rental value of the land) and cost-share assistance. Conversion of the land must yield adequate levels of environmental improvement to qualify (environmental benefits index). CRP is the largest land retirement program, with spending of $1.828 billion in FY2005. The total program acreage is limited to 39.2 million. The Secretary recommends reauthorization of CRP with an enhanced focus on lands that provide the most benefit for environmentally sensitive lands. Priority would be given to whole-field enrollment for lands utilized for energy-related biomass production. Biomass would be harvested after nesting season and rental payments would be limited to income forgone or costs incurred by the participant to meet conservation requirements in those years biomass was harvested for energy production. 1. With cellulose conversion technology in its infancy, what is the rationale behind subsidizing cellulose production at this time? 2. The proposal may appear to some observers to have two conflicting components with regard to CRP. If it is desirable to focus CRP on multi-year idling of more environmentally sensitive lands, some may inquire why the harvesting of biomass on those lands is being imposed. Could this harvesting conflict with the conservation purpose of the program? 3. If it is decided that high demand for commodities dictates that less land should be in the CRP, how would priorities be set for land to be released? The Wetlands Reserve Program (WRP) and Wetlands Reserve Enhancement Program (WREP) provide technical and financial assistance to private landowners to restore and protect wetlands. WRP has a current enrollment of 1.89 million acres with an annual authorized new enrollment cap of 250,000 acres. The 2002 farm bill authorized a total enrollment cap of 2.275 million acres. The Secretary recommends the consolidation of WRP with the floodplain easement program of the Emergency Watershed Program and an increase in the enrollment cap to 3.5 million acres. This increase in acreage would equal an estimated $2.125 billion increase over the current services 10-year baseline of $455 million. 1. By increasing the acreage cap for WRP and proposing a continuation of the CRP acreage cap, what consideration is given to the 25% county cropland enrollment cap on CRP and WRP? 2. Similar to CRP, what effect would increased enrollment of wetlands have on local economies? Would it be possible to achieve the objectives of wetlands conservation under a working-lands program rather than a cropland retirement program? 3. How would these changes affect the President's no-net-loss goal? The 1985 farm bill included the first conservation compliance requirement for farmers to participate in certain USDA programs. The conservation compliance provision for highly erodible land, also known as Sodbuster, created disincentives to farmers who produced annually tilled agricultural commodities on highly erodible cropland without adequate erosion protection. Conservation compliance for wetlands, also known as Swampbuster, created disincentives to farmers who produced annually tilled agricultural commodities or made possible the production of agricultural commodities on land classified as wetlands. The Administration recommends broadening the conservation compliance provisions to include new "Sod Saver" rules that would create a disincentive to converting grassland (rangeland, and native grasslands, not previously in crop production) into crop production. Sod Saver would make all newly converted grasslands permanently ineligible for commodity support and other USDA programs (including other conservation programs). The suggested date for this provision to go into effect is not stated in the Administration's proposal. The Administration scores this proposal at zero budgetary impact. 1. What is the basis for the Sod Saver recommendation? Is Sodbuster not working as well as anticipated? Is the concern of some conservationists that Sodbuster has not been aggressively enforced a valid concern or not? 2. Was an alternative considered in the Sod Saver provision to allow for approved conservation systems that could provide for a reduction in soil erosion, similar to the conservation compliance for highly erodible land (Sodbuster) and wetland conservation compliance (Swampbuster)? 3. Sod Saver may not prevent the conversion of grasslands to cropland when crop prices are high. Once cultivated, there could be some off-site damages. Yet Sod Saver will preclude any federal assistance to address these problems. What is the rationale behind permanently prohibiting conservation assistance on this converted land? 4. Presumably there will be monitoring and enforcement costs associated with Sod Saver. What agency would have the administrative responsibility and what would be the estimated costs? First recognized as requiring special attention in the 2002 farm bill, beginning and limited-resource farmers are provided with additional incentives in conservation programs through various funding mechanisms and targeted initiatives. The largest incentive directed toward beginning and limited-resource farmers is the increase in cost-share payments (up to 90% of the cost to implement the practice can be paid by NRCS) in EQIP. Other programs such as the Conservation Innovation Grants and Farm Protection Program also have initiatives directed toward beginning and limited-resource farmers. The Administration is recommending that 10% of farm bill conservation financial assistance be reserved for beginning farmers and ranchers, as well as socially disadvantaged producers. Flexibility is also recommended to allow the Secretary to reallocate the reserve funds if the money goes unused. The Administration states that this proposal would have no effect on the current services baseline. 1. What portion of current conservation program participants meet the description of beginning and limited-resource farmers? 2. How much is currently spent on beginning and limited-resource farmers, and how does that relate to the 10% of financial assistance being proposed? 3. Would implementation of this provision mean that some commercial farmers would then be unable to participate in conservation programs? If so, to what extent would this occur? The Secretary recommends that $50 million, over a 10-year period, be available to develop uniform standards for environmental services, establish credit registries, and offer credit audit certification services to encourage new private sector environmental markets to supplement existing conservation programs. 1. Are details available on how the market-based approach would work and what the return on this public investment would be? What are some models or examples? 2. How was $50 million determined to be an appropriate 10-year budget? Both the Emergency Watershed Protection Program (EWP) and the Emergency Conservation Program (ECP) provide disaster assistance to private landowners through discretionary technical and financial assistance appropriated by Congress. The EWP, administered by the Natural Resource Conservation Service (NRCS), focuses on impairments to watersheds caused by natural disasters. It works through local sponsors such as neighborhood associations, cities, counties, and conservation districts. The ECP, administered by the Farm Service Agency (FSA), focuses on emergency water conservation measures in periods of severe drought on farmland, and also provides assistance to rehabilitate farmland damaged by all natural disasters. Citing confusion and frustration by citizens responding to natural disasters, the Secretary is recommending that the EWP and ECP be consolidated into a new Emergency Landscape Restoration Program. Funding for this new program would be discretionary, as is the current funding stream for EWP and ECP. 1. Since the Emergency Watershed Protection (EWP) program and the Emergency Conservation Program (ECP) are administered by two different agencies, which agency would administer the new consolidated Emergency Landscape Restoration Program? 2. Currently, land eligibility is very different between the two programs. Should the consolidation of these programs include a single definition of eligible lands; if so, what should be the definition? If different definitions of eligible land are maintained, does this affect the goals of consolidation? Farm bills typically authorize multi-year funding for USDA agricultural trade programs (direct export subsidies, export credit guarantees, foreign food aid, and export market development) and address new issues that have arisen as U.S. agricultural exporters seek to sell their products overseas. USDA's Foreign Agricultural Service (FAS) is responsible for promoting U.S. agricultural exports, including advocating on behalf of U.S. agricultural interests in foreign capitals and in international organizations as disputes arise. Funding for FAS staff and expenses to accomplish this and related objectives is provided through the annual appropriations process. In addition, the 2002 farm bill authorized an initiative—Technical Assistance for Specialty Crops Program (TASC)—to fund projects that address sanitary and phytosanitary (SPS) and technical barriers related to specialty crops. TASC is a mandatory program, meaning that it is funded by tapping the Commodity Credit Corporation's (CCC's) borrowing authority. The 2002 farm bill authorized a funding level of $2 million each year for FY2002-FY2007 ($12 million total). The Administration ' s farm bill proposals seek to expand funding for TASC. Funding would be phased in at $4 million in FY2008, $6 million in FY2009, $8 million in FY2010, and $10 million in each subsequent year through FY2015 (for a multi-year total of $68 million). USDA also proposes to increase the maximum allowable annual project award from $250,000 to $500,000 and allow more flexibility to allow project timeline extensions. USDA argues that additional flexibility would allow for the acceptance of larger, multi-disciplinary projects that result in better quality proposals from eligible participants and improved assistance to specialty crop growers. 1. Why does USDA request that this new initiative be funded on a mandatory basis, using CCC's borrowing authority? Is the appropriations mechanism a more suitable approach for funding this? 2. What evidence is there that TASC projects have resulted in the elimination of SPS and/or technical barriers to trade in specialty crops and that they have contributed to increased U.S. agricultural exports? The Market Access Program (MAP) assists in the creation, expansion, and maintenance of foreign markets for primarily U.S. agriculture high-value products. This program funds the U.S. government's share of the cost of overseas marketing and promotional activities with non-profit U.S. agricultural trade associations, U.S. agricultural cooperatives, nonprofit state-regional trade groups, and small U.S. businesses. Activities include consumer promotions, market research, trade shows, and trade servicing. About 60% of MAP funds typically support generic promotion activities (i.e., non-brand name commodities or products), and about 40% support brand-name promotion (i.e., a specific company product). The 2002 farm bill authorized MAP's six-year funding level at $875 million (FY2002-FY2007), rising from $100 million in FY2002 to $200 million in each of FY2006 and FY2007. MAP is a mandatory program, funded by the CCC. The Administration recommends increasing annual MAP funding by $25 million each year ($250 million over 10 years). The additional funding would be used to " address the inequity between farm bill program crops and non-program commodities, " and represents one of several recommendations offered in USDA's farm bill proposal to assist specialty crop producers. 1. Why is the Administration considering an increase in MAP funding, when past (FY2006 and FY2007) budget proposals called for cutting the authorized level in half, from $200 million to $100 million? 2. How much of MAP's funding already assists specialty product producers and firms, and how much of a difference would a $25 million annual increase make? 3. How does USDA gauge the impact of MAP? What evidence is there that discrete MAP promotion activities in particular country markets have resulted in an increase in U.S. agricultural exports? Reportedly, developing and developed countries are increasingly using unscientific SPS standards as non-tariff barriers to U.S. agricultural products. These take the form of plant and animal health restrictions to protect their domestic agricultural sectors against outside competition. Examples often cited include biotechnology restrictions, maximum residue standards, and restrictions on U.S. beef (such as those imposed by South Korea and Japan) due to BSE (mad cow disease). The Administration ' s farm bill proposes to establish a new grant program to address SPS issues for all commodities (mandatorily funded by the CCC at $2 million each year, or $20 million over 10 years). This program would allow for new or expanded focus on such issues as foreign governments' acceptance of antimicrobial treatments; wood packaging material; irradiation; biotechnology; science-based maximum residue level standards; and testing procedures and controls for mycotoxins. Grants would fund projects that address SPS barriers that threaten U.S. agricultural exports, by reducing the need to hire technical staff on a permanent basis, involving the private sector in assisting USDA in solving technical problems, commissioning scientific reports on targeted issues, and making more use of outside technical experts to address these types of barriers. 1. What are the most significant SPS barriers that currently affect U.S. agricultural exports? What is the status of U.S. efforts to address these specific barriers? 2. How much of Foreign Agricultural Service (FAS) resources already are tapped to address SPS issues? 3. How would an SPS Grant Program reinforce U.S. efforts to eliminate SPS barriers in international standard setting forums or in WTO dispute settlement? 4. Why does USDA request that this new initiative be funded on a mandatory basis, using CCC's borrowing authority? Is the appropriations mechanism a more suitable approach for funding this? Reportedly, countries have increasingly resorted to technical trade barriers that have no scientific basis in order to restrict imports of U.S. agricultural products. One U.S. effort to counter this trend is to become more involved in international bodies that establish and harmonize multilateral food, plant, and animal safety standards—frequently referred to as sanitary and phytosanitary (SPS) rules. Such organizations include the Food and Agriculture Organization (FAO), the Codex Alimentarius , the International Plant Protection Convention, and the World Animal Health Organization (known by its French acronym of OIE). Acknowledging that the U.S. government lacks sufficient resources to ensure that its views on SPS issues are fully heard, USDA is requesting authority and mandatory funding of $15 million over 10 years ($1.5 million annually) to enhance USDA staff support at international standard setting organizations. Funding would be used to close the compensation gap for senior level U.S. staff placed in these organizations to influence decision making (e.g., ensure that standards are properly designed and implemented to avoid unwarranted trade barriers), and to cover the cost of up to four professional officers who would specifically focus on supporting U.S. SPS priorities. 1. How many USDA staff already serve to represent U.S. interests and perspective at the FAO and these three international bodies? How long has this function been carried out? 2. The Administration's proposal notes that the lack of U.S. funding for staff support has led the FAO to take a "more Eurocentric approach" in its work, "which may be in conflict with U.S. objectives." Can the Administration elaborate on what this approach means, and comment on how that perspective affects U.S. efforts to reduce or eliminate technical trade barriers? The number of U.S. agricultural trade disputes has increased in recent years. This has prompted commodity groups and agribusiness firms to seek recourse under U.S. trade remedy laws to address potential unfair competition in the domestic U.S. market, and to work with USDA and the U.S. Trade Representative (USTR) to try to resolve cases considered under the World Trade Organization's trade dispute process. The process of pursuing a dispute case is usually complex, lengthy, and costly, particularly for smaller groups and agricultural industries with limited resources. The Administration ' s farm bill requests broad discretionary authority to provide enhanced monitoring, technical assistance, and analytical support to agriculture groups with limited resources, if the Secretary of Agriculture determines this would benefit U.S. agriculture. This would enable USDA to direct available resources to assist smaller agricultural groups and industries affected by unfair foreign trade practices and to pursue trade dispute cases on their behalf. 1. Why is this authority needed, in light of USDA's statement that it already helps out in trade dispute cases by providing legal and analytical support, often working with USTR? 2. In what instances would a program of technical assistance for trade disputes have enabled small groups or agricultural industries to pursue a case in WTO dispute settlement or have affected the outcome of cases that have been pursued? 3. What criteria would USDA use in exercising such broad authority to determine which groups should be deemed eligible for this type of assistance? In recent years, USDA has worked with the Departments of State and Defense, and the National Security Council, in Afghanistan and Iraq to provide technical assistance in support of efforts to revitalize the agriculture sectors of both countries. Such assistance was provided through existing agricultural extension programs, but USDA did not receive direct funding for such activities. The Administration proposes providing $20 million in mandatory funding over 10 years ($2 million annually), through CCC ' s borrowing authority, to expand agricultural extension and food safety programs in fragile countries. This would be part of the U.S. government's efforts to meet future development assistance needs in unstable areas, such as Sudan or Somalia. USDA's role would be to engage in agricultural reconstruction and extension efforts, targeted towards those who are dependent upon agriculture for food and employment. 1. Would funding agricultural extension efforts in fragile countries facilitate U.S. agricultural trade with them? How would trade capacity building function in very unstable circumstances? 2. What are USDA's efforts in trade capacity building elsewhere in the world? What level of existing resources does USDA already tap for such activities? USDA administers four export credit guarantee programs to facilitate sales of U.S. agricultural exports. Under these programs, private U.S. financial institutions extend financing to foreign buyers of agricultural products, with the Commodity Credit Corporation (CCC) guaranteeing repayment in case of borrower default. The CCC guarantee facilitates a more favorable interest rate and a longer repayment period. Eligible countries are those that USDA determines can service the debt. Use of guarantees for foreign aid, foreign policy, or debt rescheduling purposes is prohibited. The Short-Term Export Credit Guarantee Program (GSM-102) guarantees short-term financing (up to three years). Separately, the Intermediate-Term Export Credit Guarantee Program (GSM-103) guarantees intermediate-term financing (up to 10 years). The Supplier Credit Guarantee Program (SCGP) guarantees deferred payment sales (usually up to 180 days). The Facilities Guarantee Program (FGP) is to improve or establish the handling, marketing, storage, or distribution facilities for U.S. commodities in emerging markets. The 2002 farm bill authorized up to $6.5 billion annually for the FY2002-FY2007 period for these guarantee programs. Of this amount, $1.0 billion is targeted to "emerging markets"—countries in the process of becoming commercial markets for U.S. agricultural products. The statute gives USDA's Foreign Agricultural Service (FAS) the flexibility to determine the allocation between short and intermediate term programs. The actual level of guarantees approved each year depends on market conditions and on the demand for financing by eligible countries. Program activity has declined over the last three years because of less demand for guarantees and administrative steps taken in July 2005 to bring the programs into conformity with a World Trade Organization (WTO) ruling that found them to be prohibited export subsidies. In FY2006, USDA approved almost $1.4 billion in guarantees, down from $2.6 billion in FY2005 and $3.7 billion in FY2004. The budget outlay impact of guarantees ($142 million in FY2006) is small because it reflects only administrative costs and the subsidy associated with the loans approved each year. The Administration proposes statutory changes to reform these guarantee programs in light of the WTO ruling and to ensure they remain WTO-compliant. These include (1) removing the current 1% cap on fees collected under the GSM-102 program, (2) eliminating the specific authority for the GSM-103 program, (3) terminating the SCGP (because of the large number of loan defaults (totaling $227 million) and evidence of fraud), and (4) revising the FGP to attract additional users who commit to purchase U.S. agricultural products. The first three proposed changes are not expected to have any budgetary impact, according to USDA. The cost of changes to the FGP would be minor (almost $2 million each year). 1. To what degree would higher loan guarantee fees diminish user participation in the short-term GSM-102 program? 2. What impact on program activity is anticipated with the proposed lifting of the current 1% fee? 3. What is the prospect for USDA collecting on the more than $200 million in SCGP loan defaults? 4. What explains declining interest among countries in using USDA loan guarantees to finance their agricultural imports? 5. What fundamental changes are occurring in worldwide commodity financing that may warrant revisiting the role that credit guarantees can play in facilitating U.S. agricultural exports? USDA established the Export Enhancement Program (EEP) in 1985 to help U.S. commodities compete with other countries, primarily the European Union, that subsidized their exports. Used extensively through the late 1990s to challenge unfair trade practices and maintain market share in targeted countries, EEP has been inactive in recent years. The 2002 farm bill established an annual program level of $478 million, the maximum allowed under the Uruguay Round export subsidy reduction commitments. The 2002 farm bill requires the Secretary of Agriculture to consult with Congress every two years and to prepare a Global Market Strategy report that identifies growth opportunities overseas for U.S. agricultural exports. The administrative costs of preparing one report are about $250,000. USDA further notes that this requirement duplicates its existing United Export Strategy and Country Strategy programs, which use real-time market analysis and global intelligence, and are more timely. USDA proposes to repeal EEP and the Global Market Strategy report mandate, pointing to program inactivity and the report ' s redundancy. It argues that because both no longer serve valuable purposes, the proposed changes would allow USDA to focus staff and financial resources to priority issues. USDA notes that EEP's repeal would also be consistent with the U.S. objective to eliminate the use of export subsidies worldwide. 1. How does the Administration estimate no budgetary impact from this proposal while it justifies the change in terms of financial savings? 2. If there is not a successful conclusion this year to the Doha Round of WTO trade negotiations, is the United States placed at a disadvantage (i.e., would it lose a tool to assist agricultural exports in the future) if it unilaterally repeals the law authorizing an export subsidy program? 3. What are examples of how USDA's existing United Export Strategy and Country Strategy programs are more useful to U.S. exporters and policymakers? USDA provides food aid abroad through the P.L. 480 program, also known as Food for Peace; the Food for Progress Program; the McGovern-Dole International Food for Education and Child Nutrition Program; and Section 416(b) of the Agricultural Act of 1949. The 2002 farm bill authorized all of these programs through FY2007, except for Section 416(b), which is permanently authorized by the Agricultural Act of 1949. The 2002 farm bill also reauthorized a commodity reserve of wheat and other commodities typically used as food aid (renamed the Bill Emerson Humanitarian Trust), which can be used, under certain circumstances, to provide P.L. 480 food aid; and created the McGovern-Dole program as a new food aid program. Funding for the P.L. 480 programs (Title I direct credits, and Title II grants) is provided through the annual appropriations process. Title I provides for long-term, low interest loans to developing and transition countries and private entities to purchase U.S. agricultural commodities. The use of Title I credits has declined over time, and totaled $123 million in FY2006. Title II provides for the donation of U.S. agricultural commodities to meet emergency and non-emergency food needs. The law mandates an annual minimum tonnage level of 2.5 million metric tons. In recent years, appropriators have set the funding level between $1.6 and $1.7 billion. The Food for Progress Program, funded directly by the CCC ($131 million in FY2006), provides commodities to support countries that have made commitments to expand free enterprise in their agricultural economies. The McGovern-Dole program uses commodities and financial and technical assistance to carry out preschool and school food for education programs and maternal, infant and child nutrition programs in foreign countries. The 2002 farm bill mandated CCC funding of $100 million in FY2003 and authorizes appropriations of "such sums as necessary" from FY2004 to FY2007. The FY2006 program level was $97 million. Donations through the Section 416(b) program are entirely dependent on the availability of commodities acquired by the CCC in its price support operations. The Emerson Trust provides emergency food relief when U.S. supplies are short or to meet unanticipated need. Under current law, Title II of P.L. 480 may only be used to purchase and ship U.S. agricultural commodities to meet food needs overseas. The Administration points out that this stipulation has precluded the use of Title II to procure food quickly enough, or resulted in the United States not being able to provide food or provide it late. It argues that authority is needed to quickly meet emergency needs in the most effective way possible, such as using cash to provide immediate relief until U.S. commodities arrive or to fill in gaps in the food aid pipeline. It notes that U.S.-sourced food aid typically takes four months or longer to arrive where needed, compared to days or weeks when commodities can be purchased locally. The same case has been made by the Administration in the FY2006 and FY2007 budget proposals, but Congress has rejected the idea both times. The Administration ' s farm bill proposes to authorize the use of up to 25% of P.L. 480 Title II funds for the local or regional purchase and distribution of emergency food to respond more quickly to assist people threatened by a food security crisis. There is no direct budgetary impact associated with this proposal. 1. Are there examples from the past where the proposed food aid authority could have been used to more quickly provide assistance and thereby helped alleviate tragic food emergencies? 2. Has USDA identified developing countries where food could be purchased to help with any currently existing emergencies? 3. Are current U.S. food aid program resources sufficient to meet outstanding needs in trouble spots around the world? 4. Has the Administration considered proposing additional funding for the McGovern-Dole program—providing food aid to youngsters in schools, particularly girls, in order to also meet broader objectives of fighting poverty? 5. How will the Administration's focus on emergency food aid affect the availability of food aid for development purposes? 6. How will using U.S. funds to purchase overseas commodities rather than U.S. commodities affect the willingness of U.S. groups (private voluntary organizations, farm organizations, commodity groups, maritime industry) to support the U.S. food aid program? Could the Administration's proposed approach result in a lower availability of U.S. food aid to meet humanitarian needs? Under standard federal rules, "defined benefit" retirement plans, "401(k)" plans, and several other types of retirement savings arrangements are now excluded as assets when determining food stamp eligibility. But other retirement/savings plans like Individual Retirement Accounts (IRAs) and Simplified Employer Pension (SEP) plans are not disregarded. Also under current law, states exercising an option to conform food stamp rules to those of their Temporary Assistance for Needy Families (TANF) program can expand the standard federal disregard to match their TANF rules, and TANF and Supplemental Security Income (SSI) recipients are automatically eligible for food stamps (essentially making food stamp asset eligibility rules irrelevant for them). Effectively, current rules governing the treatment of retirement savings/plans vary noticeably by state, type of applicant, and type of plan. Retirement/education savings that are counted are included, with other countable assets, under the Food Stamp program's general limit on assets—$2,000, or $3,000 if the household includes an elderly or disabled member. Other countable assets generally include liquid resources like cash or assets readily converted to cash (but not household belongings/furnishings), some illiquid resources (e.g., real property not producing income, but not a household's home), and, to varying degrees (by state and type of vehicle), the value of household-owned vehicles. The Administration proposes to disregard all retirement savings and plans as assets when judging food stamp eligibility. Its stated purposes are to reinforce federal policy encouraging retirement savings and to end the penalty that counting them imposes on those experiencing a temporary need for food assistance. Some critics argue that the initiatives should go further toward liberalizing the treatment of assets (e.g., raising or abolishing dollar limits on assets, standardizing the disregard for vehicles). Others contend that the current system of state TANF-based options and automatic food stamp eligibility for TANF/SSI recipients provides enough flexibility to address any need to liberalize the food stamp asset eligibility test. The Administration estimates costs for its retirement savings proposal at $548 million over five years and $1.305 billion over 10 years. The proposal also is included in the Administration's FY2008 budget package. 1. How many food stamp applicants does the Administration estimate its proposed disregard for retirement savings will affect? 2. The Administration's proposal for retirement savings appears to deal with formal, tax-recognized situations. What about money put aside by poor households for retirement that is not part of a formal plan? 3. In general, eligible food stamp households must have countable assets not exceeding $2,000 (or $3,000 for the elderly or disabled). Although these dollar limits apply to fewer types of assets than when they were established, they have not been changed in over 20 years. Has the Administration considered raising (or indexing) the dollar limits on countable assets? 4. Food stamp eligibility rules governing counting vehicles as assets are complex and vary significantly by state and vehicle type (e.g., whether it is work-related), similar to rules for retirement savings. Has the Administration considered standardizing and simplifying these rules, as it proposes for retirement savings? 5. With fewer types of assets being counted in judging eligibility for food stamps (and other programs) and more flexibility being given to states, is keeping a food stamp asset test administratively cost-effective? Is it true that a number of states already effectively eliminated asset tests for TANF benefits? Current food stamp rules provide federal 50% matching for state support for the work-related expenses of food stamp recipients in work/training programs; states choose who is covered, what expenses will be reimbursed, and generally what the reimbursement will be. Employed recipients receive no similar support—although they may increase their benefits by claiming a "deduction" for work-related dependent care costs (see the separate proposal on the treatment of dependent care expenses) and a "deduction" for 20% of any earnings to cover taxes and work expenses and can, in some cases, get separate aid through state child care and TANF programs and income tax provisions. The Administration proposes to establish a three-year, three-state, $3 million pilot project under which states would be allowed to pay (with 50% federal matching) for work-related expenses (other than dependent care costs) of households with earnings from employment. The stated purpose is to test an idea that might further strengthen the Food Stamp program's role in supporting work and moving individuals and families to self-sufficiency. USDA would define what expenses would be covered (child care costs would not be allowed) and could place a limit on the time recipients could be aided in the project. Critics question whether the dollar and covered-expense restrictions placed on the project effectively limit the usefulness of any results. 1. How can a pilot program that pays a limited range of work expenses for employed food stamp recipients, and is restricted to $3 million, produce meaningful results? Does the $3 million include evaluation costs? Will there be control groups? Is there experience from comparable TANF initiatives to indicate whether this type of support is potentially productive? 2. Is it the Administration's intention to propose that this type of work-expense support for the employed be made a regular feature of the Food Stamp program if the pilot proves a success? Food stamp law takes dependent care costs related to work or education into account when determining eligibility and benefits. It does this by allowing households to "deduct" these costs from countable income—up to certain limits. As a result, households with these costs are more likely to be eligible, and more important, are given a larger food stamp benefit; benefits generally increase by 30 cents for each dollar of disregarded income. Dependent care cost deductions are "capped" at $200 a month for each child under age two and $175 a month for all other dependents, thereby limiting the extent to which these costs affect food stamp eligibility and benefits. The Administration proposes to eliminate the current caps on expense deductions for dependent care costs used when calculating food stamp eligibility and benefits. The stated purpose is to help working families. Critics argue for the need to go further in recognizing the effect high non-food living expenses—like shelter costs—have in eroding the value of food stamp benefits. The Administration estimates costs for this proposal at $20 million over five years and $42 million over 10 years. 1. How many households does the Administration expect to be affected by its proposal to lift the dollar caps on dependent-care expense deductions? 2. A dollar cap, albeit an indexed one, also exists for shelter-expense deductions. Has the Administration considered lifting it to increase benefits for those with very high shelter expenses? Current food stamp policy allows a disregard of college (postsecondary education) savings plans as assets to the extent that they are determined to be "inaccessible." It also permits states to exclude college savings plans when conforming their food stamp rules to their TANF or Medicaid policies. As a result, state agencies must make individual determinations as to the accessibility of education savings in order to judge whether to disregard them—unless they have a TANF or Medicaid rule that disregards them and have chosen to apply that rule to food stamps. Education savings that are counted are included, with other countable assets, under the Food Stamp program's general limit on assets—$2,000, or $3,000 if the household includes an elderly or disabled member. Other countable assets generally include liquid resources like cash or assets readily converted to cash (but not household belongings/furnishings), some illiquid resources (e.g., real property not producing income, but not a household's home), and, to varying degrees (by state and type of vehicle), the value of household-owned vehicles. The Administration proposes to disregard Internal Revenue Service (IRS)-approved postsecondary/college education savings plans as assets when judging food stamp eligibility. The stated purposes are to reinforce federal policy encouraging savings for education, to end the penalty that counting them imposes on those experiencing a temporary need for food assistance, and to simplify program administration. Some critics argue that the initiatives should go further toward liberalizing the treatment of assets (e.g., raising or abolishing dollar limits on assets, standardizing the treatment of vehicles). Others maintain that the current rule allows for a disregard where the savings have been set aside for education and are truly inaccessible for living expenses. The Administration estimates costs for its education savings proposal at $8 million over five years and $18 million over 10 years. The proposal also is included in the Administration's FY2008 budget proposal. 1. How many food stamp applicants does the Administration estimate its proposed disregard for education savings will affect? 2. The Administration's proposal for education savings appears to deal with formal, tax-recognized situations. What about money put aside by poor households for education that is not part of a formal plan? 3. In general, eligible food stamp households must have countable assets not exceeding $2,000 (or $3,000 for the elderly or disabled). Although these dollar limits apply to fewer types of assets than when they were established, they have not been changed in over 20 years. Has the Administration considered raising (or indexing) the dollar limits on countable assets? 4. Food stamp eligibility rules governing counting vehicles as assets are complex and difficult to administer, similar to rules for education savings. Has the Administration considered standardizing and simplifying rules for disregarding vehicles as assets, as it proposes for education savings? 5. With fewer types of assets being counted in judging eligibility for food stamps (and other programs) and more flexibility being given to states, is keeping a food stamp asset test administratively cost-effective? Is it true that a number of states already effectively eliminated asset tests for TANF benefits? Combat-related military pay has been disregarded as income in the Food Stamp program through provisions of appropriations laws since the FY2005 agriculture appropriations act. This proposal would make the disregard part of permanent food stamp law. For a number of years, the Defense Department has offered a Family Assistance Supplemental Allowance to military families who might qualify for food stamps. Its purpose is to increase their income and make participation in the Food Stamp program unnecessary; however, very few families have chosen to take this option. The Administration proposes to disregard, in permanent law, combat-related military pay as income when determining food stamp eligibility and benefits. The stated purpose is to permanently remove a potential penalty on military families. Critics might contend that use of the Defense Department's special allowance program would be a better way to deal with this issue. The Administration estimates costs for its military pay proposal at $5 million over five years and $10 million over 10 years. This proposal also is included in the Administration's FY2008 budget package. 1. How many military families does the Administration estimate would be affected by the proposed disregard of combat-related pay for food stamp purposes? 2. Should these families be participating in the Defense Department's Family Assistance Supplemental Allowance program instead of the Food Stamp program? How big is the supplemental allowance program? 3. Has the Administration considered similar treatment for civilian employees deployed in combat areas? The Food Stamp program got its name when it was originally established in 1939. At the time, actual "stamps" were used. Blue and orange stamps were issued to recipients—one color representing the recipient's dollar contribution and the other the federal government's subsidy (which was usable only for surplus commodities). When used, the stamps were actually pasted into booklets by the participating grocer, and the booklets (when full) were then redeemed by the retailer for cash. The original program was closed down in 1943, after World War II had effectively eliminated surplus food production. When the program was revived in the 1960s, the old name also was revived—even though stamps were not used. Instead, participants received paper "coupons" of various denominations that were used like cash to purchase food. This lasted until the recent switch to the use of debit-card-like electronic benefit transfer (EBT) cards to deliver benefits. The Administration recommends changing the program ' s name to the Food and Nutrition program in recognition of the changes in how food stamp benefits are delivered and the program ' s role in improving nutrition. 1. USDA opened up renaming of the program for public comment a few years ago and received many ideas. Could a compendium of those ideas be provided? 2. What is the estimated cost of switching to a new name for the program? 3. How many states now use a name other than Food Stamp program to identify their EBT-based program? 4. "Stamps" have not been used since the early 1940s, yet the program has kept the name. Is it an option to keep the existing name and let states call the program what they wish? Food stamp benefits are now delivered using debit-card-like electronic benefit transfer (EBT) cards, not paper food stamp coupons. The EBT system has been in place nationwide for two years. However, some coupons issued before the transition to EBT systems have still not been redeemed, and the Administration would like to "get them off the books," saving redemption costs (both the value of the coupons themselves and the cost of handling them). The Administration proposes to " de-obligate " food stamp coupons still in circulation, making them no longer usable (redeemable). It estimates net savings from this proposal at $2 million over five years and $7 million over 10 years. 1. What is the dollar value of unredeemed coupons still outstanding? 2. What time deadline for redeeming outstanding coupons does the Administration envision? Current law requires states to pursue collection of over-issued food stamp benefits from recipients and former recipients—however they are caused. Any collections generally are turned over to the federal government (which pays the cost of program benefits), but states may keep a portion of collections in cases where the over-issuance was not caused by the state agency's actions. To an extent, states themselves also are liable to the federal government for over-issued benefits and losses caused by cases of state agency negligence or fraud. The Administration proposes to (1) prohibit states from pursuing claims against recipients for over-issued food stamp benefits in the case of " widespread systemic errors " (e.g., computer system failures/flaws) and (2) require states to pay the USDA for over-issuances in such cases. The stated purposes for advancing its proposals are to promote program integrity and fair treatment of recipients and to encourage caution and careful planning when implementing new computer-related administrative systems. However, a number of states are pursuing initiatives that encompass the expanded use of computers and online interaction between applicants/recipients and state agencies, and some critics are concerned over how extensively any new authority to require state payments might be used and its potential "chilling effect" on state efforts to improve administration. 1. How will the Administration define "widespread systemic errors" and calculate over-issued benefits for the purpose of holding recipients harmless and mandating that states pay the cost of the over-issuances they might cause? What about under-issuances and improper denials caused by these "widespread systemic errors?" 2. What type of new authority to collect from states is the Administration asking for? Does USDA not have enough authority already to collect from states in cases of over-issued benefits? Is this authority not being used in the Colorado case that the Administration cites in the rationale for its proposal? 3. Will the threat of a new requirement that states pay over-issuance costs in cases of computer system flaws and other systemic problems dampen the current trend toward state innovation in administering food stamps by increasing the use of computers and online interactions between applicants/recipients and state agencies, or not? Under current food stamp law, states may grant categorical (automatic) food stamp eligibility to households receiving Temporary Assistance for Needy Families (TANF) cash aid, services, or both—effectively accepting TANF eligibility decisions as to financial eligibility for food stamps. In some cases, particularly where only services are provided, the household may have financial resources (income/assets) significantly above those normally allowed for food stamps. The Administration is concerned that states can, in effect, "game" the categorical eligibility option and make households eligible for food stamps by simply providing minimal services financed with TANF funds. Its proposal would restrict categorical (automatic) eligibility for food stamps to those who receive cash benefits under state Temporary Assistance for Needy Families (TANF) programs (on the premise that they are subject to stricter eligibility tests than those getting TANF-funded services). On the other hand, critics point out that, among those categorically eligible, it is most often working households with relatively high non-food expenses (for shelter, dependent care) who actually qualify for a significant food stamp benefit, and that many of the households that would be penalized are those who have worked their way off cash welfare and are only receiving child care services to help them keep their job. They also note that there would be added administrative costs and a significant side effect—some households losing their categorical food stamp eligibility would, as a result, lose their food-stamp-participation-based categorical eligibility for free school meals for their children. The Administration estimates savings from this proposal at $611 million over five years and $1.360 billion over 10 years. It also is included in the Administration's FY2008 budget package and was advanced as part of the FY2007 budget presentation. 1. Is it the Administration's intent to exclude any household receiving only TANF-funded services from categorical eligibility for food stamps? Would the proposal exclude working households getting child care aid? Those getting job training? What TANF-funded services do those excluded by the Administration's recommendation receive? 2. How many households would be affected by the categorical eligibility limitation proposal? Is this proposal the primary source of budget savings in the Administration's package of farm bill proposals for nutrition assistance programs? Without this cost-saving change, would the Administration continue to support the recommendations it has made that have significant projected costs? 3. In how many states is overly expansive categorical eligibility a problem? What types of services are provided in these states to confer categorical food stamp eligibility? 4. Could a state "get around" the Administration's proposal by providing a minimal cash payment instead of a service? 5. Has the Administration estimated the added administrative costs that states (with a 50% federal match) would bear for conducting regular food stamp eligibility determinations for those losing categorical eligibility who choose to apply through regular program rules, particularly checking on assets held by applicants? Under current policy, the use of fines as penalties on retailers violating food stamp rules (e.g., selling non-food items for food stamp benefits) is restricted to certain instances where the retailer can show extensive efforts to educate employees (and the owner was unaware of the violation) or where disqualification would cause hardship to food stamp recipients. In most cases, it is USDA policy to impose disqualification (for varying periods), whether the violation is minor or major. The Administration argues that it needs more flexibility to respond to the seriousness of a retailer ' s violation and would like more authority to impose fines in lieu of disqualification for minor violations and new authority to impose fines in addition to disqualification for major violations. Critics are concerned that the extent of the problem (beyond anecdotal cases) is not clear, that USDA has not aggressively used its existing authority to substitute fines in minor cases, and that authority to impose fines in addition to disqualification in major cases might clash with separate provisions of law that impose court-ordered monetary penalties on retailers convicted of felonies/misdemeanors. The Administration estimates savings from these proposals at $5 million over five years and $10 million over 10 years. 1. How many, and what types of, cases point to the need for new authority to impose fines instead of disqualification in cases of relatively minor retailer violations of food stamp rules? 2. Why, specifically, are current authorities for the use of fines on retailers in cases of minor violations not sufficient? Under current law, retailers accused of trafficking violations can continue to operate (and potentially continue any fraudulent activities) while enforcement actions are taking place—"even if those violations are particularly egregious." The Administration proposes to allow the USDA, in " certain egregious trafficking cases, " to seize retailers ' food stamp receipts prior to settlement in cases where expedited action is warranted. The stated purpose is to increase the effectiveness of USDA enforcement actions. As stated by the Administration, "trafficking retailers [would be] hurt more quickly where it matters—in their pocketbooks. This proposal increases effectiveness by immediately stopping the flow of funds that allow retailers to continue to finance their fraudulent activities." Critics are worried about how this new authority would be framed and used and whether it goes too far and possibly "pre-judges" accused retailers. 1. How would the proposed authority to seize retailers' food stamp receipts be framed? What protections for accused retailers is envisioned? 2. What type of "egregious" cases would the new seizure authority be designed and used for? In what types of cases (and how many) would it have been used in recent years? Food stamp law requires disqualification for those who traffic in food stamp benefits (i.e., those who exchange the value of benefits on their food stamp EBT card for cash or ineligible items). However, selling/trading the actual food purchased with food stamp benefits for cash or other consideration is not cause for disqualification. The Administration proposes to disqualify those who exchange food purchased with food stamp benefits for cash. 1. How will the Administration enforce a rule disqualifying those who exchange food purchased with food stamp benefits for cash? Is this proposal only intended to deal with egregious cases? What about cases where food obtained with food stamp benefits is exchanged for something other than cash? 2. Does the Administration envision its proposal also making the exchange of food purchased with food stamp benefits a felony or misdemeanor subject to fines or imprisonment—like trafficking under current law—or only cause for disqualification? The Food Stamp program has a "quality control" (QC) system under which state administration of the program is measured for the extent of erroneous determinations—that is, annual "error rates" are computed for overpayments to eligible and ineligible recipients and underpayments to eligible recipients. For FY2005 (the most recent year for which QC figures are available), the national overpayment rate was 4.53% of food stamp benefit dollars, and underpayments were valued at 1.31% of food stamp benefits paid out. States with consistently (over three consecutive years) high error rates may be assessed fiscal sanctions. These sanctions are calculated as a portion of the cost of improper payments and the value of proper payments not made—above certain allowable thresholds. At present, eight states are at risk of a sanction or have a sanction liability; current actual liabilities total $3.6 million. States also may receive payment accuracy bonus payments for overpayment and underpayment error rates that are very low or greatly improved; for FY2005, 10 states received bonus payments totaling $24 million. In addition to overpayments and underpayments, the food stamp QC system measures the extent to which states improperly deny, suspend, or terminate food stamp applicants/recipients (i.e., annual negative action error rates are calculated for each state). In FY2005 (the most recent year for which these figures are available), the national average negative action error rate was 6.91%, and nine states had rates 50% or more above the national average (six of them were in their second consecutive year). States with high negative action error rates are not subject to fiscal sanctions. However, they may receive bonus payments for very low or greatly improved negative action rates; for FY2005, six states received bonuses totaling $6 million. Overpayment and underpayment error rates have been dropping in recent years; in FY2005, they were at a historic low. On the other hand, negative action error rates have been rising. The Administration proposes to assess states a financial penalty if the state has a negative action error rate above the national average for two consecutive years. It appears that the penalty would be a dollar amount equal to 5% of the federal share (normally 50%) of a state ' s food stamp administrative costs. The Administration's stated purposes in advancing its proposal to impose penalties for high negative action error rates are to promote program integrity and correct eligibility determinations for applicants. Critics are concerned that it re-opens the extensively negotiated 2002 farm bill agreement with states and advocates that reformed the QC system and imposes an overly large penalty for high negative action error rates, without adequate grounds for doing so. The Administration estimates savings from this proposal at $57 million over five years and $166 million over 10 years. 1. When compared to fiscal sanctions assessed for food stamp overpayments and underpayments, the proposed sanction for high rates of improper negative actions, like mistaken eligibility denials, is very large. Administration estimates indicate they will average over $15 million a year. Is there a reason for this substantial difference? 2. In the 2002 farm bill, the previous practice of assessing sanctions as a reduction in the federal share of state administrative costs was abandoned in favor of sanctions as a proportion of the dollar value of improperly paid or unpaid benefits. Why has the Administration chosen to use this sanction method for high rates of negative actions? Is it possible that a cut based on administrative spending could exacerbate the problem? Does the Administration intend to include cuts in federal matching payments for state costs like nutrition education and work and training programs in the proposed sanction? States at risk of a fiscal sanction for consistently high error rates as measured by the food stamp QC system (see the discussion above of the Administration's proposal for penalties for high negative action error rates) may meet a portion of the sanction by investing (using unmatched state funds) in federally approved improvements to the administration of the Food Stamp program. Citing a need to boost program integrity and strengthen the QC system, the Administration proposes to eliminate the option permitting states to invest in administrative improvements as an alternative to paying part of their QC fiscal sanction. As with the proposal for penalties for high negative action error rates, critics contend that this recommendation unnecessarily re-opens the 2002 agreement that revamped the QC system without a sufficient rationale. The Administration estimates minimal cost savings from this proposal. 1. Has the USDA had any problems with states' use of the current option to invest in administrative improvements in lieu of paying fiscal sanctions? Have states not fulfilled their administrative improvement promises? Has administration been significantly enhanced by these efforts? 2. How many states have taken advantage of the option to pay for administrative improvements instead of paying the USDA? How much money was involved and what types of enhancements were made? Current policy authorizes federal 50% matching payments for state nutrition education efforts for food stamp recipients and the potentially eligible low-income population—as an allowable administrative cost. USDA also funds the cost of providing nutrition education materials and technical assistance related to nutrition education. The Administration proposes to add specific language to the Food Stamp Act referring to nutrition education as an approved activity under the Food Stamp program. 1. Does the Administration's proposal envision funding any nutrition education activities not now supported? The Administration is concerned over substantial indications that obesity among Americans is rising. At present, the USDA nutrition programs support nutrition education activities and have a few features directed at combating obesity. For example, the Food Stamp program pays half the cost of state nutrition education efforts among food stamp recipients and other low-income households; the USDA provides nutrition education materials and makes grants for nutrition education initiatives directed at schoolchildren; school meal program meal patterns are being revised and schools are required to design "wellness policies" that address obesity concerns; and the WIC program includes a major, mandatory nutrition education component. In addition to these efforts, the Administration ' s proposal calls for competitive grants to develop and test ways of addressing obesity in the low-income population—with evaluations of the results. This would be accomplished with a five-year, $20 million per year " USDA Initiative to Address Obesity among Low-Income Americans. " According to the USDA, ideas that might be tested include point-of-sale incentives for the purchase of fruit and vegetables by food stamp recipients, grants to connect food stamp shoppers with farmers' markets, and integrated communication and education programs to promote healthy diets and physical activity. 1. How would the pilot obesity initiative be coordinated with existing child nutrition and WIC program efforts and projects supported by the Department of Health and Human Services? 2. What are the reasons given for USDA to embark on a separate new grant initiative? Under current law, states must submit plans of operation and administration for USDA approval every four years; plans may be amended at any time with USDA approval. State plans designate the state agency responsible for distributing TEFAP commodities, set out the state's plans for distributing commodities, and set forth eligibility standards for participating agencies and individual recipients. The Administration proposes to make all TEFAP state plans effectively permanent and require that states only submit revisions that are warranted by changes in state TEFAP operations or rules. This is very close to the pattern for state plans in other USDA nutrition programs, and the Administration argues that the current once-every-four-years rule is burdensome on state TEFAP agencies. Critics, on the other hand, question whether a requirement to resubmit a state plan once every four years is really that burdensome on states (as opposed to USDA officials) and note that TEFAP state plans are more important than those in other USDA nutrition programs because states have almost total control over program rules and operations. They also point out that a complete plan review and re-submission every four years (if done conscientiously by the state and the USDA) can result in important program improvements and that other programs' state plan requirements were changed to revisions-as-warranted from previous once-a-year requirements (not once every four years). 1. Have states called for a change in the rules governing submission of state TEFAP plans? Is the current requirement for new state plans every four years more of a burden on the USDA or state agencies? 2. If the problem is a burden on USDA plan reviewers, would staggering submission of state plans be an appropriate solution? Under current policies, states have complete control over the selection of local organizations that receive and distribute the TEFAP foods allocated to each state (including those groups that act as conduits to end providers like food pantries and soup kitchens, and end providers themselves). The Administration is concerned that this situation can lead to many of the same organizations participating year after year with little concern over how efficiently or effectively they are delivering services, unless significant administrative problems occur. In order to encourage the entry of new distributing organizations that might operate more efficiently and could charge lower fees to end providers, the Administration proposes to require that states re-compete contracts with TEFAP distributing organizations at least once every three years. It contends that failure to have a periodic competitive solicitation process results in a barrier to "certain local organizations, including faith-based organizations, that wish to participate in TEFAP." Critics are concerned over how a requirement for competitive selection would work given the widely varying nature of state TEFAP programs. They also question why all contracts need to be renewed (re-competed) so often, whether there are potentially enough serious competitors to make the three-year competition process worthwhile, and the cost of running competitive solicitations and changing distributing organizations. And they point to the potential for confusion among recipients when distribution systems change. 1. Does the Administration's proposal for re-competing contracts for TEFAP distributing agencies mean that all contracts will potentially be subject to termination and reassignment at the same time every three years? Will there be some staggering of contract renewals? 2. What federal rules for competitive solicitations are envisioned? 3. Have local organizations that are not now part of the TEFAP distribution network asked for competitive solicitations? The Administration, in consultation with participating Indian tribal organizations, is in the process of substantially revising the method for allocating federal payments for administrative costs for FDPIR. The new method would be more closely tied to participants served. The dollar amount to be spent on administrative costs and the allocation of federal payments for them are not specified in the underlying law governing the FDPIR. To speed and support implementation of a revised allocation (i.e., ease the negative effects for tribal organizations that would lose money under a new allocation), the Administration is asking for increased FDPIR administrative funding of $26-$27 million over 10 years. Critics question whether this initiative belongs in the farm bill and how it would be crafted given that it deals with matters not now covered in FDPIR law. 1. Has a decision on a new method for allocating FDPIR administrative payments been made? If not, does the Administration know the amount of new funding needed (and the years in which it will be needed)? 2. The new funding the Administration is asking for is described as ensuring that there would be sufficient money so that any change in the current allocation method would allow all tribal organizations to "continue to receive their current allotments or a modest increase depending on their level of participation." What would it cost to ensure that, under the new allocations, all tribal organizations are held harmless (including inflation increases)? Will the Administration's proposal include the details of the new allocation method? Should this be placed into law? 3. Could the Administration's goal be achieved through the regular appropriations process? The FDPIR is a program distributing federally donated foods that is operated in lieu of food stamps on Indian reservations where the tribal organization opts for it. Individuals cannot participate in both food stamps and the FDPIR at the same time. Under current policy, those disqualified (e.g., for fraud) from the Food Stamp program are automatically disqualified from participation in the FDPIR (following the food stamp disqualification rules). On the other hand, those disqualified from the FDPIR are not similarly disqualified from food stamps. The Administration proposes to change food stamp law to specifically disqualify from food stamps those disqualified from the FDPIR in order to promote program integrity and consistent eligibility/disqualification rules. Critics question whether new provisions of law are needed to accomplish this. 1. Why can't food stamp disqualification of those disqualified from the FDPIR be accomplished by a change in food stamp regulations using the disqualification authorities provided in Section 6(b) and Section 6(h) of the Food Stamp Act? The SFMNP provides once-a-year vouchers (typically worth $20-$30) to low-income seniors; these vouchers are used at participating farmers' markets and roadside stands to buy fresh produce. The Administration proposes to require that the value of SFMNP vouchers be disregarded in federal and state means-tested public assistance programs. This change is intended to make treatment of SFMNP vouchers consistent with the treatment of other nutrition assistance benefits (e.g., the WIC Farmers' Market Nutrition program, child nutrition program benefits, food stamps). 1. Do any public assistance programs now count the value of SFMNP vouchers as income or financial resources—specifically, other nutrition assistance programs like food stamps? The Administration proposes to prohibit states from participating in the SFMNP if state or local sales taxes are charged on food purchased with SFMNP vouchers. This recommendation is intended to make treatment of SFMNP vouchers consistent with the treatment accorded other nutrition assistance benefits (e.g., the WIC Farmers' Market Nutrition program, food stamps). 1. Do any states or localities now charge sales taxes on SFMNP voucher purchases? Does the Administration expect any state to pull out of (or not apply for) the program if sales taxes on vouchers are barred? The most recent data on school food purchases are a decade old. The Administration proposes to require a $6 million survey of foods purchased by schools for their meal services, once every five years. It maintains that, in addition to getting information on fruit and vegetable purchases, its proposed periodic surveys would help USDA efforts to (1) provide guidance to schools in implementation of upcoming new rules intended to conform school meal patterns to the most recent Dietary Guidelines for Americans, (2) better manage the commodities procured by the USDA for distribution to schools, and (3) assess the economic effect of school food purchases on various commodity sectors. Critics ask whether this belongs in the farm bill. 1. Could the Administration's goal be achieved through the regular appropriations process? In recent years, USDA has acquired an average of over $300 million a year in fruit and vegetables for schools. About $50 million is purchased and distributed through the "Department of Defense Fresh Program," which supplies fresh fruit and vegetables to schools under contract with the USDA. In response to calls for an increase in the quality of USDA-provided commodities, the Administration proposes to provide an additional $50 million a year for the purchase of fruit and vegetables specifically for the School Lunch program—above acquisitions under any other authority. Some of this new spending could be through added dollars for the Defense Department Fresh Program. Critics are concerned that the Administration may not be asking for a large enough increase in fruit and vegetable purchases and that its farm bill proposals are silent on potential expansion of a small ($15 million) existing fresh fruit and vegetable program operating in some 400 schools located in 14 states and on 3 Indian reservations. 1. What is the Administration's position on expansion of the fresh fruit and vegetable program initiated in the 2002 farm bill and later expanded? 2. How would the $50 million a year in new fruit and vegetable purchases requested by the Administration be distributed among schools? 3. Will the proposed $50 million for fruit and vegetable purchases be mandatory funding? Could the Administration's goal be reached through the regular appropriations process? "Section 32" is a permanent appropriation that since 1935 has earmarked the equivalent of 30% of annual customs receipts to support the farm sector through a variety of activities. Today, most of this appropriation (now approximately $7 billion yearly) is transferred to the U.S. Department of Agriculture (USDA) account that funds child nutrition programs. However, a smaller—but still significant—amount of Section 32 money is set aside each year to purchase non-price-supported commodities directly and provide them to schools and other feeding sites. Some of these purchases are "entitlement" commodities that are required to be made under school lunch law. Others are "bonus" commodities, acquired by USDA through emergency surplus removal activities. The total value of both types of commodities now exceeds $900 million per year. The purchases are made by USDA's Agricultural Marketing Service (AMS). Included within these combined ("mandated" and "bonus") Section 32 totals, fruit and vegetable purchases over the last five years have averaged $308 million per year, according to USDA. In order to promote healthy diets, USDA proposes to increase purchases of fruits and vegetables using Section 32 authority by at least $200 million per year, and $2.75 billion over 10 years. However, critics are concerned over actual extent of any new fruit and vegetable purchases and their effect on Section 32 support for other commodities. 1. Documents detailing the budget effect of the Administration's farm bill proposals indicate no score (no new spending) for its Section 32 recommendation. How does the Administration propose to cover the cost of these increased fruit and vegetable purchases? 2. If new spending would not be created, which activities or food purchases would be reduced to pay for these increases? For example, Section 32 is now also used to purchase animal products including meats, poultry, and seafood. Would the Administration's proposal result in fewer purchases of these products? If not, why? 3. USDA routinely has funds remaining in the Section 32 account at the end of each fiscal year, which are "carried over" into the next fiscal year to be used in Section 32. What is this level of unobligated funds, on average, and is there any intent to reduce the size of this carryover to pay for new fruit and vegetable purchases? If so, could that leave less carryover in future years? 4. Does this proposal call for any new legislative authority, and if not, how can Congress be assured that the initiative would be carried out by future Administrations? 5. How does USDA currently determine what proportions of its Section 32 commodity acquisitions go to various domestic nutrition programs, and how would it do so for the proposed increases? 6. How does this proposal differ from the separate Administration initiative providing for $50 million yearly in other new fruit and vegetable purchases for domestic nutrition programs? How would it be funded? 7. Does the Department need broad legislative authority to administer Section 32 programs, particularly "bonus" surplus removals? The Administration proposes three revisions to the permanently authorized farm loan programs of the USDA's Farm Service Agency (FSA). FSA is a lender of last resort, providing direct and guaranteed loans to farmers unable to secure credit elsewhere. The general intention of the farm bill proposal is to enhance loan availability for beginning and socially disadvantaged classes of farmers and ranchers, and to increase the maximum size of individual direct loans, which effectively have been reduced by inflation. The cost of these changes against the budget baseline is zero because the programs are funded by annual discretionary appropriations. The statutory changes in eligibility and loan size may affect the distribution of program benefits and how far a dollar of appropriation goes, but appropriators will continue to control the actual level of spending. First, the Administration proposes to target more of the FSA direct loan portfolio to beginning and socially disadvantaged farmers. Currently, the law requires a certain percentage of the loan authority to be reserved for beginning farmers and ranchers for a specific length of the fiscal year, and funds are disbursed across states by expected need. After the targeting period ends, any remaining funds are pooled across states and allocated to other qualified farmers. The Administration proposes to double the targeting percentage for direct operating loans from 35% to 70%, and increase the targeting of direct farm ownership loans from 70% to 100%. New re-pooling procedures at the end of the targeting period would redistribute funds first to targeted groups of farmers in other states before other farmers. Second, the Administration proposes to enhance the beginning farmer down payment program to make it easier for beginning and socially disadvantaged farmers to buy property. It would (a) lower the interest rate charged from 4% to 2%, (b) eliminate the $250,000 cap on the value of property that may be acquired, (c) decrease the producer contribution from 10% to 5%, (d) defer payments for the first year, and (e) add socially disadvantaged farmers to the list of eligible applicants. Third, the Administration proposes to raise the current $200,000 borrower limit on direct farm ownership loans and $200,000 limit on direct farm operating loans to a combined $500,000 limit on both types of loans. The current limits were established in 1984 and 1978, respectively, and have been eroded in terms of purchasing power by inflation in the price of land and inputs. Limits on guaranteed loans were increased in 1998, indexed for inflation, and combined across ownership and operating loans. 1. The proposed $500,000 combined limit on direct farm operating and farm ownership loans is not indexed for inflation. However, the limit on guaranteed loans dating from 1998 is indexed for inflation. What is the rationale for indexing guaranteed loans and not direct loans? 2. Farmers may have more flexibility with the combined $500,000 cap, but the total is nonetheless only slightly higher than the current $400,000 total across the two types of loans. Given the increase in land prices and input costs since the mid 1980's, is a 25% increase in the combined loan cap sufficient? 3. The 2002 farm bill required a study of the effectiveness of the delivery of USDA's direct and guaranteed loan program. The issue was whether the direct loan program was still needed, given shifts in many different government loan programs toward guaranteed loans, including at FSA. The Administration's FY2008 budget for rural development calls for cutting direct loans in the rural housing program. Why does the USDA believe direct farm loans are still necessary but not direct rural housing loans? 4. What has been USDA's experience with the pilot program to guarantee contract land sales as established under the 2002 farm bill (7 U.S.C. 1936)? The program was authorized as a pilot through FY2007, and was to guarantee loans made by a private seller of a farm to a qualified beginning farmer on a contract land sale basis. How would USDA rate the success of this program? Why is USDA not requesting its reauthorization? 5. Does the Administration have a position on expanding the lending authority of the Farm Credit System (FCS), a policy FCS supports but commercial bankers oppose? Three agencies established by the Agricultural Reorganization Act of 1994 ( P.L. 103-354 ) are responsible for USDA's Rural Development mission area: the Rural Housing Service (RHS), the Rural Business-Cooperative Service (RBS), and the Rural Utilities Service (RUS). An Office of Community Development provides community development support through Rural Development's field offices. The mission area also administers the rural portion of the Empowerment Zones and Enterprise Communities Initiative, the Rural Economic Partnership Zones, and the National Rural Development Partnership. The Critical Access Hospital Program was created by the 1997 Balanced Budget Act ( P.L. 105-33 ) as a safety net device, to assure Medicare beneficiaries access to health care services in rural areas, and to create incentives to develop local integrated health delivery systems, including acute, primary, emergency and long-term care. Assistance for medical care facilities and other essential community facilities has been provided under USDA Rural Development's Community Facilities program. The Administration proposes mandatory funding of $1.6 billion in guaranteed loans and $5 million in grants to complete reconstruction and rehabilitation of all 1,283 currently certified Rural Critical Access Hospitals. The budgetary impact amounts to $80 million to support the loan guarantees and $5 million for the grants over 10 years. In contrast, since FY2004, USDA has supported 53 critical access hospitals with $260 million in loans and guarantees. 1. In FY2007, total loan guarantee budget authority for the entire Community Facilities program amounts to $208 million. Is the staff of the Community Facilities program prepared to handle as many as 1,283 new loan and grant projects? 2. Will this level of targeted funding for critical access hospitals avoid leaving loan applications for other essential community facilities at a disadvantage? In the 2002 farm bill, $360 million was authorized for a backlog of applications for rural development loans and grants. This funding was used exclusively for waste and waste water treatment. The Administration is proposing $500 million in the 2007 farm bill for backlogged loan and grant applications to further the development of sound infrastructure and " provide the basic services required to ensure a good quality of life or encourage sustainable economic development. " 1. Will the proposed $500 million eliminate the entire backlog of infrastructure projects? If not, how will the funds be allocated among communities and projects? 2. The Administration's 2008 budget proposes terminating the Community Facilities Grant program and "Community Connect" Broadband Grants. In the explanation of its farm bill proposals, the Administration notes that the unmet need for the kinds of services provided by the Community Facilities program is substantial. Also, farm bill reauthorization is proposed for broadband access, distance learning, and telemedicine programs. If the next farm bill does indeed reauthorize these programs, what level of funding will the Administration put in future budget requests? Are the farm bill proposal for an additional $500 million for the infrastructure backlog and the FY2008 budget proposal to terminate the programs consistent with one another? Loans and grants for business development and expansion are long-standing programs to assist rural areas with economic diversification and new opportunities for rural residents. The programs are targeted to existing rural businesses and start-ups, public bodies, nonprofit corporations and cooperatives, and they offer assistance in business planning, labor training, and technical assistance. Similarly, loans and grants for infrastructure (e.g., water treatment, technical assistance, broadband development) are also major foci of USDA Rural Development. The Administration's farm bill proposes creating a new "Business Grants Platform," a new "Community Programs Platform," and a "Multi-Departmental Energy Grants Platform" that would consolidate the authorities for many of these programs into single entities. The Administration proposes to consolidate USDA energy grant and research program authorities under the Biomass Research and Development Act of 2000. The key Renewable Energy Systems and Energy Efficiency Improvements grant programs would be consolidated under this act with proposed mandatory funding of $500 million over 10 years. In addition, competitive grants under the consolidated authority would be increased to $150 million over 10 years. 1. In the past, Renewable Energy System funds have assisted a range of renewable energy activities including anaerobic digesters and wind energy systems from across diverse of geographic areas. Will the expanded funding continue to be broadly targeted across different renewable energy types and geographic locations, or will it focus more directly on establishing a viable, self-sustaining cellulosic ethanol industry? 2. The Department of Energy (DOE) recently announced it would be investing $385 million in six biorefinery projects using cellulosic feedstocks. Is there a need for additional USDA energy grants funding? How will the requested funding in the Administration's energy grants proposal be coordinated with the DOE effort? 3. What kinds of quality employment and economic development potential for rural America would a multi-department energy grants platform provide? The Administration proposes to consolidate into existing Business and Industry Loan Program authority several other loan program authorities, prioritize funding for biorefinery construction, and raise the loan guarantee limit on cellulosic plants to $100 million. The Renewable Energy Systems and Energy Efficiency Improvements Loan Guarantee Program would be consolidated under this platform. Proposed increased funding to $210 million would support $2.17 billion of guaranteed loans over 10 years. For cellulosic ethanol projects, the Administration would raise the loan cap to $100 million and eliminate the cap on loan guarantee fees. Finally, the Administration proposes prioritizing funding for the construction of biorefinery projects. 1. This platform would emphasize energy development in rural areas, particularly cellulosic ethanol production. Although this may be a promising technology, it has yet to be developed commercially, and there remain significant technical obstacles. Based on current technology, and the government's best-educated projections, corn based ethanol will have to account for 34 billion of the Administration's proposed 35 billion gallons of renewable and alternative fuels target for 2017. What is the rationale for the proposed level of funding for such a primitive technology? 2. What support will be given to other renewable energy technologies (e.g., wind power, solar power)? Is there any concern about crowding out the development of other potentially viable long-run energy solutions by intensifying federal funds on cellulosic ethanol? 3. While building cellulosic ethanol facilities over the next five years will create some local construction employment, how likely are cellulosic facilities to create new rural competitive advantage for the long term? The Administration proposes to consolidate the separate legal authorities for five rural grants programs into a single law. 1. How would this proposed streamlining effort enhance assistance to rural areas? What current obstacles exist within the USDA Rural Development's mission agencies that impede efficient and effective business assistance to rural areas? 2. The Administration's 2008 budget request calls for terminating two of the programs that might have been included in the business grants platform (e.g., Rural Business Enterprise Grants, Rural Business Opportunity Grants). These programs target smaller rural businesses and are important sources of funding for entrepreneurial business activities in rural areas. What is the rationale for eliminating these grants? Will their termination limit the capacity to support more entrepreneurial efforts in rural areas? How would elimination of these programs enhance the efficiency and effectiveness of the remaining programs proposed for consolidation? 3. Many rural development programs were created in part because rural areas tended to be underserved by the economic development programs administered by other federal agencies (e.g., Department of Commerce, Department of Housing and Urban Development). The Administration's FY2008 budget request considers the Rural Business Enterprise Grants Program and Rural Business Opportunity Grants Program as duplicating programs administered by other federal agencies and proposes their termination. What assurances can be given that rural areas will not be neglected by these other federal agencies? Will funding for similar programs administered by these other federal agencies be increased, or not, to target rural areas for economic development assistance? This platform would consolidate authorities for water and waste water loans, guarantees, and grants into a single entity. Assorted supplemental authorities would also be consolidated under this platform. 1. The proposed community programs platform consolidates approximately nine community programs, one of which targets rural areas with high unemployment and/or significant outmigration. Yet, the FY2008 budget proposes terminating two programs, the Economic Impact Grants and Community Facility Grants, stating that they are duplicative of programs in other federal agencies. Will funding be increased in these other federal agencies to target rural areas with high unemployment and/or out-migration? Will essential rural community facilities assisted by the Community Facility Grant Program be supported by other federal agencies? The 2002 farm bill reauthorized ongoing USDA programs in agricultural research, education, extension, and agricultural economics through FY2007, and extended reforms in this mission area that were enacted in 1998 as part of the Agricultural Research, Extension, and Education Reform Act ( P.L. 105-185 ). The agencies that comprise USDA's Research, Extension, and Economics (REE) mission area are the Agricultural Research Service (ARS), the Cooperative State Research, Education, and Extension Service (CSREES), the Economic Research Service (ERS), and the National Agricultural Statistics Service (NASS). ARS is USDA's intramural research agency, comprising more than 100 laboratories nationwide. CSREES distributes annual appropriations to support extramural agricultural research and extension at the land grant colleges of agriculture in the states and U.S. territories. ERS conducts economic research, and NASS is the primary USDA statistical agency. The Administration proposes the consolidation of ARS and CSREES into a single agency to be called the Research, Education, and Extension Service (REES). The head of the new agency would hold the title of Chief Scientist. The current Research, Extension, and Education mission area would be renamed the Office of Science, with leadership to continue through the Under Secretary and Deputy Undersecretary. The land grant universities also have put forward a proposal to reorganize USDA's research mission area. Their proposal (referred to as "CREATE-21") would combine ARS and CSREES into one agency, would keep ERS and NASS in the research mission area, and would bring the research function of the Forest Service under the same administrative umbrella as ARS and CSREES research. In addition, CREATE-21 proposes the establishment of a national institute for research on food and agriculture that would support both intra- and extramural science through competitively awarded grants. In the mid-1970s, the Carter Administration merged ARS, the Cooperative State Research Service (CSRS), and the Extension Service into what was then called the Science and Education Administration (SEA). The same rationales in favor of such a move were cited then as now: that there was costly redundancy at the administrative level, that combining intramural and extramural research programs would result in better coordination, and that more resources should go directly into performing research. SEA was separated back into its three distinct agencies at the beginning of the Reagan Administration. Although the 1994 USDA reorganization combined CSRS and the Extension Service to form CSREES (and brought ERS and NASS into the research mission area), the intramural and extramural research programs have remained separate for more than 25 years. It is widely held that the merger in the 1970s never functioned as intended because little attempt was made to work within and between the previously separate agencies to create a new, combined structure and culture. 1. What are some of the steps anticipated for the proposed Chief Scientist to take in order to create a well-coordinated single agency that is united behind its mission? 2. What is the Administration's proposal concerning ERS and NASS? Would they remain under the proposed Office of Science? If not, where would they be placed? The Forest Service receives roughly $250 million annually through the Department of Interior budget to conduct research related to public and private forest lands. The laboratories where this research is conducted are largely located at land grant institutions, which also receive funds for forestry research through CSREES. The land grant universities' CREATE-21 document proposes bringing Forest Service research under the same administrative umbrella as ARS and CSREES. 1. What are the Department's reasons for keeping Forest Service research separate in its 2007 farm bill proposal? ARS receives direct funding through the annual USDA appropriations acts. The states receive federal funds, administered by CSREES, through a variety of block grants (or formula funds) and competitive grants. For the past several years, the Administration has proposed in its annual budget request to cut formula funds to states, while the proposed ARS appropriation remains the same or increases. 1. Under the proposed merger of ARS and CSREES, how would these different funding mechanisms be treated? 2. What changes, if any, is the Administration considering to the decades-old formula funding mechanism? 3. Is the intent of the Administration's proposal to increase the amount of research funding that would be distributed through competitive grants, and decrease the amount distributed through the formula programs? If so, why? The land grant universities' CREATE-21 proposal contains specific suggestions for how a new, combined funding system could be managed. The stated intent of that proposal is to not disadvantage either ARS or the state research institutions financially as the agencies merge. Key to the CREATE-21 proposal is doubling the current amount of funding for agricultural research and extension over the next seven years. 1. Does the Administration foresee using mandatory funds to support a significant increase in the total amount of funding available for agricultural research and extension? 2. How would such funding fit into the Administration's larger proposal for farm program reforms? The Administration proposes to create an Agricultural Bioenergy and Biobased Products Research Initiative with mandatory annual funding of $50 million for 10 years. The initiative would use existing Agriculture Research Service facilities and scientists and provide competitive grants to universities. These USDA-funded activities would be coordinated with Department of Energy activities. The objectives would be to make agricultural biomass a viable alternative to petroleum and to develop industrial products from the byproducts of bioenergy production. 1. Will current and pending ARS work be displaced when facilities and scientists shift to the high priority bioenergy topics? 2. Will the Department of Energy have management control over any of this research funding? 3. Does the proposal envision any collaboration between public and private research in this area? The Administration proposes to create a new Specialty Crops Research Initiative with annual mandatory funding of $100 million. 1. The initiative is said to include both intramural (ARS) and extramural (CSREES) programs. How would the Administration propose to divide the funding between these two categories. With regard to intramural research, how many new scientists might be added to ARS, or would the current staff shift priorities to specialty crops and away from current activities? 2. There has been a history of mandated research programs going unfunded. What reassurance can USDA give the specialty crop producers that this new initiative will be implemented? The premier U.S. facility for research on foreign animal diseases is the Plum Island Animal Disease Center, located on an island off the northeastern tip of Long Island, NY. The property of Plum Island was transferred from USDA to DHS in the Homeland Security Act of 2002, although personnel from both USDA's Agricultural Research Service (ARS) and Animal and Plant Health Inspection Service (APHIS) still conduct research there alongside DHS personnel. Many experts agree that the 50-year old Plum Island facility, built in the 1950s, is nearing the end of its useful life and unable to provide the necessary capacity for current biosecurity research. The Department of Homeland Security is proceeding with plans to replace the aging Plum Island Animal Disease Center with a new "National Bio and Agro-Defense Facility" (NBAF) for research on high consequence foreign animal diseases. Congress already has appropriated $46 million over FY2006-FY2007 for planning and site selection, and the estimated design and construction cost is $451 million. DHS has begun the design process, and already has reviewed submissions from universities and other locations interested in hosting the new facility. In August 2006, it selected a long list of 18 sites in 11 states for further consideration. A final location will be chosen early in 2008, and the current time line calls for construction to be completed in 2013. Plum Island is the only facility in the United States that is currently approved to study high-consequence foreign livestock diseases, such as foot-and-mouth disease (FMD), because its laboratory has been equipped with a specially designed BSL-3 bio-containment area for large animals that meets specific safety measures. The U.S. Code stipulates that live FMD virus may be used only at coastal islands such as Plum Island, unless the Secretary of Agriculture specifically authorizes the use of the virus on the U.S. mainland (21U.S.C. 113a). The Administration proposes to change the law to allow research and diagnostics for highly infectious foreign animal diseases on mainland locations in the United States. The Plum Island Animal Disease Center and the USDA National Veterinary Services Laboratories (NVSL) in Ames, IA, are the only BSL-3 agriculture facilities in the United States. The United States has no BSL-4 agriculture facilities (the highest biosecurity level); such facilities are located in Canada and Australia. The intended NBAF is likely to be another BSL-3 facility, although a BSL-4 facility has not necessarily been ruled out. 1. DHS is understood to be already proceeding to build this new laboratory prior to any change the law about FMD research on the mainland. If Congress does not change the law and DHS builds the facility on the mainland, will the Secretary of Agriculture use his regulatory authority to allow such research so that the presumed new facility can be used? Which action should come first, statutory authority or building the facility? 2. Was USDA consulted about the DHS decision to build a new lab? Does USDA have a preference for location, relative to Plum Island and the USDA personnel who work there? 3. Does USDA have a seat on the DHS site selection committee? 4. Critics are concerned that locating the facility in regions where cattle or other livestock are raised may pose an unnecessary risk if security features are breached by terrorism, which is an unpredictable risk compared to accidental or unintentional risks. GAO found security concerns at Plum Island a few years ago. What is the advantage of building such a facility in Kansas, for example, where the consequences of a biosecurity breach could be much more devastating to domestic cattle production than if the facility remained at a coastal site such as Plum Island? How do these risk factors enter the cost-benefit analysis of site selection? 5. How do the risks compare between animal and human diseases, regarding operating the Centers for Disease Control (CDC) BSL-4 lab in Athens, Georgia, a mainland location, compared to the Plum Island location for agriculture? Which diseases are more likely to spread among a population if released? The USDA's Forest Service manages the National Forest System, funds and conducts forestry research, and provides forestry assistance. Most federal forestry programs are permanently authorized. Past farm bills have generally addressed cooperative assistance programs administered by the Forest Service's State & Private Forestry (S&PF) branch. The Administration ' s 2007 farm bill proposes four new programs: (1) comprehensive statewide forest planning; (2) competitive landscape-scale forestry grants; (3) a 10-year, $150 million forest wood-to-energy technology development program; and (4) financial and technical assistance to communities for acquiring, planning for, and conserving community forests. The Administration has not proposed reauthorizing the Forest Land Enhancement Program (FLEP). FLEP (a combination of two previously existing landowner assistance programs) was enacted in the 2002 farm bill with mandatory funding of $100 million over the six-year life of the law. Subsequently, at the request of the Administration, funding authority was reduced to $49.5 million. The Administration is proposing a new program of financial and technical assistance to state forestry agencies to develop and implement Statewide Forest Resource Assessments and Plans to address the increasing public demand for forest products and amenities, pressure on landowners to convert forests to other uses, and risk from wildfire. 1. Would the proposed statewide planning, technology development, and community forests be more effective at providing for the growth in demand for forest products and amenities than a direct landowner assistance program, such as FLEP? 2. Does the lack of private landowner assistance in the 2007 proposal constitute a conclusion that the programs have been ineffective? How many private landowners have been assisted annually over the past decade by the existing cost-share assistance programs, and what are the results of these efforts? 3. How can national direction for statewide forest planning best provide the flexibility to address such diverse forests as those in Iowa and those in Florida? Are the various state forestry organizations unable or unwilling to undertake statewide forest planning without federal direction and oversight? How is this new planning effort to be funded, given the Administration proposal to cut FY2008 forest stewardship funding (for financial and technical assistance to states) by 41%? How would statewide forestry planning address the identified growth in demand for forest products and amenities and in low-value biomass that degrades forests and increases wildfire risk? The Administration ' s farm bill proposal includes a new landscape-scale forestry competitive grant program " to develop innovative solutions that address local forest management issues; develop local nontraditional forest product markets; and stimulate local economies through creation of value-added forest product industries. " The Administration identifies as significant problems the aging of family forest landowners and the potential fragmentation of forests over the next two decades. 1. How would "landscapes" be defined for the grants? Would competitive landscape-scale grants require cooperative involvement of all or most landowners within the landscape? If the grants are to foster nontraditional markets and value-added industries, would they even be related to the landscape and the landowners? 2. The proposal states that the program "would ensure a comprehensive, coordinated approach to forest management and would ensure collaboration across ownership and jurisdictional boundaries." What proportion of the landowners or of the lands need to be involved for a landscape to be eligible for a grant? How can landowners, including the federal government, be encouraged to cooperate? How would the landscape grant proposals be assessed and compared; that is, what criteria would be used to make the grants competitive? Does the Forest Service have the needed expertise to implement a competitive landscape-scale grant program? Do landscape-scale grants and community forests move away from private, individual forestland ownership, and promote communal forest ownership? The Administration is proposing a new 10-year, $150 million wood-to-energy program to accelerate development and use of new technologies to use the substantial amounts of low-grade woody biomass that degrade forest health and exacerbate wildfire risks and are of little commercial value. 1. What are the program goals for this proposal? How will progress and effectiveness be measured? 2. What is the potential to convert woody biomass to cellulosic ethanol, and how does this compare with the potential to burn woody biomass to produce electricity? What are the costs and the biomass conversion factors for ethanol conversion and for electricity production? What other factors—capital costs, infrastructure, collection and hauling opportunities, etc.—might be critical for improved utilization of low-value woody biomass for energy? Might any of these factors be more limiting than technology development and deployment? What programs exist to address these other factors? The Administration ' s 2007 farm bill proposes a community forests working lands program to provide communities with the financial assistance to acquire and conserve forests and the technical assistance to plan for the use and conservation of those forests. This program would particularly address the problem of producing goods and services from forest at the urban fringe. 1. How does the proposed community forests program differ from the existing Forest Legacy program? 2. What is the federal role and federal responsibility in funding and otherwise assisting communities in acquiring and conserving local forestlands? Title IX of the 2002 farm bill ( P.L. 107-171 ) represented the first-ever energy title in a farm bill and included nine provisions addressing agriculture-based renewable energy systems. USDA ' s proposed 2007 farm bill outlines modifications to programs that expand federal research on renewable fuels and bioenergy; and re-authorizes, revises, and expands programs intended to provide assistance for the advancement of renewable energy production and commercialization. However, several expiring provisions from the 2002 farm bill are not mentioned. These include the Biorefinery grants (Section 9003), the Biodiesel Fuel Education Program (Section 9004), the Energy Audit and Renewable Energy Development Program (Section 9005), the Memorandum of Understanding between the Secretary of Agriculture and the Secretary of Energy concerning hydrogen and fuel cell technologies (Section 9007), and Cooperative Research and Development on Carbon Sequestration (Section 9009). It is also noteworthy that several of these same provisions went unfunded during the life of the 2002 farm bill. 1. Is it USDA's intention that expiring provisions in the 2002 farm bill be dropped from future legislation? These provisions were never funded or implemented during the past five years. Would the USDA support funding these expiring provisions if they are reauthorized by Congress? 2. What progress has been made to improve coordination between USDA and the Department of Energy? Is there still room for major improvements or are the two departments already fairly efficient in coordinating energy development activities? USDA ' s energy proposal calls for a substantial increase in funding under the loan guarantee and grants program of the Renewable Energy Systems and Energy Efficiency Improvements program (otherwise referred to as the Renewable Energy Program). In addition, these programs are to be managed to provide preference to projects that focus on cellulosic ethanol. 1. What accomplishments can be claimed by the Renewable Energy Program in furthering the development of renewable energy in general and biofuels in particular? Current thinking is that, once the technology is developed, cellulosic ethanol will expand rapidly to take advantage of cheap feedstocks, such as switchgrass, that can be produced on marginal lands. The farm bill proposal includes some incentives to encourage development of a cellulosic-based ethanol industry. However, there are still many questions surrounding the potential of cellulosic ethanol and the likely economic implications associated with a major expansion of cellulosic ethanol production. 1. Biomass material is bulky and poses serious challenges for harvesting, transportation, and storage. How much of USDA's research funding would be targeted to these types of issues? 2. If cellulosic feedstocks are produced on marginal lands, would they compete directly with cattle forage? 3. Many conservation and wildlife proponents are concerned about the possibility of degrading Conservation Reserve Program (CRP) acreage for cellulosic feedstock production. What assurances might be offered in this regard? 4. If the cellulosic ethanol industry takes off, will there still be room for the corn-based ethanol industry? Would a cellulose-based ethanol industry shift its geographic location towards the cheaper lands and feedstocks of the prairies and forests of America, leaving behind corn-based plants of the Corn Belt? If some version of this were to develop, what would be the outlook for corn-based ethanol plants? What would happen to those individuals, many from small towns across America, that have poured their savings into ethanol plants? American ethanol blenders receive at least partial protection from foreign competition by a $0.54 per gallon tariff on imported ethanol. Although the Caribbean Basin Initiative allows for modest entry of ethanol from several Caribbean countries, the tariff clearly works against ethanol from Brazil. This tariff was recently extended through 2008 (by P.L. 109-432 ). Some ethanol supporters argue that this tariff prevents the development of a national distribution network by limiting access to adequate ethanol supplies by ethanol blenders in the major coastal regions of the United States such as New York, Florida, and California. 1. Does the tariff on ethanol imports create a supply problem for major metropolitan areas distant from the Corn Belt? If the import tariff can be justified as providing essential protection for the ethanol industry, why is there no similar tariff on either biodiesel or palm oil to protect the more nascent U.S. biodiesel industry? In addition to import protection, the U.S. ethanol sector receives substantial support from (1) a tax credit of $0.51 to fuel blenders for every gallon of ethanol blended with gasoline, and (2) a Renewable Fuels Standard (RFS) that mandates a renewable fuels blending requirement for fuel suppliers that grows annually from 4 billion gallons in 2006 to 7.5 billion gallons in 2012. A recent survey of both federal and state subsidies in support of ethanol production reported that total annual federal support is somewhere in the range of $5.1 to $6.8 billion. USDA's energy proposal continues the trend of strong support to the biofuels sector. 1. Is there concern that these subsidies for a single technology, in this case the combustion engine and biofuels, may deter or limit the development of new or as-yet unknown future technologies that might otherwise provide more sustainable long-run solutions to the United States' energy situation? The Administration recommends that the law authorizing the Federal Procurement of Biobased Products program (section 9002 of the 2002 farm bill) be changed to improve the effectiveness and administration of the program. Also, additional mandatory funding of $2 million per year is recommended. 1. Federal law mandates the use of a sizeable amount of renewable fuel and it appears future growth will not need the help of federal agency procurement. If renewable fuel is not the focus of the federal procurement program, what will be the focus? The Administration proposes to consolidate into existing Business and Industry Loan Program authority several other loan program authorities, prioritize funding for biorefinery construction, and raise the loan guarantee limit on cellulosic plants to $100 million. The Renewable Energy Systems and Energy Efficiency Improvements Loan Guarantee Program would be consolidated under this platform. Proposed increased funding to $210 million would support $2.17 billion of guaranteed loans over 10 years. For cellulosic ethanol projects, the Administration would raise the loan cap to $100 million and eliminate the cap on loan guarantee fees. Finally, the Administration proposes prioritizing funding for the construction of biorefinery projects. 1. This platform would emphasize energy development in rural areas, particularly cellulosic ethanol production. Although this may be a promising technology, it has yet to be developed commercially, and there remain significant technical obstacles. Based on current technology, and the government's best-educated projections, corn based ethanol will have to account for 34 billion of the Administration's proposed 35 billion gallons of renewable and alternative fuels target for 2017. What is the rationale for the proposed level of funding for such a primitive technology? 2. What support will be given to other renewable energy technologies (e.g., wind power, solar power)? Is there any concern about crowding out the development of other potentially viable long-run energy solutions by intensifying federal funds so narrowly on cellulosic ethanol? 3. While building cellulosic ethanol facilities over the next five years will create some local construction employment, how likely are cellulosic facilities to create new rural competitive advantage for the long term? The Administration proposes to consolidate USDA energy grant and research program authorities under the Biomass Research and Development Act of 2000. The key Renewable Energy Systems and Energy Efficiency Improvements grant programs would be consolidated under this act with proposed mandatory funding of $500 million over 10 years. In addition, competitive grants under the consolidated authority would be increased to $150 million over 10 years. 1. In the past, Renewable Energy System funds have assisted a range of renewable energy activities including anaerobic digesters and wind energy systems from across diverse of geographic areas. Will the expanded funding continue to be broadly targeted across different renewable energy types and geographic locations, or will it focus more directly on establishing a viable, self-sustaining cellulosic ethanol industry? 2. The DOE recently announced it would be investing $385 million in six biorefinery projects using cellulosic feedstocks. Is there a need for additional USDA energy grants funding? How will the requested funding in the Administration's energy grants proposal be coordinated with the DOE effort? 3. What kinds of quality employment and economic development potential for rural America would a multi-department energy grants platform provide? The Conservation Reserve Program (CRP) and Conservation Reserve Enhancement Program (CREP) remove active cropland into conservation uses, typically for 10 years, and provide annual rental payments based on the agricultural rental value of the land and cost-share assistance. Conversion of the land must yield adequate levels of environmental improvement to qualify (environmental benefits index). CRP is the largest land retirement program with spending of $1.828 billion in FY2005. The total program acreage is limited to 39.2 million. The Secretary is recommending reauthorization of this program with an enhanced focus on lands that provide the most benefit for environmentally sensitive lands. Priority would be given to whole-field enrollment for lands utilized for energy-related biomass production. Biomass would be harvested after nesting season and rental payments would be limited to income foregone or costs incurred by the participant to meet conservation requirements in those years biomass was harvested for energy production. 1. The proposal may appear to some to have two conflicting components with regard to CRP. If it is desirable to focus CRP on multi-year idling of more environmentally sensitive lands, what is the rationale for proposing the harvesting of biomass on those lands? Could this harvesting conflict with the purpose of the program? 2. If it is decided that high demand for commodities dictates that less land should be in the CRP, how would priorities be set for land to be released? The Administration proposes to consolidate USDA energy grant and research program authorities under the Biomass Research and Development Act of 2000. The key Renewable Energy Systems and Energy Efficiency Improvements grant programs would be consolidated under this act with proposed mandatory funding of $500 million over 10 years. In addition, competitive grants under the consolidated authority would be increased to $150 million over 10 years. See the questions under the previous heading in this chapter titled "Create a Multi-Department Energy Grants Program." The Administration proposes to create an Agricultural Bioenergy and Biobased Products Research Initiative with mandatory annual funding of $50 million for 10 years. The initiative would use existing Agriculture Research Service facilities and scientists and provide competitive grants to universities. These USDA-funded activities would be coordinated with Department of Energy activities. The objectives would be to make agricultural biomass a viable alternative to petroleum and to develop industrial products from the byproducts of bioenergy production. 1. Will current and pending ARS work be displaced when facilities and scientists shift to the high priority bioenergy topics? 2. Will the Department of Energy have management control over any of this research funding? 3. Does the proposal envision any collaboration between public and private research in this area? The Administration is proposing a new 10-year, $150 million wood-to-energy program to accelerate development and use of new technologies to use the substantial amounts of low-grade woody biomass that degrade forest health and exacerbate wildfire risks and are of little commercial value. 1. What are the program goals for this proposal? 2. What is the potential to convert woody biomass to cellulosic ethanol, and how does this compare with the potential to burn woody biomass to produce electricity? What are the costs and the biomass conversion factors for ethanol conversion and for electricity production? What other factors—capital costs, infrastructure, collection and hauling opportunities, etc.—might be critical for improved utilization of low-value woody biomass for energy? Might any of these factors be more limiting than technology development and deployment? What programs exist to address these other factors? The federal crop insurance program is permanently authorized so it does not require renewal in the 2007 farm bill. Major enhancements to the program have been authorized in legislation on several occasions since 1980 (usually outside of the farm bill process). Most recently, the Agriculture Risk Protection Act of 2000 ( P.L. 106-224 ) put $8.2 billion in new federal spending measures over a five-year period into the program primarily through more generous premium subsidies to help make the program more affordable to farmers and increase farmer participation. Since 2000, the federal subsidy to the crop insurance program has averaged about $3.3 billion per year. Although the scope of crop insurance has widened significantly over the past 25 years and premium subsidies have increased, the stated goal of eliminating disaster payments has not been achieved. Until the 2005 crop, Congress provided ad hoc disaster payments to farmers in virtually every year since 1988 that witnessed substantial weather-related crop losses. The disaster assistance has been made available regardless of whether a producer had an active crop insurance policy. The Administration's farm bill proposal contains several crop insurance recommendations intended to enhance participation; address issues of waste, fraud and abuse; reduce costs; and reduce the need for emergency supplemental disaster payments. One of the more significant proposed changes to the program would be to allow participating farmers to purchase insurance for the portion of their production that is part of their deductible, and not currently covered by crop insurance. Under this supplemental deductible coverage, a producer could purchase an additional policy, and a payment would be made when losses in the producer's county exceed a certain threshold. The Administration also recommends several cost-saving measures to the program including reducing premium subsidies by 2 to 5 percentage points, charging premiums for the catastrophic level of coverage (which currently is premium-free), and requiring the private insurance companies (which now sell and service the policies) to absorb more of the cost of the program. Finally, farmers would be required to purchase crop insurance as a prerequisite for participating in the farm commodity support programs. 1. The estimated annual average cost of the supplemental deductible coverage that the Administration proposes is $35 million. Over the last twenty years, Congress has provided an average of about $2 billion per year in supplemental disaster payments. How would this proposed program preclude the pressure for Congress to enact multi-billion dollar disaster payment programs each year? 2. What effect would the Administration proposals to reduce the federal cost of the crop insurance program by increasing farmer-paid premiums have on farmer participation in the program? 3. A 1994 crop insurance act required the purchase of a crop insurance policy as a prerequisite for participating in the farm commodity programs. Farm groups were strongly opposed to this provision and fought successfully to have it eliminated in the 1996 farm bill. What reaction might be expected from farm groups to the current proposal for mandatory linkage? "Section 32" is a permanent appropriation that since 1935 has earmarked the equivalent of 30% of annual customs receipts to support the farm sector through a variety of activities. Today, most of this appropriation (now approximately $7 billion yearly) is transferred to the U.S. Department of Agriculture (USDA) account that funds child nutrition programs. However, a smaller—but still significant—amount of Section 32 money is set aside each year to purchase non-price-supported commodities directly and provide them to schools and other feeding sites. Some of these purchases are "entitlement" commodities that are required to be made under the school lunch act. Others are "bonus" commodities, acquired through emergency surplus removal activities. The total value of both types of commodities now exceeds $900 million per year. The purchases are made by USDA's Agricultural Marketing Service (AMS). Included within these combined ("mandated" and "bonus") Section 32 totals, fruit and vegetable purchases over the last five years have averaged $308 million per year, according to USDA. 1. USDA proposes to increase purchases of fruits and vegetables using Section 32 authority by at least $200 million per year, but the farm bill budget indicates no score above the OMB baseline. Why is this proposal not reflected in the Administration's FY2008 budget? In other words, how does the Administration propose to cover the cost of these increased fruit and vegetable purchases? 2. If new spending would not be created, which activities or food purchases would be reduced to pay for these increases? For example, Section 32 is now also used to purchase animal products including meats, poultry, and seafood. Would the Administration proposal result in fewer purchases of these products? If not, why? 3. The Department routinely has funds remaining in the Section 32 account at the end of each fiscal year, which are "carried over" into the next fiscal year to be used in Section 32. What is this level of unobligated funds, on average, and does USDA intend to reduce the size of this carryover to pay for new fruit and vegetable purchases? If so, won't that leave even less carryover in future years? 4. Does this proposal call for any new legislative authority, and if not, how can Congress be assured that the initiative would be carried out by future Administrations? 5. How does the Department currently determine what proportions of its Section 32 commodity acquisitions go to various domestic nutrition programs, and how would it do so for the proposed increases? 6. How does this proposal differ from the separate Administration initiative providing for $50 million yearly in other new fruit and vegetable purchases for domestic nutrition programs? How would it be funded? 7. Why does the Department need, and use, such broad legislative authority to administer Section 32 programs, particularly "bonus" surplus removals? The Administration ' s 2007 farm bill proposal recommends considerably more funding for research and marketing programs, to support the continuing growth of the organic farming sector. 1. How is the Department proposing to provide this new mandatory funding? 2. USDA's farm bill initiative states that gaps in the organic regulations may need to be addressed in order to better support enforcement activity. But more enforcement would also require more personnel and resources. How would the Department provide funding for the increased program oversight and enforcement that could be necessary as the number of certified operations increases? | On January 31, 2007, the Secretary of Agriculture publicly released a set of recommendations for a 2007 farm bill. The proposal is comprehensive and follows largely the outline of the current 2002 farm bill, which expires this year. It includes proposals regarding commodity support, conservation, trade, nutrition and domestic food assistance, farm credit, rural development, agricultural research, forestry, energy, and such miscellaneous items as crop insurance, organic programs, and Section 32 purchases of fruits and vegetables. The Administration delivered its report to Congress, not as a bill, but as a possible focus for debate and a foundation for developing legislation. CRS has received many questions about the content of and potential issues related to the Administration proposal. Given the early stage of the debate, this report poses some questions that may contribute to a better understanding of the proposal. This report contains a brief description of current policy on each topic, a short explanation of the Administration's proposals, and then questions of a policy, program, and/or budgetary nature. In some cases proposals are repeated in more than one title, and where this happens the questions are duplicated. |
When a Senate committee reports a measure to the Senate, it usually prepares a written report that describes the purposes and provisions of the measure. Senate rules and statutes specify items that must be included in committee reports. Senate committees also may include additional items in their reports. For more information on legislative process, see http://www.crs.gov/ products/ guides/ guidehome.shtml . The results of any roll call vote on ordering a measure reported must be included in Senate reports. The results of other roll call votes, on the measure or any amendment to it, and tabulations of votes cast by each member in favor and against a question must be included unless the votes were "previously announced" by the committee. (Rule XXVI, paragraphs 7(b) and (c).) In general, the Senate report on a measure (except continuing appropriations), which provides new budget authority, or changes revenues or tax expenditures, must contain: (a) a Congressional Budget Office (CBO) cost estimate for the first fiscal year affected and the four subsequent fiscal years; and (b) a CBO estimate of new budget authority provided for assistance to state and local governments. The Senate Appropriations Committee also must include a comparison of the levels in an appropriations measure to the appropriate subcommittee allocations (the so-called 302(b) allocations). (Section 308(a) of the Congressional Budget Act. Related requirements are contained in Section 402 of the Budget Act, and Rule XXVI, paragraph 11(a).) An authorizing committee's report on a public bill or joint resolution that includes a federal mandate must contain an identification and description of the mandate. This must comprise the direct costs to state, local, and tribal governments, and the private sector; an assessment of the anticipated costs and benefits; and a statement on the effect on both the public and private sectors, including on the competitive balance between them. If the mandates are intergovernmental, the report also must contain statements on the amount of authorizations under federal financial assistance programs; whether the mandates are partly or entirely unfunded; how any funding will be allocated; additional sources of federal financial assistance; and a statement of how the committee intends States to implement any funding reductions. Reports on measures containing federal intergovernmental or private sector mandates also must contain CBO statements on the direct costs of the mandates. (Sections 423 and 424 of the Congressional Budget Act, as amended.) A report by an authorizing committee on a public bill or joint resolution must contain, if relevant, a statement on the extent to which the measure preempts any state, local, or tribal law, and the effect of any such preemption. (Section 423 of the Congressional Budget Act, as amended.) A committee report (except by the Appropriations Committee) on a public bill or joint resolution generally must contain an evaluation of its regulatory impact, including information on (a) the individuals and businesses who would be regulated; (b) the economic impact of regulation on affected individuals, consumers, and businesses; (c) the impact on personal privacy; and (d) the amount of paperwork and record keeping required. These estimates are not required if the report states why compliance is "impracticable." (Rule XXVI, paragraphs 11(b) and (c).) A report on a bill or joint resolution relating to terms and conditions of employment or access to public services or accommodations must describe how the provisions apply to the legislative branch. If a provision is not applicable to the legislative branch, the report must explain why. ( P.L. 104-1 , Section 102(b)(3).) A committee report on a measure that changes existing law must contain: (a) the text of the statute, or part thereof, proposed to be changed; and (b) a comparative print of the part of the measure making the change and the statute proposed to be amended. This information is not required if the report states that its omission is necessary "to expedite the business of the Senate." (Rule XXVI, paragraph 12.) If a request is made at the time a measure is ordered reported, a member of any committee (except Appropriations) is entitled to at least three calendar days to prepare supplemental, minority, or additional views for inclusion in the committee report. (Rule XXVI, paragraph 10(c).) Senate committee reports typically outline the need and purpose for the legislation. Reports may include a brief legislative history of the measure, and possibly, related or earlier measures. There may also be a section-by-section (or title-by-title) summary of the legislation. Statements of legislative intent are sometimes included, to guide the executive branch in implementing the law, and to assist the judicial branch in interpreting the law on an issue before a court. Executive branch opinions requested by the committee may also be printed in the report. Senate committee reports may contain additional items that explain the formation, language, and impact of the legislation. | When a Senate committee reports a measure to the Senate, it usually prepares a written report that describes the purposes and provisions of the measure. Senate rules and statutes specify items that must be included in committee reports. Senate committees also may include additional items in their reports. For more information on legislative process, see http://www.crs.gov/ products/ guides/ guidehome.shtml . |
OMB Circular A-76 (A-76) is a federal policy that affects executive branch agencies. OMB Circular A-76 and its definition of inherently governmental functions applies to all executive departments named in 5 U.S.C. Section 101 and all independent establishments as defined in 5 U.S.C. Section 104. There are no exemptions. A-76 is a policy but does not have the force of law. OMB Circular A-76 outlines a formal, complex, and often lengthy process for managing public-private competitions to perform functions for the federal government. A-76 states that, whenever possible, and to achieve greater efficiency and productivity, the federal government should conduct competitions between public agencies and the private sector to determine who should perform the work. A-76 requires federal executive agencies to annually prepare lists of activities considered both commercial and inherently governmental activities. In general, commercial activities are subject to competition, while inherently governmental activities are not. Most federal government contracts are not awarded through Circular A-76 competitions, nor are the majority of federal government contracts subject to public-private competitions. According to the Government Accountability Office (GAO), A-76 competitions have over time represented a small portion of the federal dollars spent on service contracts. The concept of A-76 first began as a statement of federal policy under the Bureau of the Budget in the Eisenhower Administration, and developed into a formal A-76 policy statement in 1966. The policy stated that the government would rely on the private sector for the performance of commercial activities. OMB Circular A-76 has been revised several times, the latest revision in 2003. Competitive sourcing through A-76 was a major initiative identified in 2001 by the Bush Administration's Presidential Management Agenda. It was one of five government-wide initiatives to improve the management and performance of the federal government. Some Members of Congress were critical of the conduct of A-76 competitions under the Bush Administration, and this criticism and ensuing debate over whether to conduct future A-76 competitions contributed to the current moratorium. In accordance with statutory provisions, DOD suspended ongoing public-private competitions in 2008 and has not initiated any new public-private competitions since that time. President Obama signed into law the FY2009 Omnibus Appropriations Act which suspended all new, government-wide, OMB Circular A-76 studies through FY2009. (See section entitled "The Current Moratorium on the Conduct of A-76 Competitions" for further information.) The current moratorium on A-76 competitions is tied to the debate over Circular A-76 policy, which can be viewed within a larger debate over the role of the federal government, and over what functions the federal government should perform versus what functions the private sector should perform. While it is difficult to generalize the range of views and opinions over the application of the A-76, it is generally the case that federal employees and labor organizations believe that A-76 is unfairly slanted in favor of the private sector, while private sector contractors generally believe that federal government employees have an unfair advantage in A-76 competitions. Some proponents of the A-76 policy view it as a necessary mechanism for gaining efficiencies in federal operations; on the other hand, some opponents view A-76 as adversarial, expensive, and inefficient. It should be noted that the public debate over A-76 policy was further ignited in February 2007 as a result of a series of published articles in the Washington Post on reportedly poor conditions at the Walter Reed Army Medical Center in Washington, DC. The journalists interviewed soldiers and documented the living conditions and the frustration felt by many who were returning from the war in Iraq. The articles concluded that many factors converged to create the events at Walter Reed, including both administrative and bureaucratic failures. At that time, there were a number of events occurring at the same time (returning veterans for services at Walter Reed, an A-76 competition for base support services that was underway, and the announcement that the base was undergoing a base realignment and would be moving to the Bethesda Naval Hospital area.) The ensuing public debate led to several investigations, resignations of some senior Army officials, congressional hearings, and legislation passed by Congress to prohibit the conduct of A-76 competitions at military medical facilities. The moratorium at military medical facilities ultimately led to a moratorium on the conduct of A-76 competitions government-wide. DOD is the largest federal agency and has conducted more A-76 competitions than any other federal agency. It has a unique workforce composed of civilians, military personnel, and contractors, and the nature of DOD's mission, some argue, make the conduct of public-private competitions more complex than at other federal agencies. DOD has conducted A-76 competitions for activities such as food services, laundry services, building services, and public works. However, there is concern among policymakers that some A-76 activities may be considered inherently governmental, and should only be performed by federal employees. DOD has relied on conducting A-76 competitions in an effort to achieve greater savings to finance defense operations and support costs. Since the end of the Cold War, DOD had substantially reduced the size of its force structure and sought to achieve additional cost savings through a greater reliance on public-private competitions through Circular A-76. In general, there are at least three major points of contention over the Circular A-76 policy and process: (1) savings generated from the competitions, (2) the adequacy of oversight mechanisms, and (3) the possible performance of "inherently governmental functions" by contractors. Each of these points is discussed below. OMB has reported that regardless of whether the federal government or the private contractor win the competition, the act of competition alone generates cost savings from 10%-40%, on average. GAO has questioned the reliability of the DOD cost accounting systems in place to measure savings generated from A-76 competitions. In testimony before Congress, the former GAO Comptroller General identified challenges facing DOD in the conduct of A-76 competitions, as discussed below. DOD has been at the forefront of federal agencies in using the A-76 process and, since the mid-to-late 1990s, we have traced DOD's progress in implementing its A-76 program. The challenges we have identified hold important lessons that civilian agencies should consider as they implement their own competitive sourcing initiatives. Notably: selecting and grouping functions to complete were problematic, and determining and maintaining reliable estimates of savings were difficult. In the past, some in Congress as well as some GAO officials have questioned whether the federal government has the right management information systems in place to determine the amount of savings from A-76 competitions. GAO has raised specific concerns over the reliability of the Defense Commercial Activities Management Information Systems (DCAMIS) software data system, the official DOD source for tracking A-76 program data. Two GAO reports have stated that inaccurate guidance from OMB to Federal agencies has resulted in systematically overstated savings and understated costs, and that Federal agencies have not collected complete and reliable cost data related to the conduct of Circular A-76 competitions, making it difficult to determine overall savings. Another GAO report has questioned whether DCAMIS can accurately report all of the savings from A-76 competitions. The DOD Inspector General (IG) also questioned the reliability of the DCAMIS data. The DOD IG found that the DCAMIS system users sometimes entered inaccurate data or omitted documentation to support the data, and that the Navy, Army, and Air Force all used different methods of developing A-76 baseline costs. The DOD IG concluded that Congress and the federal government had received data that were unreliable, and that these data could not serve as the basis of determining the costs and savings of the DOD Competitive Sourcing Program. In addition, some policymakers have questioned whether Circular A-76 competitions result in any overall savings to the federal government, given how DOD tracks the costs of conducting competitions. For example, in the introduction of S. 924 (111th Congress), a legislative initiative known as the CLEAN-UP Act of 2009, a statement of findings questioned the performance metrics that the government uses to calculate competition costs. Decisions reached through the conduct of A-76 competitions result in a determination of who is best to perform the work – the federal government or the private sector. Some policymakers have argued that the government lacks the capacity to perform meaningful oversight over private contractors. This view was discussed in the CLEAN-UP Act as described here: The capacity of the Federal Government to oversee contractors and the OMB Circular A-76 privatization process continues to decline, as demonstrated in scandals involving reconstruction efforts in Iraq, Hurricane Katrina recovery efforts, and conditions at Walter Reed Army Medical Center. The Government Accountability Office (GAO), in two 2008 reports on the use of `competitive sourcing' in different agencies, determined that costs of A-76 privatization reviews often exceeded savings because of systematically bad direction from the Office of Management and Budget. Some policymakers in Congress are concerned that contractors may be performing functions that are inherently governmental and should be performed by federal employees. Other policymakers are concerned that Congress does not have a complete and detailed report of the number and costs of contractors employed by the federal government, or the range of contractor services. Some in Congress have raised concerns that DOD had failed to comply with a requirement of 10 U.S.C. 2330a to develop an inventory of activities performed by private contractors. The point of the inventory is to help Congress identify how many contractors are employed by the federal government, by federal agency, and what functions or activities they perform. In order to determine if contractors are performing functions that are inherently governmental, federal agencies must first know how many contractors are employed and what they do. Currently, there is a moratorium on the conduct of OMB Circular A-76 competitions that has been extended through FY2012. The moratorium was extended through the passage of Section 733 of H.R. 2055 , the Consolidated Appropriations Act for FY2012 ( P.L. 112-74 ). This moratorium prohibits the conduct of all public-private competitions pursuant to OMB Circular A-76 throughout the federal government. This moratorium is consistent with Section 2461 of Title 10, United States Code (USC), which prohibits the conversion of any work currently performed (or designated for performance) by civilian personnel to contract performance, unless certain conditions are met. Congress passed legislation in January 2008 to suspend DOD public-private competitions under OMB Circular A-76 and again in March 2009 to halt the beginning of any new A-76 competitions throughout the rest of the federal government. Since 2008, the moratorium has been extended. No new competitions have taken place since the moratorium has been in place. A summary of enacted legislation related to this moratorium is listed below. In Section 325 of the NDAA for FY2008, Congress prohibited the Office of Management and Budget (OMB) and the Secretary of Defense from taking steps to "direct or require the Secretary of Defense or the Secretary of a military department to prepare for, undertake, continue, or complete a public-private competition or direct conversion of a Department of Defense function to performance by a contractor under OMB Circular A-76, or any other successor regulation, directive, or policy," through September 30, 2008; In Sections 212 and 737 of the Omnibus Appropriations Act for FY2009, Congress prohibited the initiation of any new public-private competitions under OMB Circular A-76 through September 30, 2009. Section 737 of the bill prohibited the use of appropriated funds (any funds from this statute, the FY2009 Consolidated Omnibus Act or any other Act) for conducting OMB Circular A-76 competitions government-wide. The effect of this provision was that no funds could be used to begin or announce a public-private competition under OMB Circular A-76; In Section 735 of the Consolidated Appropriations Act FY2010, Congress imposed a government-wide moratorium, prohibiting certain federal agencies from initiating or announcing a new public-private competition under OMB Circular A-76 through September 30, 2010; In Section 325 of the NDAA for FY2010, Congress suspended all ongoing public-private competitions being conducted by the Department of Defense pursuant to OMB Circular A-76 , and established a review and approval process for recommencing such competitions; In Sections 322(c) and 325 (c) of the NDAA for FY2010, Congress required GAO to assess DOD's report on public-private competitions under Circular A-76, and DOD's use of its authority to extend the 24-month time limit on the conduct of A-76 competitions; In Section 8117 of the Department of Defense Appropriations Act for FY2010, Congress prohibited the spending of any FY2010 funds to conduct public-private competitions under OMB Circular A-76 through September 30, 2010; In Section 323 of the Ike Skelton National Defense Authorization Act for FY2011, Congress prohibited the Secretary of Defense from establishing any quotas or goals for converting functions performed by DOD civilian employees to performance by contractors, "unless such goal, target, or quota is based on considered research and analysis, as required by section 235, 2330a, or 2463 of Title 10, United States Code;" Additionally, Section 323 also required the Secretary of Defense to submit to the congressional defense committees, no later than March 31, 2011, a report on the conversion of functions to performance by DOD civilian employees made during FY2010, including the basis and rationale for decisions reached, and the number of contract employees whose functions were converted to performance by DOD civilian employees (an inventory of contracts for services for FY2010); Section 323 also required GAO to complete an assessment of DOD's report, and report to Congress no later than 120 days after DOD submitted its related report to Congress. GAO's assessment was completed. GAO reported that DOD had met the statutory requirements of conducting its review of public-private competitions, but stated that there remained some concerns about other issues, as described below: While DOD's report addressed the statutory requirements, concerns remain about some of the issues on which the DOD IG and we have previously reported. For example, DOD's report stated that upgrades to the current system used to track data on public-private competitions have been made, but because of the moratorium, DOD has not reviewed whether data reliability and accuracy actually has improved. Further, the report discussed the overhead rate used in the cost comparisons and called for no change, even though both the DOD IG and we have reported that the standard rate of 12% of labor costs does not have a sound analytical basis, which leaves some uncertainty about whether that rate may be understated or overstated for any given public-private competition. DOD's report recommended excluding preliminary planning from the competition time limits. The report also recommended that DOD issue revised comprehensive guidance that would incorporate various policy changes as well as best practices that could improve the competitions. The report also recommends that the moratorium on DOD's use of public-private competitions be lifted. Section 8103 of P.L. 112-10 , the Consolidated Appropriations Act for FY2011 prohibited federal agencies from initiating or announcing new public-private competitions under OMB Circular A-76. There was one exception, as stated below: (b) Exception- the prohibition in subsection (a) shall not apply to the award of a function to a contractor or the conversion of a function to performance by a contractor pursuant to a study conducted under Office of Management and Budget (OMB) Circular A-76 once all reporting and certifications required by section 325 of the National Defense Authorization Act for FY2010 ( P.L. 111-84 ) have been satisfactorily completed. Also, Section 733 of P.L. 112-74 , the Consolidated Appropriations Act for FY2012, prohibited funds from being used to "begin or announce a study or public-private competition regarding the conversion to contractor performance of any function performed by Federal employees pursuant to Office of Management and Budget Circular A-76 or any other administrative regulation, directive, or policy." As a further reminder that the moratorium remained in place, the Acting Under Secretary of Defense for Personnel and Readiness issued a reminder in a memorandum to DOD staff on December 1, 2011. The memo reportedly stated that there continued to be a moratorium in place that prohibited the conduct of public-private competitions and the conversion of any work performed by civilian personnel to performance by contractors. The memo reportedly clarified the statutory language in 10 U.S.C. 2461 which prohibits the conversion of work performed by civilian personnel to performance by the private sector contractors without first conducting a public-private competition. The Obama Administration's FY2013 budget request (as well as the FY2012 budget request) to Congress sought to prohibit the conduct of future public-private competitions under OMB Circular A-76, as described below. SEC.727. None of the funds appropriated or otherwise made available by this or any other Act may be used to begin or announce a study or public-private competition regarding the conversion to contractor performance of any function performed by Federal employees pursuant to Office of Management and Budget Circular A-76 or any other administrative regulation, directive, or policy. Congress has enacted legislation to require several reports to evaluate DOD's conduct of A-76 competitions. These reports are listed in Table 1 below. The moratorium on the conduct of A-76 competitions cannot be lifted until all of these reports have been completed. A more detailed discussion follows Table 1 . Section 325 of the National Defense Authorization Act for FY 2010 ( P.L. 111-84 ) required DOD to: (1) conduct a comprehensive review of A-76 policies that govern the conduct of public-private competitions, (2) cease spending FY2010 funds for any competitions until the review was completed, (3) publish in the Federal Register that the review was completed, (4) submit to the congressional defense committees a report on the inventory of contracts for services (to include the Secretary of each military department and the head of each Defense Agency) in compliance with 10 U.S.C. 2330a, and (5) submit budget information on contract services in compliance with 10 U.S.C. 236. In addition, Section 325 required GAO to conduct an assessment, within 90 days of the date when the DOD report was submitted to Congress, of DOD's review and report any findings, conclusions, or recommendations to Congress. DOD's response to Section 325 was released in June 2011. GAO's assessment of DOD's report (in response to Section 325) was completed in February 2012. The DOD report focused on the five issues raised in Section 325(b). These responses are also summarized in Table 2 . (1) the status of the compliance of the Department with the requirement of 2461(a)(1) of title 10, United States Code, as amended by section 321 of this Act; (2) actions taken by the Secretary to address issues raised in the report of the Department of Defense Inspector General numbered D-2009-034 and dated December 15, 2008; (3) the reliability of systems in effect as of the date of the enactment of this Act to provide comprehensive and reliable data to track and assess the cost and quality of the performance of functions that have been subjected to a public-private competition; (4) the appropriateness of the cost differential in effect as of the date of the enactment of this Act for determining the quantifiable costs and the current overhead rates applied with respect to such functions; and (5) the adequacy of the policies of the Department of Defense in implementing the requirements of section 2461(a) (4) of title 10, United States Code. In the conclusion of the report, OUSD (P&R) recommended that DOD develop policies to improve the A-76 competitive sourcing policy and process. Three specific recommendations are put forth as department-wide, cross-cutting policies to be integrated into a new approach to A-76 competitions, as described below. That DOD provide incentives to managers to use the A-76 competition process while providing centralized support to components, using the capabilities of the Defense Acquisition University to improve the delivery and timeliness of training, lowering the overall cost of competitions to the commands; That DOD incorporate current guidance for determining the full cost of total force manpower into the preliminary planning process for any future A-76 competition; and That DOD modifies internal processes to provide more timely and collaborative outcomes. DOD concluded its report with two major recommendations to Congress: (1) lift the suspension on A-76 competitions, and (2) exclude the preliminary planning process from the statutory time limit for conducting the A-76 competition. The justifications for these recommendations were described in excerpts from the DOD report. The Department finds nothing in its review that requires a special provision restricting public-private competition in DOD. The Department needs to rebuild a viable program, align resources, and promulgate improved guidance. These must be informed recommendations for improvement noted by the Congress, federal labor unions, the private sector, and DOD IG and GAO audits. Joint oversight by the OUSD (P&R) and the OUSD (AT&L) will ensure well-reasoned acquisition processes incorporate Total Force management principles. Competitions nominated by commanders and managers will be central to the success of future efforts. DOD will, of course, respect the government-wide moratorium on public-private competition should it remain in effect after the suspension is lifted. Any competitions following the lifting of the suspension and the moratorium will be required to incorporate the preliminary recommendations and best practices. Legislative remedy to section 322 of P.L. 111-84 , the National Defense Authorization Act for Fiscal Year 2010, which modified section 2461 of Title 10, United States Code, is critical to ensuring the success of future competitions. As noted in detail earlier in this report, the management-level evaluation process associated with preliminary planning may or may not result in a decision to conduct a public-private competition. The work completed during this phase ensures that competitions are viable, and should not be artificially "rushed" to complete all competition requirements during statutory time limits. It is the OUSD (P&R)'s recommendation that the start date of the competition be the public announcement date and the end date be the performance decision date. In order to ensure appropriate accountability to all stakeholders for the preliminary planning process, OUSD (P&R) recommends that the Department adopt a Navy best practice and announce a Component's preliminary planning intent to Congress. This practice would establish that a preliminary planning effort "starts" when the letter to Congress is signed and dated for delivery, and includes an estimated review period time frame to reasonably delineate the review. Such announcement would include a list of the DOD functions, the related manpower mix criteria codes, locations of the functions, and the related number of positions under review. This announcement would be simultaneously communicated to the potentially affected workforce, concerned unions, as well as interested private sector firms, both virtually and by formal letter notification. Components would apply the Section 2461 of Title 10, United States Code requirement to consult with civilian employees on a monthly basis during the preliminary planning process to solicit, consider, and adjudicate their input to the process throughout the planning period. Components would then be required to certify the results of preliminary planning, formally supported by documentation, for the record. Documentation of these results would include the acquisition feasibility, based on market research, of a decision to pursue a public-private competition or not, contained in a memorandum signed by the appropriate level of Component leadership. In addition to requiring the "Section 325" report, the National Defense Authorization Act for FY2010 also required GAO to assess the report and review DOD's authority to extend the 24-month time limit on the conduct of public-private competitions. GAO conducted its review from July through September 2011 and: (1) identified the methodology and data sources used by DOD to review its A-76 policies, (2) assessed the extent to which DOD's report addressed statutory requirements and considered A-76 issues raised by GAO and others, and (3) analyzed documents, regulations, statutes and other guidance DOD used in conducting its review. GAO concluded that DOD complied with the five statutory requirements in conducting its review of public-private competitions. However, GAO raised a number of questions and identified ongoing issues and challenges that continued to remain problematic, as described in excerpts of the GAO report. (See Table 2 , Summary of DOD's Responses and GAO's Assessment of DOD's Responses to the Five Requirements in Section 325 of the National Defense Authorization Act for FY 2010 ( P.L. 111-84 ) and GAO's Assessment of DOD's Response.) Section 322 of the National Defense Authorization Act for FY2010 contained a provision that limited the duration of an A-76 competition to 24 months, with a possible extension to 33 months if DOD notifies Congress of the basis for the need for the extension. The DOD report recommended that preliminary planning (which has generally occurred prior to the announcement of an A-76 competition) not be included in the time-limits for conducting A-76 competitions. The length of time to conduct a competition (from the date of the announcement of the start of the competition to the announcement of the winner of the competition) could range from 20-22 months for a single function competition, contrasted with 31-35 months for a multifunction competition. GAO concluded that more guidance on clarifying the preliminary planning phase was needed before concluding that preliminary planning time should be excluded from statutory time limits. Some in Congress view the current moratorium period as an opportunity to examine the OMB Circular A-76 policy, to review the inventory of contracted services to determine how much work is contracted out to private contractors, and to ascertain whether contractors perform work that is inherently governmental. Some others in Congress view the current moratorium as an unnecessary restraint on achieving further efficiencies and cost-savings. While the issue of continuing or suspending the moratorium is in debate, questions will likely continue to be raised as to whether the federal government should continue to invest time and resources in conducting future A-76 competitions. Some potential oversight issues may include the following: The DOD moratorium was imposed, in part, because of GAO and DOD Inspector General reports which concluded that DOD components were unable to demonstrate that A-76 competitions consistently resulted in savings to the government. Some reports questioned whether there was complete and reliable cost data related to the conduct of A-76 competitions that make it possible to determine the overall savings to DOD. Some reports stated that if savings could not be satisfactorily demonstrated, perhaps A-76 competitions should not resume. The DOD Inspector General reported as early as 2003 that the standard 12% rate was not a fair estimate for calculating general and administrative overhead costs for A-76 competitions, and DOD officials who met with GAO in August 2011 stated that DOD would review the procedures used to estimate and compare costs of different configurations of military, civilian, and contractors. Should Congress give DOD an opportunity to better refine its methodologies used to help make better decisions on the total workforce mix before lifting the moratorium? To what degree have the problems that led to the moratorium been resolved? How would the OMB Circular A-76 process be any different today if the moratorium were lifted? In the Senate-proposed NDAA for FY2013 ( S. 3254 / H.R. 4310 ) one provision (Section 341) was proposed that would require that the Secretary of Defense shall begin the implementation of an efficiencies plan for the civilian workforce and the service contractor workforce of the Department of Defense which shall achieve savings in the funding for each such workforce over the period from fiscal year 2012 through fiscal year 2017 that are not less, as a percentage of such funding, than the savings in funding for military personnel achieved by the planned reduction in military end strengths over the same period of time. Section 955 of H.R. 4310 , the National Defense Authorization Act for FY2013, includes many of the provisions contained in Section 341, and also requires that the Comptroller General review DOD's annual status reports, from FY2015 through FY2018, and submit a report to the congressional defense committees not later than 120 days after the end of each fiscal year. Section 955 is described below. Section 955. Savings to be Achieved in Civilian Personnel Workforce and Service Contractor Workforce of the Department of Defense (a) Required Plan- (1) IN GENERAL- The Secretary of Defense shall ensure that the civilian personnel workforce and service contractor workforce of the Department of Defense are appropriately sized to support and execute the National Military Strategy, taking into account military personnel and force structure levels. Not later than 90 days after the date of the enactment of this Act, the Secretary of Defense shall develop and begin to execute an efficiencies plan for the civilian personnel workforce and service contractor workforce of the Department of Defense. (2) CONSISTENCY WITH OTHER POLICIES AND PROCEDURES- The Secretary shall ensure the plan required under this subsection is consistent with the policies and procedures required under section 129a of title 10, United States Code, as implemented under the policies issued by the Under Secretary of Defense for Personnel and Readiness for determining the most appropriate and cost-efficient mix of military, civilian, and service contractor personnel to perform the missions of the Department of Defense. (b) Savings- The plan required under subsection (a) shall achieve savings in the total funding for each workforce covered by such plan over the period from fiscal year 2012 through fiscal year 2017 that are not less, as a percentage of such funding, than the savings in funding for basic military personnel pay achieved from reductions in military end strengths over the same period of time. (c) Exclusions- In developing and implementing the plan required by subsection (a) and achieving the savings percentages required by subsection (b), the Secretary of Defense may exclude expenses related to the performance of functions identified as core or critical to the mission of the Department, consistent with the workload analysis and risk assessments required by sections 129 and 129a of title 10, United States Code. In making a determination of core or critical functions, the Secretary shall consider at least the following: (1) Civilian personnel expenses for personnel as follows: (A) Personnel in Mission Critical Occupations, as defined by the Civilian Human Capital Strategic Plan of the Department of Defense and the Acquisition Workforce Plan of the Department of Defense. (B) Personnel employed at facilities providing core logistics capabilities pursuant to section 2464 of title 10, United States Code. (C) Personnel in the Offices of the Inspectors General of the Department of Defense. (2) Service contractor expenses for personnel as follows: (A) Personnel performing maintenance and repair of military equipment. (B) Personnel providing medical services. (C) Personnel performing financial audit services. (3) Personnel expenses for personnel in the civilian personnel workforce or service contractor workforce performing such other critical functions as may be identified by the Secretary as requiring exemption in the interest of the national defense. (d) Reports- (1) INITIAL REPORT- Not later than 120 days after the date of the enactment of this Act, the Secretary of Defense shall submit to the congressional defense committees a report including a comprehensive description of the plan required by subsection (a). (2) STATUS REPORTS- As part of the budget submitted by the President to Congress for each of fiscal years 2015 through 2018, the Secretary shall include a report describing the implementation of the plan during the prior fiscal year and any modifications to the plan required due to changing circumstances. Each such report shall include a summary of the savings achieved in such prior fiscal year through reductions in the military, civilian, and service contractor personnel workforces, and the number of military, civilian, and service contractor personnel reduced. In any case in which savings fall short of the annual target, the report shall include an explanation of the reasons for such shortfall. (3) EXCLUSIONS- Each report under paragraphs (1) and (2) shall specifically identify any exclusion granted by the Secretary under subsection (c) in the period of time covered by the report. (e) Limitation on Transfers of Functions- The Secretary shall ensure that the savings required by this section are not achieved through unjustified transfers of functions between or among the military, civilian, and service contractor personnel workforces of the Department of Defense. Nothing in this section shall be construed to preclude the Secretary from exercising authority available to the Department under sections 129a, 2330a, 2461, and 2463 of title 10, United States Code. (f) Sense of Congress- It is the sense of Congress that an amount equal to 30% of the amount of the reductions in appropriated funds attributable to reduced budgets for the civilian and service contractor workforces of the Department by reason of the plan required by subsection (a) should be made available for costs of assisting military personnel separated from the Armed Forces in the transition from military service. (g) Service Contractor Workforce Defined- In this section, the term `service contractor workforce' means contractor employees performing contract services, as defined in section 2330(c)(2) of title 10, United States Code, other than contract services that are funded out of amounts available for overseas contingency operations. (h) Comptroller General Review and Report- For each fiscal year from fiscal year 2015 through fiscal year 2018, the Comptroller General of the United States shall review the status reports submitted by the Secretary as required by subsection (d)(2) to determine whether the savings required by subsection (b) are being achieved in the civilian personnel workforce and the service contractor workforce and whether the plan required under subsection (a) is being implemented consistent with sourcing and workforce management laws, including sections 129, 129a, 2330a, 2461, and 2463 of title 10, United States Code. The Comptroller General shall submit a report on the findings of each review to the congressional defense committees not later than 120 days after the end of each fiscal year covered by this subsection. Section 733 of P.L. 112-74 , the Consolidated Appropriations Act for FY2012, prohibited funds from being used to "begin or announce a study or public-private competition regarding the conversion to contractor performance of any function performed by Federal employees pursuant to Office of Management and Budget Circular A-76 or any other administrative regulation, directive, or policy." Section 8103 of P.L. 112-10 , the Consolidated Appropriations Act for FY2011 prohibited federal agencies from initiating or announcing new public-private competitions under OMB Circular A-76, except when certain conditions are met. The exception is noted below. b) Exception- The prohibition in subsection (a) shall not apply to the award of a function to a contractor or the conversion of a function to performance by a contractor pursuant to a study conducted under Office of Management and Budget (OMB) Circular A-76 once all reporting and certifications required by Section 325 of the NDAA for Fiscal Year 2010 ( P.L. 111-84 ) have been satisfactorily completed. Section 322 of the FY2010 NDAA contained a provision that limits the duration of an A-76 competition to 24 months, with a possible extension to 33 months if DOD notifies Congress the basis for the need for the extension. (a) Time Limitation- Section 2461(a) of title 10, United States Code, as amended by section 321, is further amended by adding at the end the following new paragraph: (5)(A) Except as provided in subparagraph (B), the duration of a public-private competition conducted pursuant to Office of Management and Budget Circular A-76 or any other provision of law for any function of the Department of Defense performed by Department of Defense civilian employees may not exceed a period of 24 months, commencing on the date on which the preliminary planning for the public-private competition begins and ending on the date on which a performance decision is rendered with respect to the function. (B)(i) The Secretary of Defense may specify an alternative period of time for a public-private competition, which may not exceed 33 months, if the Secretary— (I) determines that the competition is of such complexity that it cannot be completed within 24 months; and (II) submits to Congress, as part of the formal congressional notification of a public-private competition pursuant to subsection (c), written notification that explains the basis of such determination. (ii) The notification under clause (i) (II) shall also address each of the following: (I) Any efforts of the Secretary to break up the study geographically or functionally; (II) The Secretary's justification for undertaking a public-private competition instead of using internal reengineering alternatives; (III) The cost savings that the Secretary expects to achieve as a result of the public-private competition; (iii) If the Secretary specifies an alternative time period under this subparagraph, the alternative time period shall be binding on the Department in the same manner and to the same extent as the limitation provided in subparagraph (A). C) The time period specified in subparagraph (A) for a public-private competition does not include any day during which the public-private competition is delayed by reason of the filing of a protest before the Government Accountability Office or a complaint in the United States Court of Federal Claims up until the day the decision or recommendation of either authority becomes final. In the case of a protest before the Government Accountability Office, the recommendation becomes final after the period of time for filing a request for reconsideration, or if a request for reconsideration is filed, on the day the Government Accountability Office issues a decision on the reconsideration. (D) If a protest with respect to a public-private competition before the Government Accountability Office or the United States Court of Federal Claims is sustained, and the recommendation is final as described in subparagraph (C), and if such protest and recommendation result in an unforeseen delay in implementing a final performance decision, the Secretary of Defense may terminate the public-private competition or extend the period of time specified for the public-private competition under subparagraph (A) or subparagraph (B). If the Secretary decides not to terminate a competition, the Secretary shall submit to Congress written notice of such decision. Any such notification shall include a justification for the Secretary's decision and a new time limitation for the competition, which shall not exceed 12 months from the final decision and shall be binding on the Department. (E) For the purposes of this paragraph, preliminary planning with respect to a public-private competition begins on the date on which the Department of Defense obligates funds for the acquisition of contract support, or formally assigns Department of Defense personnel, to carry out any of the following activities: Section 325 of the FY2010 NDAA contained a provision that temporarily suspended all ongoing public-private competitions being conducted by the Department of Defense pursuant to Office of Management and Budget Circular A-76, and established a review and approval process for recommencing such competitions. Here is the report language from Section 325. (a) Temporary Suspension- During the period beginning on the date of the enactment of this Act and ending on the date that is 30 days after the date on which the Secretary of Defense submits to the congressional defense committees the certification required under subsection (d), no study or competition regarding a public-private competition for the conversion to performance by a contractor for any function performed by Department of Defense civilian employees may be begun or announced pursuant to 2461 of title 10, United States Code, or otherwise pursuant to Office of Management and Budget Circular A-76. (b) Review and Report to Congress - During fiscal year 2010, the Secretary of Defense, acting through the Under Secretary of Defense for Personnel Readiness, in consultation with the Under Secretary for Acquisition, Technology, and Logistics and the Comptroller of the Department of Defense, shall undertake a comprehensive review of the policies of the Department of Defense with respect to the conduct of public-private competitions. The Secretary shall submit to the congressional defense committees a report on such review not earlier than June 15, 2010. The review, at a minimum, shall address— (1) the status of the compliance of the Department with the requirement of 2461(a)(1) of title 10, United States Code, as amended by section 321 of this Act; (2) actions taken by the Secretary to address issues raised in the report of the Department of Defense Inspector General numbered D-2009-034 and dated December 15, 2008; (3) the reliability of systems in effect as of the date of the enactment of this Act to provide comprehensive and reliable data to track and assess the cost and quality of the performance of functions that have been subjected to a public-private competition; (4) the appropriateness of the cost differential in effect as of the date of the enactment of this Act for determining the quantifiable costs and the current overhead rates applied with respect to such functions; and (5) the adequacy of the policies of the Department of Defense in implementing the requirements of section 2461(a) (4) of title 10, United States Code. (c) Comptroller General Review- Not later than 90 days after the date on which the report required under subsection (b) is submitted to the congressional defense committees, the Comptroller General shall conduct an assessment of the review required under paragraph (b) and shall submit to the congressional defense committees a report on the findings of such assessment and any conclusions or recommendations of the Comptroller General based on such assessment. (d) Certification required- The Secretary of Defense shall publish in the Federal Register and submit to the congressional defense committees certification that— (1) the review required by subsection (b) has been completed, and that the 90-day period during which the assessment of the Comptroller General is to be completed under subsection (c) has expired; (2) the Secretary of Defense has completed and submitted to the congressional defense committees a complete inventory of contracts for services for or on behalf of the Department in compliance with the requirements of subsection (c) of section 2330a of title 10, United States Code; (3) the Secretary of each military department and the head of each Defense Agency responsible for activities in the inventory has initiated the review and planning activities of subsection (e) of such section; and (4) the Secretary of Defense has submitted budget information on contract services in compliance with the requirements of section 236 of title 10, United States Code. Section 323 of H.R. 6523 , the Ike Skelton National Defense Authorization Act for FY2011, prohibited the use of the establishment of goals for quotas for conducting A-76 competitions. In addition, Section 323 also required DOD and GAO to report to Congress on the inventory of contracts for services, as described below. (a) Prohibition.-The Secretary of Defense may not establish, apply, or enforce any numerical goal, target, or quota for the conversion of Department of Defense functions to performance by Department of Defense civilian employees, unless such goal, target, or quota is based on considered research and analysis, as required by section 235, 2330a, or 2463 of title 10, United States Code. (b) Decisions to Insource.-In deciding which functions should be converted to performance by Department of Defense civilian employees pursuant to section 2463 of title 10, United States Code, the Secretary of Defense shall use the costing methodology outlined in the Directive-Type Memorandum 09-007 (Estimating and Comparing the Full Costs of Civilian and Military Manpower and Contractor Support) or any successor guidance for the determination of costs when costs are the sole basis for the decision. The Secretary of a military department may issue supplemental guidance to assist in such decisions affecting functions of that military department. (c) Reports.-(1) Report to Congress.-Not later than March 31, 2011, the Secretary of Defense shall submit to the congressional defense committees a report on the decisions with respect to the conversion of functions to performance by Department of Defense civilian employees made during fiscal year 2010. Such report shall identify, for each such decision: (A) the agency or service of the Department involved in the decision; (B) the basis and rationale for the decision; and (C) the number of contractor employees whose functions were converted to performance by Department of Defense civilian employees. (2) Comptroller General Review.-Not later than 120 days after the submittal of the report under paragraph (1) the Comptroller General of the United States shall submit to the congressional defense committees an assessment of the report. (d) Construction.-Nothing in this section shall be construed- (1) to preclude the Secretary of Defense from establishing, applying, and enforcing goals for the conversion of acquisition functions and other critical functions to performance by Department of Defense civilian employees, where such goals are based on considered research and analysis; or (2) to require the Secretary of Defense to conduct a cost comparison before making a decision to convert any acquisition function or other critical function to performance by Department of Defense civilian employees, where factors other than cost serve as a basis for the Secretary's decision. (a) Restriction on Office of Management and Budget- The Office of Management and Budget may not direct or require the Secretary of Defense or the Secretary of a military department to prepare for, undertake, continue, or complete a public-private competition or direct conversion of a Department of Defense function to performance by a contractor under Office of Management and Budget Circular A-76, or any other successor regulation, directive, or policy. (b) Restriction on Secretary of Defense- The Secretary of Defense or the Secretary of a military department may not prepare for, undertake, continue, or complete a public-private competition or direct conversion of a Department of Defense function to performance by a contractor under Office of Management and Budget Circular A-76, or any other successor regulation, directive, or policy by reason of any direction or requirement provided by the Office of Management and Budget. (c) Inspector General Review- (1) Comprehensive Review Required. The Inspector General of the Department of Defense shall conduct a comprehensive review of the compliance of the Secretary of Defense and the Secretaries of the military departments with the requirements of this section during calendar year 2008. The Inspector General shall submit to the congressional defense committees the following reports on the comprehensive review: (A) An interim report, to be submitted by not later than 90 days after the date of the enactment of this Act. (B) A final report, to be submitted by not later than December 31, 2008. (2) Inspector General Access. For the purpose of determining compliance with the requirements of this section, the Secretary of Defense shall ensure that the Inspector General has access to all Department records of relevant communications between Department officials and officials of other departments and agencies of the Federal Government, whether such communications occurred inside or outside of the Department. In the House Armed Services Committee report on H.R. 4310 , an amendment was offered to remove the moratorium preventing DOD from using OMB Circular A-76 to conduct public-private competitions. The amendment failed in a roll call vote, 25-36. H.Amdt. 1112 to H.R. 4310 , was introduced on May 17, 2012. The amendment would have reintroduced competition by ending the current moratorium on the conduct of Circular A-76 competitions, as described here. The amendment failed in a recorded vote, 209-211. My amendment will strike the law that prevents the Secretary of Defense from utilizing private sector competition to provide new products or services. It replaces those restrictions with the ability to competitively bid out for new commercial products or services and select the most cost-effective option. Further, it removes criteria that compel the Pentagon to insource competitive contracts currently being performed. H.Amdt. 1056 to H.R. 5326 , the Commerce, Justice, Science, and Related Agencies Appropriations Act for FY2013, was introduced on May 8, 2012, and sought to strike a provision (Section 212) which would prohibit the conduct of future Circular A-76 competitions for work performed by employees of the Bureau of Prisons or of Federal Prison Industries, as described below. The amendment failed to pass, 199-211. Sec. 212 . None of the funds appropriated by this Act may be used to plan for, begin, continue, finish, process, or approve a public-private competition under the Office of Management and Budget Circular A 76 or any successor administrative regulation, directive, or policy for work performed by employees of the Bureau of Prisons or of Federal Prison Industries, Incorporated. | This report discusses the status of the ongoing moratorium on the conduct of Department of Defense (DOD) public-private competitions under Office of Management and Budget (OMB) Circular A-76, and potential issues for Congress. OMB Circular A-76 is a federal executive branch policy for managing public-private competitions to perform functions for the federal government. A-76 states that, whenever possible, and to achieve greater efficiency and productivity, the federal government should conduct competitions between public agencies and the private sector to determine who should perform the work. Congress passed legislation in P.L. 110-181, the National Defense Authorization Act (NDAA) for FY2008 to suspend DOD public-private competitions under OMB Circular A-76. A government-wide moratorium on the conduct of Circular A-76 competitions was extended through FY2012 through Section 733, Title VII (General Provisions, Government-wide Departments, Agencies and Corporations) of Division C (Financial Services and General Government Appropriations Act, 2012) of the Consolidated Appropriations Act of FY2012, P.L. 112-74. This moratorium extended through September 30, 2012. The government-wide moratorium has been in place since the passage of P.L. 111-8, the Omnibus Appropriations Act for FY2009. There were at least two legislative amendments introduced during the 2nd session of the 112th Congress that sought to suspend the moratorium on the conduct of future Circular A-76 competitions. Both amendments failed to pass. Public debate over A-76 policy ignited in February 2007 as a result of a series of articles in the Washington Post on the conditions at the former Walter Reed Army Medical Center in Washington, DC. The articles led to several investigations, resignations of some senior Army officials, congressional hearings, and legislation passed by Congress to prohibit the conduct of A-76 competitions at military medical facilities. Congress passed legislation in P.L. 110-181, the National Defense Authorization Act (NDAA) for FY2008 to suspend DOD public-private competitions under OMB Circular A-76. Congress also passed legislation in P.L. 111-8, the Omnibus Appropriations Act for FY2009, to halt the beginning of any new A-76 competitions throughout the rest of the federal government. The government-wide moratorium has continued to the present. Congress had directed the completion of several reports before the moratorium can be lifted. The congressionally required reports were the "Section 325" report which DOD was required to submit to Congress within 30 days of the enactment of the FY2010 National Defense Authorization Act, the DOD Inspector General's report on issues involving DOD's conduct of A-76 competitions, and two Government Accountability Office (GAO) reports: one on DOD's conduct of public-private competitions, and the other on DOD's inventory of service contracts. These reports have been completed. Still, the moratorium has not been lifted. Some policymakers have advocated for an end to the moratorium on the conduct of DOD Circular A-76 competitions. Questions about the moratorium are largely centered around to what extent the problems identified with Circular A-76 have been corrected, and the extent to which the issues raised in the reports have been resolved to the satisfaction of Congress. |
Several comprehensive bills have been introduced on the topic of health reform in the 111 th Congress, such as H.R. 3962 (the Affordable Health Care for America Act), S. 1679 (Affordable Health Choices Act), and S. 1796 (America's Healthy Future Act of 2009). On November 3, 2009, an additional health reform proposal was made public: Amendment in the Nature of a Substitute to H.R. 3962 Offered by Mr. Boehner of Ohio ("the Amendment"). If adopted, the Amendment would replace the substantive text of H.R. 3962 with the text of the Common Sense Health Care Reform and Affordability Act. According to the Congressional Budget Office and the Joint Committee on Taxation, enacting the Amendment would result in a net reduction in federal deficits of $68 billion over the 2010-2019 period. This report summarizes the contents of the proposed Amendment. The Amendment consists of seven divisions. Division A provisions are intended to improve affordability of health insurance through the development of state reinsurance programs and high-risk pools, private insurance reforms, state innovation programs, and administrative simplification. Division B provisions are intended to improve access to health insurance for small businesses. These include the establishment of Association Health Plans. Division B would also establish requirements to improve interstate purchasing of health insurance coverage and expand tax preferences for health savings accounts and high-deductible health plans. Division C would establish national medical malpractice laws that would effectively preempt existing state medical malpractice laws, with certain exceptions. Division D is focused on the doctor-patient relationship and comparative effectiveness research. It would provide that the Act would not affect the doctor-patient relationship or the practice of medicine, and would repeal a federal council on comparative effectiveness. Division E focuses on employee wellness programs and would specify how a group health plan or a health insurer offering group health coverage could vary premiums and cost sharing based on participation in a standards-based wellness program. Division F focuses on fraud, waste, abuse, and abortion. Division G focuses on licensure of biosimilar products and would provide a pathway for such licensure. This report discusses each of the broad topics addressed in the Amendment. Each discussion consists of an overview of the issue and current law followed by a summary of provisions of the Amendment. Regulation of the private health insurance market is primarily done at the state level. State regulatory authority is broad in scope and includes requirements related to the issuance and renewal of coverage, benefits, rating, consumer protections, and other issues. Federal regulation of the private market is more narrow in scope and applicable mostly to employer-sponsored health insurance (i.e., through the Employee Retirement Income Security Act of 1974 (ERISA)). States have taken the initiative to propose and enact health care reforms to address perceived problems related to health insurance coverage, health care costs, and other issues. Each state has implemented a unique set of reform strategies to address concerns about health insurance and the health care delivery system. However, most health reform discussions, at both the state and federal level, focus primarily on insurance. Under this broad policy area, coverage and cost concerns are paramount. A couple of strategies that states have undertaken to address the twin concerns regarding cost and coverage are implementing reinsurance programs and high-risk pools. Typically, state reinsurance programs reimburse insurers that have experienced greater than average claims in a given year. states may finance reinsurance programs through assessments on all insurers in a particular market, as well as general revenue and the collection of premiums from participating insurers. To compensate insurers that may end up enrolling a sicker, more expensive population, the state may withhold a portion of premiums collected and distribute the withheld funds at a later time according to the actual risk enrolled by each participating insurer. In an effort to expand the options for health coverage, 35 states have established high-risk health insurance pools. These programs target individuals who cannot obtain or afford health insurance in the private market, primarily because of pre-existing health conditions. Also, many states use their high-risk pools to comply with the portability and guaranteed issue provisions of the Health Insurance Portability and Accountability Act of 1996 (described below). In general, state high-risk pools tend to be small and enroll a small percentage of the uninsured. The Health Insurance Portability and Accountability Act (HIPAA), which amended ERISA, requires that coverage sold to small groups (2-50 employees) must be sold on a guaranteed issue basis. That is, the issuer must accept every small employer that applies for coverage. (Guaranteed issue rules do not address premiums.) HIPAA also guarantees that each issuer in the individual market make at least two policies available to all HIPAA eligible individuals ("guaranteed availability"). In addition, HIPAA guarantees renewal or continuation of group coverage at the option of the plan sponsor (e.g., employer) and individual coverage at the option of the individual, with some exceptions. Insurers may not renew coverage under specified circumstances, such as nonpayment of premiums or fraud. All states require issuers to offer policies to firms with 2-50 workers on a guaranteed issue basis, in compliance with HIPAA. As of January 2009 in the small group market, 13 states also require issuers to offer policies on a guaranteed issue basis to self-employed "groups of one." And as of December 2008 in the individual market, 15 states require issuers to offer some or all of their insurance products on a guaranteed issue basis to non-HIPAA eligible individuals. Each state would be required to establish and operate a qualified reinsurance program in the small group market or a qualifying high-risk pool to offer individual coverage. The Amendment would specify the features of such programs and pools. The HHS Secretary (hereinafter referred to as "the Secretary") would be permitted to waive the requirements of this provision as deemed appropriate. The Amendment would authorize an appropriation of $15 billion for seed and operational grants to states for FYs 2010-2019, and an additional $10 billion for FYs 2015-2019. Participation in qualifying high-risk pools and qualified reinsurance program would be limited to citizens and nationals of the United States. Citizenship would be verified in accordance with §1903(x) of the Social Security Act, which requires states to obtain satisfactory documentation of citizenship. Legal permanent residents (LPRs), refugees, and other lawfully residing aliens would be not be eligible. The Amendment would impose new federal requirements on the private health insurance market. Specifically, the proposal would: expand eligibility for guaranteed availability protections in the individual market for HIPAA eligible individuals; prohibit health insurance issuers from imposing an annual or lifetime benefit limit on any health insurance coverage; prohibit health insurance rescissions in the application of guaranteed renewability protections in the individual market, except under certain conditions such as nonpayment of premiums, fraud, and other circumstances; and require issuers to provide (1) notice of a proposed nonrenewal, discontinuation, or rescission of an individual health insurance policy to the enrollee before such proposed action would take effect, and (2) the opportunity to appeal such proposed action to an independent, external third party, as specified by the Secretary. With the lack of comprehensive health care reform at the federal level, states have been engaged in innovative approaches using private expansions, subsidies and tax credits, and regulatory reforms in order to both expand coverage and keep premiums down. Often these approaches have been hampered by funding issues. For example, while the Dirigo Health Agency in Maine has been successful in enrolling an estimated 9,000 to 11,000 previously uninsured individuals, the program has had some financial struggles and operated at a net loss in 2008. Such financial struggles are common for new programs, but there is not a mechanism in current law to provide federal grants to assist states in their attempts to implement innovative health reforms. For those that argue that health care quality and cost pressures would improve if the health insurance system acted more like a competitive market, the lack of symmetric information is a problem for consumers. This phenomenon occurs when any actors in the marketplace have informational advantages over others. Consumers often have limited comparable and accessible information about health insurance plans. Current law contains no provisions for a coordinated national effort, federally or at the state level, to provide a comparative health plan finder except in the Medicare Advantage and Part D programs. The Amendment provides $50 billion in incentives to states that adopt reforms that reduce the cost of health insurance and expand coverage. The appropriations would be broken up into three components: (1) $25 billion for reductions in cost in the small group market; (2) $10 billion for reductions in cost in the individual market; and (3) $15 billion for reductions in the number of uninsured. The term "small group market" means the market for health insurance coverage through a group health plan maintained by an employer who employed on average at least 2 but not more than 50 employees on business days during a calendar year. The term ''individual market'' generally means the market for health insurance coverage offered to individuals other than in connection with a group health plan. Under the Amendment, states would have to meet targets as specified by the Amendment, for reductions in health plan premiums and the number of uninsured in order to receive funds. For premium reductions, the Secretary would determine if the targets have been met relative to a premium baseline. The premium baseline would for year one be the average per capita premiums for health insurance coverage in the state. In subsequent years, the premium baseline would be increased by a percentage calculated by a formula to be determined by the Secretary in consultation with the Congressional Budget Office and the Bureau of the Census. In determining the formula the Secretary would take into account the inflation in health care services costs in the year, historic premium growth rates, and historic average changes in the demographics of the population covered that impact the rate of growth of per capita health care costs. Under the Amendment, states could not meet these targets by directly subsidizing health insurance. Under the Amendment, if the Secretary determined that a state has reduced the percentage of uninsured nonelderly residents in year five, year seven, or year nine, below the year one baseline the Secretary would pay an amount equal to the product of the bonus uninsured percentage and the maximum uninsured payment amount for the year as defined by the Amendment. The Secretary would establish a methodology for computing the percentage of nonelderly residents who are uninsured. The calculations would include nonelderly lawful residents (LPRs and all other lawfully residing aliens) and would exclude unauthorized aliens. The Amendment also contains a provision that would allow for the creation of State Health Plan Finders so consumers can effectively comparison shop for health insurance. Conceptually, by increasing the information available to consumers they will be empowered to make the best decisions for their families when purchasing health insurance. Under the Amendment, no later than 12 months after enactment, each state would be able to contract with a private entity to develop and operate a plan finder website which would provide information on health insurance. Multi-state plan finders would be permissible. The plan finder would not be used to directly enroll members into a plan. Each Plan Finder would be required to meet the following conditions: The Plan Finder would present complete information on the costs and benefits of health insurance plans in a uniform and standardized manner. The Plan Finder would be available on the internet and accessible to all individuals in the state. The Plan Finder would allow consumers to search and sort data on health insurance plans using specific criteria. The Plan Finder would contain data on quality. The Plan Finder would meet all relevant state laws and regulations including those related to marketing. The Plan Finder organization would meet solvency, financial, and privacy requirements and its employees would be appropriately licensed. The Plan Finder would also assist individuals who are eligible for Medicaid or the Children's Health Insurance Program (CHIP) by including information on options, eligibility, and enrollment for those programs. Plans participating in the Plan Finder would be required to be actuarially sound, may not have a history of abusive policy rescissions, and would meet solvency and financial requirements. The Plan Finder organization could not have a conflict of interest with a health insurance issuer. According to the Congressional Budget Office (CBO), provisions in the Amendment directly related to health insurance would increase the federal deficit by $8 billion over the 2009-2019 period. CBO analysis also shows that the insurance provisions in the Amendment would reduce average annual premiums per enrollee in the United States relative to what they would be under current law. The average reductions in premiums would be larger in the small group and individual markets where most of the provisions are concentrated. Specifically, the Amendment would lower average insurance premiums in the small group market by an estimated 7% to 10% relative to current law in 2016. Premiums in the individual market are estimated to decline by 5% to 8% compared to current law during the same time period. In the large group market, premiums are estimated to decline from 0% to 3%. CBO emphasizes that these are very preliminary estimates and are subject to a high degree of uncertainty. CBO estimates that the Amendment would likely reduce the number of nonelderly uninsured by about 3 million in 2019 (relative to current law). This would leave 52 million non-elderly residents uninsured; roughly in line with the current share of legal, nonelderly uninsured. CBO also estimates that insurance reforms would lead to a reduction in Medicaid and CHIP enrollment and a subsequent increase in employer coverage. They estimate this would result in a $6 billion reduction in the federal deficit over the 10-year period. To promote the growth of electronic record keeping and claims processing in the nation's health care system, the Health Insurance Portability and Accountability Act's (HIPAA) Administrative Simplification provisions (SSA Secs. 1171-1179) instructed the Secretary to adopt electronic format and data standards for nine specified administrative and financial transactions between health care providers and health plans. Those transactions include patient eligibility inquiry and response, reimbursement claims, claims status inquiry and response, and payment and remittance advice. In addition, HIPAA directed the Secretary to adopt a standard for transferring standard data elements among health plans for the coordination of benefits and the sequential processing of claims. In 2000, the Centers for Medicare and Medicaid Services (CMS) issued an initial set of standards for seven of the nine transactions and for the coordination of benefits. As required under HIPAA, the Secretary published updated standards in early 2009 to replace the versions currently in use. The compliance deadline for the updated standards is January 1, 2012. The health care payment and remittance advice transaction is a communication from a health plan to a provider that includes an explanation of the claim and payment for that claim. The HIPAA standard for this transaction can accommodate an electronic funds transfer (EFT), in which payment is electronically deposited into a designated bank account. EFT is common in the health care sector—health plan contracts often require it—but there is no EFT mandate in federal law for Medicare, Medicaid, or private health insurance. HIPAA does not mandate that providers conduct the transactions electronically, though health plans increasingly require it. However, providers that elect to submit one or more of the HIPAA transactions electronically must comply with the standard for those transactions. In 2001, Congress enacted the Administrative Simplification Compliance Act, which mandated that Medicare claims be submitted electronically in the HIPAA standard format, with the exception of those from small providers and in other limited circumstances. The HIPAA electronic transactions standards, which are the result of a consensus-based development process, include optional data/content fields that can accommodate plan-specific information. Providers often are faced with a multiplicity of companion guides and plan-specific requirements and must customize transactions on a plan-by-plan basis. HIPAA instructed the Secretary to adopt unique identifiers for health care providers, health plans, employers, and individuals for use in standard transactions. Unique identifiers for providers and employers have been adopted, while the health plan identifier is still under review. Congress has blocked the development of a unique individual identifier through language added to the annual Labor-HHS appropriations bill. The Amendment would establish a timeline for the development, adoption and implementation of a single set of consensus-based operating rules for each HIPAA transaction for which there is an existing standard, with the goal of creating as much uniformity in the implementation and use of the transactions standards as possible. Operating rules would be defined as the necessary business rules and guidelines for the electronic exchange of information that are not defined by the electronic standards themselves. In adopting the operating rules, the Secretary would rely on the recommendations of a qualified non-profit entity. Also, the section would add EFT for the payment of health claims as a HIPAA transaction and provide for the adoption and enforcement of an EFT standard. Operating rules for eligibility and health claims status transactions would have to be adopted by July 1, 2011, and take effect by January 1, 2013. Operating rules for claims payment/remittance and EFT would have to be adopted by July 1, 2012, and take effect by January 1, 2014. The Secretary would have to adopt operating rules for the remaining HIPAA transactions, including health claims, plan enrollment and disenrollment, health plan premium payments, and prior authorization and referrals, by July 1, 2014, to take effect by January 1, 2016. The Secretary would also be required to establish a committee to biennially review and provide recommendations for updating and improving the HIPAA standards and operating rules. By December 31, 2013, health plans would be required to file a certification statement with the Secretary that their data and information systems comply with the most current published standards, including the operating rules, for the following transactions: eligibility, health claims status, claims payment/remittance and EFT. By December 31, 2015, health plans would be required to certify to the Secretary that their data and information systems comply with the most current published standards and operating rules for the remaining completed HIPAA transactions. The Secretary would be permitted to designate an outside entity to verify that health plans have met the certification requirements and would have to conduct periodic audits of plans to ensure that they maintain compliance with the standards and operating rules. The section would require the Secretary, no later than April 1, 2014 and annually thereafter, to assess a penalty fee against health plans that fail to meet the certification requirements. The Secretary of the Treasury, acting through the Financial Management Service (FMS), would be responsible for the collection of penalty fees. Unpaid penalty fees would be increased by an interest payment determined in a manner similar to underpayment of income taxes and would be considered debts owed to federal agencies, which may offset and reduce the amount of tax refunds otherwise payable to a health plan. In addition to the above provisions, the Amendment would require that as of January 1, 2014, no Medicare payment would be made for benefits delivered under Part A or Part B other than by EFT or an electronic remittance in a form specified in the HIPAA payment/remittance advice (i.e., ACS X12 835) standard. It would also require the Secretary, by July 1, 2013, to report to Congress on the extent to which the Medicare and Medicaid programs and the providers that serve beneficiaries under those programs transact electronically in accordance with the HIPAA standards. Finally, the Amendment would require the Secretary to issue a rule to establish a unique health plan identifier. The Secretary would be permitted to issue an interim final rule, which would take effect no later than October 1, 2012. According to CBO, these provisions would result in about $6 billion in savings in Medicaid over a 10-year period. In addition, those provisions would result in an increase in revenues of about $13 billion as indirect effect of reducing the costs of private health insurance plans. Less than half of all small employers (less than 50 employees) offer health insurance coverage; such employers cite cost as the primary reason for not offering health benefits. One of the main reasons is a small group's limited ability to spread risk across a small pool. Insurers generally consider small firms to be less stable than larger pools, as one or two employees moving in or out of the pool (or developing an illness) would have a greater impact on the risk pool than they would in large firms. Other factors that affect a small employer's ability to provide health insurance include certain disadvantages small firms have in comparison with their larger counterparts: small groups are more likely to be medically underwritten, have relatively little market power to negotiate benefits and rates with insurance carriers, and generally lack economies of scale. The Amendment would establish Association Health Plans (AHPs) to facilitate the offer and purchase of health insurance sponsored by bona fide business associations. Such associations would meet certain qualifications: organized and maintained in good faith for purposes other than that of obtaining or providing medical care; established as a permanent entity with the active support of members who are required to pay dues for eligibility; have been in existence for a minimum of three years; and other characteristics. Associations would be required to seek certification from the Secretary of Labor to sponsor AHPs. The Labor Secretary would establish procedures for the continued certification for fully insured and self-insured plans. AHPs would be required to comply with the following: Would be allowed to offer a self-insured plan only if the plan existed before the date of enactment; membership is not restricted to one or more trades and instead represents a broad cross section of trades and businesses or industries; or the plan includes eligible participating employees in one or more high-risk trades (as listed in the Amendment). Would be required to have at least 1,000 participants and beneficiaries if offering a self-funded coverage option. Would be operated by a board of trustees with complete fiscal control and responsibility for all operations. Would be required to meet solvency standards relating to reserves, excess/stop loss insurance, surplus, and indemnification insurance as the Labor Secretary considers appropriate. The Amendment would impose several non-discrimination requirements on AHPs: Association membership, dues, or plan coverage would not be determined on the basis of health factors. All employers who are members of the association must be eligible to qualify as participating employers, and all geographically available coverage options must be made available upon request to eligible employers. No participating employer would be allowed to provide coverage in the individual market to an employee for coverage that is similar to the AHP if exclusion of the employee from the group plan is based on health factors. Premiums for any particular small employer would be prohibited from being based on the health status of the plan participants, or on the type of business or industry in which the employer was engaged. AHPs would have sole discretion to determine the specific items and services to be included as benefits, except in the case of state laws that prohibit the exclusion of a specific disease from coverage, or relate to newborn and maternal minimum hospital stays, mental health parity, and reconstructive surgeries following mastectomies. Moreover, AHPs would be permitted to set premiums based on claims experience and state rating rules. The Amendment would authorize the Labor Secretary to promulgate regulations for the purpose of carrying out the provisions relating to AHPs. The Labor Secretary would take action in the case of a possible AHP failure, as specified in the Amendment. The Amendment would establish an "Association Health Plan Fund" from which the Labor Secretary would make payments to ensure continued benefits on behalf of AHPs in distress. The fund's activities would be financed by annual payments of $5,000 made by AHPs, supplemental payments as determined necessary by the Labor Secretary, penalties for non-payments to the fund, and investment income. The penalty for willfully misrepresenting a plan, as a certified AHP meeting the requirements of this Amendment, would be, upon conviction, imprisonment for not more than five years, fines, or both. If the Secretary shows the operation, promotion or marketing of an AHP or similar arrangement, is not certified under the insurance laws of any state offering or providing benefits, a district court of the U.S. would require the plan or arrangement to cease activities. The Secretary would consult with the "primary" state, with respect to an AHP, regarding the Secretary's authority to enforce requirements and to certify AHPs. The "primary" state would be the state in which filing and approval of policy type offered by the plan was obtained. The Secretary would take into account the places of residence of the participants and beneficiaries under the plan and the state in which the trust is maintained. Title II of the Amendment, relating to AHPs would be effective one year after enactment. Prior to implementation, the Secretary of Labor would first be required to issue regulations relating to AHPs. Certain existing plans would be deemed to be a group health plan for Title 1 of this Amendment, and certain ERISA requirements would be deemed to be met, for those arrangements: (1) in existence on the date of enactment which are maintained in a state for the purpose of medical care benefits for employees and beneficiaries of participating employers with at least 200 employees, (2) that have been in existence for at least 10 years, and (3) are licensed under the laws of one or more states. Treatment of Multiple Businesses as Single Employers The Amendment would clarify that two or more trades or businesses that establish and maintain a multiple employer welfare arrangement (MEWA, as defined in ERISA) for the purpose of providing medical care to the employees of two or more employers would be deemed a single employer, as long as such trades or businesses are under common control. Determination of whether a trade or business is under common control would be made under regulations by the Labor Secretary, as specified in the Amendment. In determining whether medical care is provided to employees of two or more employers, the MEWA would be treated as having only one participating employer if the number of current and former workers of one employer with health coverage through the MEWA represents 75% of all workers from all firms with coverage through the MEWA. Currently, employers are not required to offer health insurance to their employees and even if they do provide coverage, they can choose whether or not to extend that coverage to dependents. There are no federal statutes that specify an age for "aging out" of dependent coverage through employer-sponsored health insurance. Certain states require that young adults who are offered coverage under their parents' health insurance policy may remain on that policy until a certain age or under certain circumstances (e.g., unmarried dependent). Auto-enrollment in health insurance refers to a mechanism that allows the sponsor of health insurance coverage to automatically enroll eligible persons in a health plan. There are no federal statutes concerning auto-enrollment. The Amendment would require a group health plan or health insurance coverage offered in connection with a group health plan that chooses to cover dependents, to continue coverage until at least the end of the plan year in which the dependent turns 25. This would apply for plan years that begin more than three months after the date of enactment. States could not establish laws preventing employers from instituting auto-enrollment in a group health plan or health insurance coverage offered in connection with such a plan, as long as individuals could decline the coverage. Employer using auto-enrollment would be required to provide annual notification, including an explanation of any required employee contribution and the right to decline coverage. Employees who failed to decline coverage within a reasonable period of time could be auto-enrolled into a plan. States' insurance requirements number in the thousands and can be complicated. Even the laws of two states addressing the same matter can differ on many dimensions. In addition to the benefits that comprise health insurance products, state laws and regulations require patient protections, address how insurance carriers develop the rates charged for their products, and describe procedures for approval of those rates. State laws and regulations address how entities in the business of selling health insurance conduct their business in order to meet licensing requirements, and fund their enterprises and prepare against the risk of insolvency. They are subject to fair marketing practice laws, requirements related to the filing of grievances against the plans, and appealing plan decisions. Entities selling health insurance may also be subject to state taxes. The Amendment would allow a health insurance issuer, in compliance with the health insurance laws and regulations of one state ("primary state"), to offer individual health insurance in another state ("secondary state"). Individual health insurance offered in a secondary state would be exempt from the health insurance laws and regulations of such state to the extent that such laws (1) prohibit or regulate the operation of the issuer in the secondary state, (2) require such coverage to be countersigned by an insurance agent or broker, or (3) otherwise discriminate against the issuer offering such coverage in the primary or secondary state. A primary state has sole jurisdiction over the enforcement of the primary state's health insurance laws on health insurance coverage offered in the primary and any secondary states. Secondary states would retain authority over certain regulatory activities with respect to health insurance issuers, including: Payment of premium and other taxation; Submission of financial information; Compliance with a lawful order issued in a delinquency proceeding due to the state finding financial impairment; Compliance with a court-issued injunction upon state petition alleging hazardous financial condition; Participation in a guaranty or similar association; Compliance with state fraud and abuse and claims settlement laws; and Compliance with independent review requirements, as specified in the Amendment. For any health insurance coverage offered in a secondary state, an issuer would disclose that such coverage is not subject to all of the health insurance laws and regulations of that state in a format specified in the Amendment. At time of renewal of the individual health insurance policy, the issuer would be prohibited from reclassifying the enrollee based on health factors, or increasing the premium based on health factors or claims experience. Issuers would be permitted to (1) terminate or discontinue coverage in cases of nonpayment of premiums, fraud, and other circumstances as allowed under federal law, (2) raise premiums based on claims experience for all policyholders within a class, (3) offer premium discounts for participation in wellness activities, (4) reinstate lapsed coverage, and (5) retroactively adjust rates if the initial rates were based on misrepresented information at the time of issue. The issuer would be required to submit to the state insurance commissioners in primary and secondary states information about the plan that would be offered, notice of any change in designation of the primary state, and notice of issuer's compliance with the laws of the primary state. Issuers would also submit to the insurance commissioners in secondary states quarterly financial statements, containing a statement on loss and loss adjustment expense reserves, certified by an independent public accountant. Health Savings Accounts (HSAs) are one way people can pay for unreimbursed medical expenses (deductibles, copayments, and services not covered by insurance) on a tax-advantaged basis. HSAs can be established and funded by eligible individuals when they have a qualifying high deductible health plan (HDHP) and no other health plan, with some exceptions. But not all individuals enrolled in an HDHP have a HSA. Under current law contributions to HSAs are tax deductible and withdrawals are not taxed if used for medical expenses. However, premiums for HDHPs are not considered a qualified medical expense. Unused balances may accumulate without limit. The Amendment includes a number of provisions to expand the tax-deductibility of HSAs and allow premiums for certain high deductible health plans to be tax-deductible. In addition, the Amendment would make a number of other changes to improve the coordination between administrators of HDHPs and HSA accounts to encourage enrollees to enroll in both at the same time. The Amendment would also provide a 60-day grace period for medical expenses incurred prior to the establishment of an HSA. According to the Congressional Budget Office, the HSA provisions in the Amendment are estimated to cost $5 billion over a 10-year period. Specifically, the Amendment would allow those making HSA contributions to receive a non-refundable tax credit in addition to the tax deduction they already receive. This tax credit would be included as part of the current retirement savings credit provisions (often called the Saver's Credit). The amount of the HSA tax credit available would decline as income increases and completely phase out for those with adjusted gross income of over $55,500 for joint filers, and $27,750 for single filers. These thresholds are 2009 levels and would be indexed for inflation in future years. Generally, a tax credit is applied directly against a taxpayer's tax liability. Since the HSA tax credit is nonrefundable, if the tax liability is less than the credit amount of all refundable credits available, then the taxpayer would not benefit from the full credit. Thus, the maximum credit applied to the sum of both HSA and qualified retirement savings contributions is the lesser of $1,000 or the amount of the tax that would have been owed without the credit. The Amendment would also expand the definition of qualified medical expense to allow premiums for a high-deductible plan purchased in the individual market to be excluded from taxable income. Although medical malpractice liability reform has often been considered by Congress, it is the states that regulate or have implemented tort reform for medical malpractice lawsuits. Where states have enacted tort reform, provisions vary regarding statutes of limitation and caps on non-economic damages or punitive damages. Typical tort reform provisions also include modifying common law tort doctrines such as joint and several liability, contributory and comparative negligence, periodic payments, and the collateral source rule. Recently, other tort reform efforts include requiring the parties to undergo pre-trial alternative dispute resolution, requiring the plaintiff to obtain an affidavit of merit from an expert that is to be filed with the complaint, or requiring the parties to first go before a panel to evaluate whether their claims are meritorious before filing in court. The Amendment would impose national medical malpractice laws, and thus would effectively preempt existing state medical malpractice laws, with certain exceptions. A "health care lawsuit" under this section would encompass not only suits between a physician and patient, but also any claim against a health care organization, manufacturer, distributor, supplier, marketer, promoter or seller of a medical product and any claims concerning health care goods and services or medical products affecting interstate commerce. According to CBO, these provisions are expected to reduce spending by $41 billion over a 10-year period. The Amendment would require a health care lawsuit to be brought within either three years after the date of manifestation of the injury, or within one year after the claimant discovers, or through the use of reasonable diligence should have discovered, the injury, whichever occurs first. No lawsuit could be brought after three years, but such a limitation could be extended upon a showing of (1) proof of fraud; (2) intentional concealment; or (3) the presence of a foreign body, which has no therapeutic or diagnostic purpose or effect, in the person of the injured party. The statute of limitations provision for actions commenced by minors would vary somewhat to this general provision. The Amendment would not limit the amount of economic damages a claimant recovers. Economic damages under the Amendment would be defined as monetary losses incurred, such as past and future medical expenses, loss of past and future earnings, cost of obtaining domestic services, loss of employment, and loss of business or employment opportunities. The Amendment would limit noneconomic damages, if awarded, to $250,000, regardless of the number of parties against whom the action is brought, or the number of separate claims or actions brought with respect to the same injury. However, under the Amendment, this cap would not preempt a state law—enacted before, on, or after the passage of this Amendment—that limits noneconomic damages regardless of whether such a monetary amount is greater or lesser than is provided for in the Amendment. Noneconomic damages would be defined as damages for physical and emotional pain, suffering, inconvenience, physical impairment, and loss of enjoyment of life. A jury would not be informed about the maximum award for noneconomic damages, and if the amount of noneconomic damages awarded is in excess of $250,000, then such an award would be reduced either before or after the judgment is rendered. If separate awards are rendered for past and future noneconomic damages and the combined awards exceed the cap, the future noneconomic damages would be reduced first. Where there are multiple defendants, the Amendment would make each party responsible for an amount of damages that is in direct proportion to his or her individual percentage of fault, and it would not make an individual liable for the share of any other person. The trier of fact would determine the responsibility of each party for the claimant's harm. The Amendment would limit punitive damages to the greater of $250,000 or two times the amount of economic damages awarded, although a jury would not be informed of the limitation. However, the cap on punitive damages would not apply so long as a state has enacted or enacts a cap on punitive damages, irrespective of whether such amount is greater or lesser than the limit provided for in the Amendment. Punitive damages would not be awarded in a health care lawsuit where a judgment for compensatory (i.e., economic and noneconomic) damages is not rendered. Under the Amendment, punitive damages would only be awarded if it is proven by clear and convincing evidence that the defendant acted with malicious intent or that the defendant deliberately failed to avoid unnecessary injury that he or she knew the claimant would suffer. Malicious injury would be defined as intentionally causing or attempting to cause physical injury other than providing health care goods or services. A claimant, however, would not be permitted to make a demand for punitive damages when initially filing the health care lawsuit. Upon a motion by the claimant, a court would be permitted to allow the claimant to amend his or her pleading only after a hearing and a finding by the court that the claimant has established by a substantial probability that he or she will prevail on the claim for punitive damages. Alternatively, under the Amendment, either party would be allowed to request that the trier of fact consider, in a separate proceeding, (1) whether punitive damages are to be awarded and the amount of such award, and (2) the amount of punitive damages following a determination of punitive liability. If this latter option is chosen, then no evidence relevant to the claim for punitive damages would be admissible in any proceeding to determine whether compensatory damages are to be awarded. If a separate proceeding is held, the Amendment sets forth specific factors that the trier of fact would be required to consider: (1) the severity of the harm caused by the conduct of such party; (2) the duration of the conduct or any concealment of it by such party; (3) the profitability of the conduct to such party; (4) the number of products sold or medical procedures rendered for compensation, as the case may be, that caused the harm complained of by the claimant; (5) any criminal penalties imposed on such party as a result of the conduct complained of; and (6) the amount of any civil fines assessed against such party as a result of the conduct complained of by the claimant. Under the Amendment, the court would be empowered to supervise the arrangements for the payment of damages to protect against conflicts of interest (e.g., a claimant's attorney having a financial stake in the outcome by virtue of a contingency fee). The court would have the power to restrict the payment of a claimant's damage recovery to such attorney, and to redirect the damages to the claimant. The Amendment would impose a sliding scale for attorney fees. In any health care lawsuit, the total of all contingency fees for representing all claimants would not exceed: (1) 40% of the first $50,000 recovered by the claimant(s); (2) 33 1/3% of the next $50,000 recovered by the claimant(s); (3) 25% of the next $500,000 recovered by the claimant(s); and (4) 15% of any amount where the recovery is in excess of $600,000. The sliding scale would be applicable regardless of whether the recovery is by judgment, settlement, mediation, arbitration, or any other form of alternative dispute resolution. The Amendment would permit any party in a health care lawsuit involving injury or wrongful death to introduce evidence of collateral source benefits that an opposing party may receive. However, once a party introduces this evidence, the opposing party would be permitted to introduce evidence of any amount it has paid or contributed, or likely to pay or contribute in the future, to secure the right to the collateral source benefit. In other words, if, for example, a party has evidence introduced against it of collateral source benefits it is receiving or will receive, then such party would be allowed to introduce evidence of amounts paid or to be paid to the collateral source provider that gives it the right to such benefits. The Amendment would also appear to preclude a provider of collateral source benefits from recovering any amount against the claimant or placing a lien or credit against the claimant's recovery, or from being legally subrogated to the right of the claimant in the health care lawsuit. Under the Amendment, this section would not apply to 42 U.S.C. § 1395y(b), which provides for Medicare as a secondary payer, or 42 U.S.C. § 1396a(a)(25), which provides for state plans for medical assistance. Under the Amendment, if an award of future damages is made that equals or exceeds $50,000, without a reduction to a present value, any party would be able to request to the court that the future damages be paid by periodic payment. This would be permitted so long as the party against whom the judgment was made has sufficient insurance or other assets to fund a periodic payment of such judgment. The Amendment would not apply to title XXI of the Public Health Service Act (PHSA) to the extent that it establishes a federal rule of law applicable to a civil action brought for vaccine-related injury or death. However, the Amendment's provisions would apply in vaccine-related injury or death claims to the extent that a federal rule of law under title XXI of the PHSA does not apply. The Amendment states that it would preempt provisions of the Federal Tort Claims Act (FTCA), chapter 171 of title 28 of the U.S. Code, to the extent that the FTCA (1) provides for a greater amount of damages or contingent fees, a longer period in which a health care lawsuit may be commenced, or a reduced applicability or scope of periodic payment of future damages than provided for in this title; or (2) prohibits the introduction of evidence regarding collateral source benefits, or mandates or permits subrogation or a lien on collateral source benefits. Any issue that would not be governed by a provision of this Amendment, including state standards of negligence, would be governed by otherwise applicable state or federal law. Furthermore, the Amendment would not preempt any state or federal law that provides greater procedural or substantive procedures for health care providers and organizations from liability, loss, or damages. As mentioned in the discussion on Recovering Damages and Punitive Damages, the Amendment would provide states with some flexibility, given that it would not preempt any state law, whether enacted before, on, or after the enactment of the Amendment, that specifies a particular monetary amount of economic, noneconomic, or punitive damages, regardless of whether such monetary amount is greater or lesser than would be provided for under this title. Furthermore, the Amendment would not preempt any defense available to a party in a health care lawsuit. The provisions of this division of the Amendment would be applicable to any health care lawsuit that is initiated on or after the date of enactment of the Amendment, except that the Amendment's statute of limitations would not apply to any health care lawsuit arising from an injury occurring prior to the date of enactment. The American Recovery and Reinvestment Act of 2009 (ARRA), the economic stimulus legislation signed into law on February 17, 2009 ( P.L. 111-5 ), included supplemental FY2009 discretionary appropriations for biomedical research, public health, and other health-related programs within the Department of Health and Human Services (HHS). As enacted, ARRA included $17.15 billion for community health centers, health care workforce training, biomedical research, comparative effectiveness research (CER), HIT, disease prevention, and Indian health facilities. Sec. 804 of ARRA established the Federal Coordinating Council for Comparative Effectiveness Research (FCCCER), an entity whose purpose is fostering the coordination of comparative effectiveness and related health services research conducted or supported by relevant federal departments and agencies. FCCCER, composed of senior officials from federal agencies with health-related programs, was instructed to submit an initial report describing current federal CER activities and providing recommendations for future research. The Council was to prepare an annual report on its activities and include recommendations on infrastructure needs and coordination of federal CER. Sec. 804 specifically stipulates that the Council may not mandate coverage, reimbursement, or other policies for any public or private payer, and that none of the reports or recommendations developed by the Council may be construed as mandates or clinical guidelines for payment, coverage or treatment. The Council published its initial report on June 30, 2009. The provisions in Division D of the Amendment would clarify through a rule of construction that nothing in this Act would be construed to interfere with the doctor-patient relationship or the practice of medicine. In addition, they would repeal Sec. 804 of ARRA, the provision which established FCCCER. As employers and insurers have struggled with rising health care costs, there has been significant interest in reducing these costs by incentivizing healthy behaviors through wellness programs. These programs take many forms, from providing a gym at the workplace to subsidizing the co-pays of certain medications and linking health care benefits or discounts to certain healthy lifestyles. Wellness programs offered by employers may be subject to a number of federal laws. One of these laws is the Health Insurance Portability and Accountability Act of 1996 (HIPAA), which amended the Employee Retirement Income Security Act (ERISA), the Public Health Service Act (PHSA), and the Internal Revenue Code (IRC) to improve portability and continuity of health coverage. Title I of HIPAA created certain nondiscrimination requirements, which provide, among other things, that a group health plan and a health insurance issuer offering group health coverage may not require an individual to pay a higher premium or contribution than another "similarly situated" participant, based on certain health-related factors such as claims experience, receipt of health care, medical history, genetic information, evidence of insurability, or disability. However, HIPAA clarifies that this requirement "do[es] not prevent a group health plan and a health insurance issuer from establishing premium discounts or rebates or modifying otherwise applicable copayments or deductibles in return for adherence to programs of health promotion and disease prevention [i.e., wellness programs]." The HIPAA wellness program regulations divide wellness programs into two categories. First, if a wellness program provides a reward based solely on participation in a wellness program, or if the wellness program does not provide a reward, the program complies with the HIPAA nondiscrimination requirements without having to satisfy any additional standards, as long as the program is made available to all similarly situated individuals. Second, if the conditions for obtaining a reward under a wellness program are based on an individual meeting a certain standard relating to a health factor, then the program must meet additional requirements. Under one of these additional requirements, a reward offered by this type of wellness program must not exceed 20% of the cost of employee coverage under the plan (i.e., the amount paid by the employer and the employee for that employee for coverage). Division E of the Amendment would modify HIPAA's nondiscrimination requirements under ERISA, the PHSA, and the IRC to provide that a group health plan or a health insurer offering group health coverage may vary premiums and cost sharing by up to 50% of the value of the benefits under the plan or coverage based on participation in a standards-based wellness program. The division would also apply to insurers in the individual market, as regulated by the PHSA. The Amendments made by the division would apply to plan years and insurance coverage offered or renewed at least one year after the date of enactment of the act. Health care fraud costs the nation billions of dollars annually. Although the actual amount of money lost to fraud is unknown, estimates range from 3% of all health care expenditures to as much as 10%. Losses to health care fraud translate into higher costs for consumers, health plans, and public insurance programs. As health care expenditures continue to rise, developing new and innovative approaches to fight fraud become increasingly important. As the agency responsible for administering Medicare and Medicaid, the Centers for Medicare and Medicaid Services (CMS) conducts a variety of activities designed to prevent, detect, and investigate health care fraud. These activities are often referred to as program integrity activities. Program integrity activities encompass a broad set of strategies and processes designed to meet numerous objectives, including preventing improper payments, identifying and detecting fraud, conducting investigations, and prosecuting offenders. CMS shares responsibility for combating health care fraud with three federal agencies: the Department of Health and Human Services Office of the Inspector General (HHS OIG), the Department of Justice (DOJ), and the Federal Bureau of Investigation (FBI). The OIG is an independent unit within HHS that has the primary responsibility for detecting health care fraud and abuse in federal health care programs. The FBI conducts complex fraud investigations related to both private and public health care programs, and the OIG, FBI, and CMS refer suspected cases of fraud to the DOJ for prosecution. Activities to fight both public and private sector health care fraud are funded through the Health Care Fraud and Abuse Control (HCFAC) program. The HCFAC program, which was established by the Health Insurance Portability and Accountability Act of 1996 (HIPAA, P.L. 104-191 ), consists of three separate funding streams: 1) the HCFAC account, which funds the HHS and DOJ, 2) the Medicare Integrity Program which supports CMS's anti-fraud activities, and 3) the FBI. HIPAA appropriated funds to HHS, the OIG, and the FBI for activities undertaken for fiscal years 1997 through 2003. In December 2006, Congress passed the Tax Relief and Health Care Act or TRHCA which extended the mandatory annual appropriation for the HCFAC account and the FBI to 2010. For fiscal years 2007 through 2010, the mandatory annual appropriation is the limit for the preceding year plus the percentage increase in the consumer price index (CPI). Total funding for health care fraud activities for FY2009 amounted to approximately $1.4 billion. Medicare statute requires the Secretary to establish a process for enrolling providers and suppliers in the Medicare program. As part of the enrollment process, CMS collects information necessary to uniquely identify the provider such as Social Security Number, Tax ID number, and documentation to verify state licensure. The Amendment would require the Secretary to screen any provider or supplier enrolling in the program with a criminal background check, fingerprinting, licensure checks, site visits, and/or database checks. Screening would be funded through a revenue-neutral application fee. The Amendment also provides for enhanced oversight measures such as prepayment claims review, penalties and exclusions for false statements on enrollment applications, additional disclosure requirements, and moratoriums on enrollment. The Amendment would not apply if funding was not appropriated to implement these requirements. Under the Medicare Secondary Payer statute, Medicare is prohibited from paying for medical services if payment has been made, or can reasonably expected to be made, by a "primary plan" such as a group health plan, workmen's compensation plan, or automobile or liability insurance policy. The Amendment would require the Secretary and the OIG to improve the identification of instances where the Medicare program should, but is not, acting as the secondary payer to private health insurance. The Amendment includes a similar provision with respect to Medicaid. The Medicaid statute requires that the states take reasonable measures to ascertain whether or not a third party is liable for payment for Medicaid services. Specifically, the Amendment would require that states include in their state Medicaid plan a strategy for how they intend to comply with these requirements. States that demonstrate compliance to the Secretary would be eligible for bonuses. Those that do not would receive a reduction in their Federal Medical Assistance Percentage or FMAP of 1 percentage point. In an effort to ensure that excluded providers and suppliers cannot bill Medicare, the Amendment includes several provisions targeting CMS's data and information systems. Currently, claims and payment data for Medicare and Medicaid are housed in multiple databases. CMS is in the process of consolidating information stored in these databases into an Integrated Data Repository (IDR). According to the agency's website, the eventual goal of the IDR is to support an integrated data warehouse which will contain data related to Medicare & Medicaid claims, beneficiaries, providers, and health plans. The Amendment would require that the Secretary complete the development of the IDR. The Amendment would also authorize the Secretary to perform data matching between Medicare, Medicaid, and the Social Security Administration (SSA). The Social Security Act requires the Secretary to develop and maintain a national health care fraud and abuse data collection program, the Health Care Integrity and Protection Data Bank (HIPDB), for the reporting of adverse actions taken against health care providers or suppliers. The Health Care Quality Improvement Act of 1986 established the National Practitioner Data Bank (NPDB). The NPDB collects and releases data on the professional competence of physicians, dentists, and certain healthcare practitioners. In order to ensure that excluded providers do not continue to bill Medicare or Medicaid, the Amendment would require that the Secretary consolidate these databases, the List of Excluded Individuals and Entities maintained by the OIG, and a national patient abuse/neglect registry into one centralized database. The Secretary would also be required to establish two other databases: 1) a provider database, and 2) a sanctions database. The provider database would be required to include information on ownership and business relationships, adverse events, site visits, and the results of provider oversight activities. The Secretary would be required to query this database prior to issuing a provider or supplier number. The sanctions database would include information on sanctions imposed on providers and suppliers. The Secretary would be required to link the sanctions database to related databases maintained by state licensure boards and federal and state law enforcement agencies. The Amendment would authorize the Secretary to impose civil monetary penalties (CMP) of up to $50,000 on Medicare and Medicaid providers and suppliers that submit erroneous information to the Secretary. The Amendment would also authorize the Secretary to exclude a provider or supplier from participating in the Medicare program or impose a CMP for making false statements on enrollment applications. Currently, funding for the HCFAC account is divided between HHS and DOJ. A portion of this appropriation is earmarked for the OIG. The enacted FY2009 funding level for HCFAC was $266 million. Of this $266 million, $177 million was earmarked for the OIG and the remaining $89 million went to DOJ and HHS. Beginning with FY2010, the Amendment would increase the annual appropriation to the HCFAC account (HHS and DOJ) to $300 million annually. The Amendment would also increase the annual appropriation for the OIG by an amount equal to the difference between the new HCFAC appropriation ($300 million) and the amount appropriated to HCFAC in the preceding year plus an additional $100 million for years 2010 through 2019. Restrictions on the use of federal funds to pay for abortions are included in several of the annual appropriations measures that provide funds to various federal agencies. Restrictive provisions in the annual appropriations measure for the Department of Health and Human Services ("HHS") are arguably the most well-known of the restrictions. These provisions were first offered by Representative Henry J. Hyde in 1976 as an Amendment to the Departments of Labor and Health, Education, and Welfare, Appropriation Act, 1977. Since 1976, the so-called "Hyde Amendment" has been added generally to the annual appropriations measure for the Departments of Labor, HHS, and Education. The Omnibus Appropriations Act, 2009, provides appropriations for HHS and includes the Hyde Amendment. Section 507(a) of the omnibus measure states: "None of the funds appropriated in this Act, and none of the funds in any trust fund to which funds are appropriated in this Act, shall be expended for any abortion." An exception to the general prohibition on using appropriated funds for abortions is provided in section 508(a) of the measure: The limitations established in the preceding section shall not apply to an abortion – (1) if the pregnancy is the result of an act of rape or incest; or (2) in the case where a woman suffers from a physical disorder, physical injury, or physical illness, including a life-endangering physical condition caused by or arising from the pregnancy itself, that would, as certified by a physician, place the woman in danger of death unless an abortion is performed. In addition to limiting the use of federal funds to pay for abortions, federal law prohibits recipients of certain federal funds from discriminating against medical personnel and health care entities for engaging in or refusing to engage in specified activities related to abortion. For example, under section 245 of the Public Health Service Act, federal, state, and local governments are prohibited from discriminating against health care entities that refuse to undergo abortion training, provide such training, perform abortions, or provide referrals for the relevant training or for abortions. Under the so-called Weldon Amendment, which has been included in the annual appropriations measure for the Departments of Labor, HHS, and Education since 2004, appropriated funds may not be made available to a federal agency or program, or to a state or local government, that subjects any institutional or individual health care entity to discrimination on the basis that the entity does not provide, pay for, provide coverage of, or refer for abortions. In general, the Amendment would codify the Hyde and Weldon Amendments, and thus eliminate the need to add such amendments to the Department of Labor, HHS, and Education appropriations measure each year. The codification of the amendments in title 1 of the U.S. Code would also seem to eliminate the need to add similarly restrictive provisions to other appropriations measures. For example, provisions that are generally included each year in the financial services and general government appropriations measure to prohibit the coverage of elective abortions in the Federal Employees Health Benefits Program would not be needed. In addition, the Amendment indicates that it would not prohibit any individual, entity, state, or locality from purchasing a separate supplemental abortion plan or coverage that includes abortion so long as the plan or coverage was not paid for with funds authorized or appropriated by federal law, and the plan or coverage was not purchased with matching funds required for a federally subsidized program. The Amendment would also not restrict the ability of a managed care provider or other organization from offering abortion coverage, or restrict the ability of a state to contract separately with a managed care provider or other organization for abortion coverage using funds other than those authorized or appropriated by federal law, or derived from matching funds required for a federally subsidized program. A biosimilar, often called a "follow-on" biologic, is similar to a brand-name biologic while a generic drug is the same as a brand-name chemical drug. Chemical drugs are small molecules for which the equivalence of chemical structure between the brand-name drug and a generic version is relatively easy to determine. In contrast, comparing the structure of a biosimilar and the brand-name biologic is far more scientifically challenging. A biologic is a preparation, such as a drug or a vaccine, that is made from living organisms. Most biologics are complex proteins that require special handling (such as refrigeration) and are usually administered to patients via injection or infused directly into the bloodstream. In many cases, current technology will not allow complete characterization of biological products. Additional clinical trials may be necessary before the FDA would approve a biosimilar. Congress is interested in creating an expedited pathway for the approval of biosimilars for the same reasons it was interested in allowing access to generic chemical drugs in 1984: cost savings. The pathway for biosimilars would be analogous to the FDA's authority for approving generic chemical drugs under the Drug Price Competition and Patent Term Restoration Act of 1984 ( P.L. 98-417 ). Often referred to as the Hatch-Waxman Act, this law allows the generic company to establish that its drug product is chemically the same as the already approved innovator drug, and thereby relies on the FDA's previous finding of safety and effectiveness for the approved drug. The generic drug industry achieves cost savings by avoiding the expense of clinical trials, as well as the initial drug research and development costs that were incurred by the brand-name manufacturer. The cost of brand-name biologics is often prohibitively high. For example, the rheumatoid arthritis and psoriasis treatment Enbrel reportedly costs $16,000 per year. It is thought that a pathway enabling the FDA approval of biosimilars will allow for market competition and reduction in prices, though perhaps not to the same extent as occurred with generic chemical drugs under Hatch-Waxman Act. The Amendment contains the exact same language as the biosimilars provision in H.R. 3962 . The Amendment would open a pathway for the approval of biosimilars. A biosimilar is defined as a biological product that is highly similar to the reference (brand-name) product such that there is no clinically meaningful difference between the biological product and the reference product. A biological product is defined as a protein (except any chemically synthesized polypeptide). The Amendment would allow the Secretary to determine that elements (such as clinical studies) in the application for the licensure of a biological product as biosimilar or interchangeable may be unnecessary. The Secretary would determine that the reference product and a biological product are interchangeable according to specified criteria. Interchangeable means that the biological product may be substituted for the reference product without the intervention of the health care provider who prescribed the reference product. Special requirements would apply to certain biosimilars that might present a greater risk (e.g., toxins or controlled substances). The Amendment would allow for a period of exclusive marketing for the biological product that is the first to be established as interchangeable with the reference product. The provision also would provide a 12-year data exclusivity period (from the date on which the reference product was first approved) for the reference product and would provide an additional six months of exclusivity if pediatric studies show health benefits in that population. The Secretary may publish proposed guidance as specified for public comment prior to publication of final guidance on the licensure of a biological product. If guidance is to be developed, a process must be established to allow for public input regarding priorities for issuing guidance. The issuance or non-issuance of guidance would not preclude the review of, or action on, an application. The provision also would require the Secretary to ensure that the labeling and packaging of each biological product bears a unique name that distinguishes it from the reference product and any other biological products that are evaluated against the reference product. The Amendment would set forth a process governing patent infringement claims against an applicant or prospective applicant for a biological product license. It also would establish new processes for identifying patents that might be disputed between the reference product company and the company submitting a biosimilar application. The Amendment would require reference product and biosimilar product sponsors to file with the Assistant Attorney General and Federal Trade Commission copies of the text of any agreement they reach regarding the manufacture, marketing, or sale of either product. Agreements that solely concern purchase orders for raw materials, equipment and facility contracts, employment or consulting contracts, or packaging and labeling contracts are excluded. Failure to comply with this filing requirement may result in civil fines and other relief as the courts deem appropriate. With the concurrence of the Assistant Attorney General, the Federal Trade Commission may engage in rulemaking regarding the filing requirement. The Amendment would allow for the collection of user fees for the review of applications for approval of biosimilars. The Amendment would also stipulate that the filing of a statement by a biosimilar applicant regarding patents identified by the reference product sponsor and other interested parties may be considered an act of patent infringement. It would require reference product sponsors, and allow other interested parties, to identify patents that relate to the proposed biosimilar product. The biosimilar applicant would then be afforded the opportunity to state its position regarding those patents. If the biosimilar applicant responds by asserting that one or more of these patents are invalid, unenforceable, or would not be infringed by the proposed biosimilar product, the biosimilar applicant would be deemed to have committed an act of patent infringement that would be immediately actionable in the courts. | Health care reform is at the top of the domestic policy agenda for the 111th Congress, driven by concerns about the growing ranks of the uninsured and the unsustainable growth in spending on health care and health insurance. Improving access to care and controlling rising costs are seen to require changes to both the financing and delivery of health care. Experts point to a growing body of evidence of the health care system's failure to consistently provide high-quality care to all Americans. Several comprehensive bills have been introduced on the topic of health reform in the 111th Congress, such as H.R. 3962 (the Affordable Health Care for America Act), S. 1679 (Affordable Health Choices Act), and S. 1796 (America's Healthy Future Act of 2009). On November 3, 2009, an additional health reform proposal was made public: Amendment in the Nature of a Substitute to H.R. 3962 Offered by Mr. Boehner of Ohio ("the Amendment"). If adopted, the Amendment would replace the substantive text of H.R. 3962 with the text of the Common Sense Health Care Reform and Affordability Act. This report summarizes the contents of the proposed Amendment. This report will be updated as appropriate. |
Historically, electric utilities have been regarded as natural monopolies requiring regulationat the state and federal levels. The Energy Policy Act of 1992 (EPACT, P.L. 102-486 ) removed anumber of regulatory barriers to electricity generation in an effort to increase supply and introducecompetition, and further legislation has been introduced and debated to resolve remaining issuesaffecting transmission, reliability, and other restructuring concerns. Electric utility provisions are included in comprehensive energy legislation that has passedboth the House and Senate. The House passed H.R. 6 on April 11, 2003. On July 31,2003, the Senate suspended debate on S. 14 , the comprehensive energy bill that hadbeen drafted by the Energy and Natural Resources Committee, and instead passed H.R. 6with the text of the Senate-passed version of H.R. 4 from the 107th Congress. For acomparison of the House- and Senate-passed versions of H.R. 6, see CRS Report RL32033, Omnibus Energy Legislation (H.R. 6): Side-by-Side Comparison of Non-TaxProvisions . Before debate on S. 14 was suspended, Senator Domenici proposed S.Amdt. 1412 on July 29, 2003, to completely replace the electricity title of S.14 as introduced in the Senate. The proposed amendment was withdrawn on July 31,2003, and is not included in the Senate-passed energy bill. However, majority staff of the SenateEnergy and Natural Resources Committee have indicated that provisions of the amendment mightbe brought up in conference. (1) Title VI of the House-passed H.R. 6 would, in part, provide for incentive-basedtransmission rates, allow transmission owners in certain instances to exercise the right of eminentdomain to site new transmission lines, create an electric reliability organization, give new, butlimited, authority to the Federal Energy Regulatory Commission (FERC) over municipal andcooperative transmission systems, and clarify the right of transmission owners to serve existingcustomers (native load). In addition, the House bill would repeal the Public Utility Holding Company Act (PUHCA)and give FERC and state public utility commissions access to books and records, prospectivelyrepeal the mandatory purchase requirement of the Public Utility Regulatory Policies Act of 1978(PURPA), and require utilities to provide real-time rates and time-of-use metering. The Houseversion of H.R. 6 would establish market transparency rules, explicitly prohibitround-trip trading, and increase criminal penalties under the Federal Power Act. Like the House-passed electricity provisions of H.R. 6 , S.Amdt. 1412 would, in a more limited fashion, give FERC rate authority over municipal and cooperativetransmission systems, create an electric reliability organization, repeal PUHCA and give FERC andstate public utility commissions access to books and records, prospectively repeal the mandatorypurchase requirement of PURPA, clarify the right of transmission owners to serve native load,explicitly prohibit round-trip trading, establish market transparency rules, and increase criminalpenalties under the Federal Power Act. Unlike the House-passed H.R. 6 , S.Amdt. 1412 does not contain provisions that would allow transmission owners to exercise the right of eminent domain to site newtransmission lines. S.Amdt. 1412 contains provisions that are not included in the House-passed H.R. 6 . These include provisions that prohibit FERC from requiring utilities to transferoperational control of transmission facilities to a regional transmission organization (RTO), giveauthority to power marketing administrations and the Tennessee Valley Authority to join RTOs,remand FERC's Standard Market Design (SMD) notice of proposed rulemaking, and strengthenFERC's merger review authority. For additional information, see CRS Report RL32728 , Electric Utility Regulatory Reform:Issues for the 109th Congress . | Electric utility provisions are included in comprehensive energy legislation that has passedboth the House and Senate. The House passed H.R. 6 on April 11, 2003. On July 31,2003, the Senate suspended debate on S. 14 , the comprehensive energy bill that hadbeen reported by the Energy and Natural Resources Committee. It then passed H.R. 6 withthe text of the Senate-passed version of H.R. 4 from the 107th Congress. For acomparison of the House- and Senate-passed versions of H.R. 6, see CRS Report RL32033, Omnibus Energy Legislation (H.R. 6): Side-by-Side Comparison of Non-TaxProvisions . Before debate on S. 14 was suspended, Senator Domenici proposed S.Amdt. 1412 on July 29, 2003, to completely replace the electricity title of S.14 as introduced in the Senate. The proposed amendment was withdrawn on July 31,2003. Although S.Amdt. 1412 is not included in the Senate-passed bill that will beconsidered in conference, there are indications that provisions of the amendment might be broughtup. Both the House-passed electricity provisions in H.R. 6 and those in S.Amdt. 1412 would give limited rate authority to the Federal Energy RegulatoryCommission (FERC) over municipal and cooperative transmission systems; create an electricreliability organization; repeal the Public Utility Holding Company Act (PUHCA) and give FERCand state public utility commissions access to books and records; prospectively repeal the mandatorypurchase requirement of the Public Utility Regulatory Policies Act (PURPA); explicitly prohibitround-trip trading; establish market transparency rules; protect native load consumers (existingcustomers); and increase criminal penalties under the Federal Power Act. Title VI of the House-passed H.R. 6 would, in part, provide for incentive-basedtransmission rates, allow transmission owners in certain instances to exercise the right of eminentdomain to site new transmission lines, create an electric reliability organization, and clarify the rightof transmission owners to serve existing customers (native load). Unlike the House-passed H.R.6, S.Amdt. 1412 does not contain provisions that would allow transmissionowners to exercise the right of eminent domain to site new transmission lines. S.Amdt. 1412 contains provisions that are not included in the House-passed H.R. 6 . These include provisions that prohibit FERC from requiring utilities to transferoperational control of transmission facilities to a regional transmission organization (RTO), giveauthority to power marketing administrations and the Tennessee Valley Authority (TVA) to joinRTOs, remand the FERC Standard Market Design (SMD) notice of proposed rulemaking, andstrengthen FERC's merger review authority. This report will not be updated. |
More than 4 billion incandescent light bulbs (technically referred to as "lamps") are in use in the United States. The basic technology in these bulbs has not changed substantially in the past 125 years, despite the fact that they convert less than 10% of the energy they use into light. Improving light bulb performance can reduce overall U.S. energy use. As much as 20% of the electricity consumed in the United States is used for lighting homes, offices, stores, factories, and outdoor spaces. Lighting represents about 14% of all U.S. residential electricity use. In the Energy Independence and Security Act of 2007 (EISA, P.L. 110-140 ), Congress imposed higher efficiency standards for manufacturers and importers of general use, screw-base light bulbs commonly used in residential fixtures, beginning on January 1, 2012. The Department of Energy (DOE) estimates that the federal lighting standards should reduce energy use for lighting per household in 2020 by 33% below the 2009 level. DOE has also estimated that the more energy-efficient bulbs, some of which are estimated to last 10 to 20 times longer than conventional bulbs, could save consumers nearly $6 billion in 2015 alone, when the law is fully phased in—taking into account the initial price of the bulbs, their expected life, and electricity costs. EISA did not ban incandescent light bulbs. Instead, the law mandated that bulbs manufactured or imported after phase-in dates specified in the bill meet higher efficiency standards—about 25%-30% more efficient on average. The law left it up to the lighting industry to determine what type of product best met those requirements. Energy-efficient alternatives such as compact fluorescent bulbs (CFLs) and light emitting diodes (LEDs) are expected to gain a larger U.S. market share after EISA is implemented, but government estimates project that incandescent bulbs will be widely available, and widely used, for years to come (see Figure 1 ). U.S. and foreign manufacturers have developed higher-efficiency halogen incandescent bulbs, available at many U.S. retailers, which meet the law's minimum standards for electricity savings. The total number of light bulbs purchased annually is forecast to decline in future years as technological advances increase the life of the products. The lighting provisions of EISA have created controversy, however. Opponents say the federal government should not mandate the type of light bulbs consumers should buy, or the market should produce. Previous lighting conservation efforts carried out by states and utilities have had limited success, in part, because people have not been satisfied with the quality of light produced by replacement products, mainly compact fluorescent bulbs (CFLs), and have been concerned about the fact that small amounts of mercury are contained in the bulbs. Consumers also have expressed concerns about possible lack of access to affordable light bulbs. The initial cost of CFL or LED bulbs can be substantially higher than conventional incandescent bulbs, even though they are cheaper in the long run due to long life and lower energy consumption. Some companies shut down domestic incandescent bulb factories rather than retool machinery to make more efficient products. On the state level, Texas Governor Rick Perry in July 2011 signed HB 2510, to allow continued sale, within the state, of incandescent light bulbs produced in Texas even if they did not meet federal standards. South Carolina has been debating similar legislation: a bill was introduced in 2011 but died in the state Senate. Arizona passed a similar bill in 2010, which was vetoed by Governor Jan Brewer. By comparison in California, which began implementing the EISA standards a year early in January 2011, the California Energy Commission has reported no significant consumer complaints about cost or performance of replacement products. That may be in part because many stores in California still have stocks of traditional incandescent bulbs, purchased before the new standards went into effect. The House, by voice vote on July 15, 2011, passed an amendment offered by Representative Burgess to the FY2012 Energy and Water Development Appropriations Bill ( H.R. 2354 , Amendment 29) to prohibit DOE from using funding to implement and enforce the incandescent light bulb standards. On December 23, 2011, President Barack H. Obama signed the Consolidated Appropriations Act, 2012 ( P.L. 112-74 ). Title III provided FY2012 appropriations for DOE, including identical language to the Burgess amendment that bars the use of any FY2012 DOE funds to enforce the standards. Continuing resolutions for FY2013 and FY2014 kept the prohibition intact. For FY2015, the same prohibition was adopted into the House-passed Energy and Water Development Appropriations bill ( H.R. 4923 ). The DOE enforcement amendment may have only limited impact. The EISA provisions remain in effect. Executives of major lighting companies have said they will comply with the 2007 statute. Further, the funding limitation does not appear to curtail the ability of the FTC or state attorneys general, for example, to enforce provisions of the law. Major lighting industry executives argue that outright repeal of the lighting provisions of EISA could undercut energy conservation efforts as well as efforts to manufacture next-generation products such as LEDs, where U.S. companies have a technological edge. Indeed, the standards are taking effect at a time when the lighting industry is undergoing another, revolutionary change. Venture capital is flowing into companies in the United States, and abroad, that are developing LED products. LEDs are not only more energy-efficient—most exceeding standards in EISA—but they allow the industry to devise integrated fixtures that can be specially programmed to emit differing colors and types of light for various needs. The technology also has potential for communications and other applications. The LED industry already is the fastest-growing part of the global lighting market, propelled by technological breakthroughs and higher demand spurred in part by energy-efficiency laws in the United States and other nations. Some analysts project that LEDs could make up about half the global lighting market by 2020. The Obama Administration opposed efforts to repeal EISA, noting that the industry has invested to prepare for the new standards and to develop next-generation lighting. Through various research and development, loan, and grant programs, DOE has invested millions of dollars into building the domestic LED manufacturing industry, noting that the U.S. lighting industry has lost "most, if not all, of its incandescent and CFL manufacturing to Asian countries in the last two decades," because it could not match production costs and other incentives offered by foreign governments. With the industry looking past existing technologies such as CFLs and halogen bulbs, LEDs present new U.S. manufacturing possibilities. LED technology already has reached a point where large and small manufacturers have access to investment capital and competition is fierce, but public policy could play an important role by stimulating demand, and providing research and development and startup assistance. EISA imposes higher efficiency standards for manufacturers and importers of screw-base light bulbs. On January 1, 2012, higher standards took effect for 100-watt bulbs. Tighter standards for 75-watt bulbs followed on January 1, 2013, and for 60- and 40-watt bulbs on January 1, 2014 (see Table 1 ). While the law requires firms to cease producing or importing bulbs that do not meet the higher standards on the effective dates, it does not preclude manufacturers or retailers from selling existing inventory. EISA also set standards for bulbs used in candelabra and so-called intermediate base bulbs (such as refrigerator and oven bulbs). At the request of industry, DOE announced a delay enforcing higher standards for those products by one year, to January 1, 2013. Another 22 types of bulbs are exempt from higher standards, including three-way light bulbs and black lights. Consumers could use some of these exempt bulbs as replacements for traditional incandescent bulbs (see Appendix ). In addition, DOE in 2009 issued higher efficiency standards for fluorescent tube lighting, commonly used in retail and industrial establishments, and incandescent reflector bulbs, which took effect in July 2012. EISA directed DOE to initiate a rulemaking by January 1, 2014, to review and determine whether more stringent standards should be set for general service, screw-in light bulbs, which would take effect in 2020. The law requires DOE to consider using a minimum efficiency level of 45 lumens per watt, which could require general service bulbs to be at least 70% more efficient than existing incandescent bulbs. Most CFLs and LEDs already meet that standard. The lighting industry has geared up to meet the first-tier standards, which began nationally in January 2012. Many of the higher efficiency screw-in bulbs available to consumers generally carry higher retail prices than conventional incandescent bulbs, though there is considerable variability among products. Consumers could save significant money over the life of many higher efficiency bulbs, however, because they use less electricity than incandescent bulbs and could last far longer than the bulbs they will replace. Nevertheless, high initial cost remains a concern for many consumers. Several existing technologies would meet the EISA standards: Halogen incandescent bulbs. A more efficient version of the standard bulb, this bulb contains a tungsten filament like a standard incandescent, but also a halogen gas capsule that allows it to emit more light with less energy. Halogen incandescent bulbs are about 25% more energy-efficient than traditional incandescent bulbs, according to DOE. The bulbs retail on average for about $1.50 each, compared to about 50 cents for an existing incandescent bulb. While the bulbs are more efficient, and some can last three times as long as traditional incandescents, others last only about as long as standard incandescent bulbs. According to one analysis, the total cost of halogen incandescent bulbs may be equivalent to that of regular incandescent bulbs over the total life of the product. Other analyses predict a small savings if retail prices for the bulbs decline. Compact fluorescent bulbs work by exciting electrons that strike phosphorus coatings. CFLs are about 75% more energy-efficient than traditional incandescent bulbs and burn an estimated 10 times as long. The CFLs have been around for decades, but have had difficulty gaining consumer acceptance because of complaints they emitted a harsh light, did not last as long as advertised, and were bulkier than incandescent bulbs. The bulbs contain traces of mercury, making disposal more difficult, though a number of retailers such as Home Depot recycle the product. The industry has improved CFLs, giving them a more traditional shape and warmer color of light, and has made some that are compatible with dimmable fixtures. CFLs can cost from $0.50 each in a multipack in a big box store to $9.99 in a single pack in an office supply store. Given their lower cost of operation and longer life, consumers could see a payback on the multipack CFL purchase price in less than a year and save $50 over a 10,000-hour life of a bulb. Light-emitting diodes, or solid-state lights, produce light when a current is passed through a semiconductor material. Viewed as a major breakthrough in lighting technology, LEDs are estimated to produce 75%-80% energy savings compared to traditional incandescent bulbs. LEDs can have an estimated lifetime of 50,000 hours or more, though durability varies depending on room placement, ambient temperature and other factors. Some LED products such as under-cabinet and Christmas tree lights are readily available in lighting and hardware stores. But LEDs have not yet made major inroads as replacements for incandescent screw-in bulbs due to their higher cost and a dearth of higher-wattage products. LEDs designed to replace conventional light bulbs can cost up to $20 per bulb, though prices are falling rapidly. In the summer of 2014, Home Depot carried a $20 screw-in LED that is the equivalent of a 100-watt bulb. Similarly, 60-watt equivalent bulbs were selling for $16 and 40-watt equivalent bulbs were selling for $14. In terms of reduced cost of operation, LEDs would have to fall to near $5 per bulb for consumers to see a payback in less than a year. Retailers and DOE are providing consumer information about the replacement bulbs, as are the media. EISA directed the Federal Trade Commission to examine the effectiveness of light bulb labeling. In response, the FTC crafted a new packaging label for light bulbs. The label, which resembles the nutrition label on food, includes information on brightness, the estimated yearly cost of using the bulbs, the expected life of the product, the color of light produced and the mercury content, if any. The labels, as well as second-tier standards to be issued in 2020, focus on lumens—a measure of brightness—rather than wattage, which is a measure of energy use (see Figure 2 ). Some analysts note that the FTC label does not readily help consumers compare wattage on new products to former products, which would allow them to more easily buy an efficient bulb that is equivalent to an incandescent 60-watt bulb. Current bulbs can also emit a dimmer light than the bulbs they are replacing because of the lumens range allowed in the regulations. Some analysts worry that consumers will trade up to a higher wattage-equivalent bulb to increase brightness, undercutting potential energy savings of the law. The Energy Information Administration estimates that, in 2010, residential and commercial consumers used about 507 billion kilowatt-hours (kWh) of electricity for lighting—about 13.5% of total U.S. electricity consumption. Residential lighting consumed about 207 billion kWh, or about 14% of all residential electricity use. Commercial users, which include commercial and institutional buildings and public street and highway lighting, accounted for nearly 300 billion kWh, or about 22% of commercial electricity consumption. In addition, EIA's most recent data indicate that manufacturing lighting was about 2% of total U.S. electricity use in 2006. Incandescent bulbs have traditionally been used for about 85% of household lighting. In the office, commercial, and industrial sector, however, the majority of light is provided by fluorescents—mainly the long tubes found in ceiling fixtures. Overall, in 2009 conventional incandescent bulbs provided about 12% of the total light delivered in the United States. The $11 billion U.S. lighting industry includes companies that produce light bulbs, component parts, and light fixtures for residential, commercial, and industrial use. Major international companies manufacturing lighting or lighting components in the United States include Philips Lighting, GE, and Osram Sylvania. (For information on LED manufacturing see " Next-Generation LEDs .") Prominent lighting fixture and equipment manufacturing companies include Hubbell Lighting, Cooper Lighting, Juno Lighting Group, and Acuity Brands. The National Electrical Manufacturers Association (NEMA) in 2010 estimated there were 12,000-14,000 U.S. jobs in light bulb manufacturing, marketing, and research and development. The U.S. lighting industry—including light bulb, component, and fixture production—has shrunk, both in output and employment, during the past several decades due to heightened competition from abroad, including lower-cost production in China and Mexico (see Table 2 ). Some companies, such as GE, have closed U.S. factories that made incandescent bulbs due to global competition, changing federal and state energy standards, and other factors that rendered the plants obsolete. The consolidation has been occurring for some time. GE announced in 2007 that it would close a number of plants in the United States and Brazil. The company noted in its announcement that demand for traditional incandescent bulbs had been falling for years: "The market for traditional household incandescent light bulbs has declined by half over the past five or so years, according to data from the National Electrical Manufacturers Association. This has created considerable overcapacity, rising costs and inefficiencies across our manufacturing system." At the same time large lighting manufacturers are closing facilities, some are opening or refitting others to manufacture more competitive products. Osram Sylvania, which has U.S. facilities in New Hampshire, Illinois, Pennsylvania, and Kentucky, has refitted a factory in St. Marys, PA, to make halogen incandescent bulbs. GE closed plants in North Carolina and Virginia, but has invested $60 million to expand a facility in Ohio, including increasing fluorescent lighting production. GE and Philips are making some components for halogen incandescent bulbs in the United States. It is not possible from publicly available data to determine all the factors contributing to manufacturers' decisions to close certain production facilities, but lighting standards appear to be only one issue. Most of the incandescent and CFL bulbs used in the United States are imported. Light bulb imports, as a share of U.S. consumption, more than doubled from 1989 to the mid-2000s, according to one analysis. The United States in 2010 imported $6 billion more in lighting products than it exported, with China accounting for 65% of imports, while Mexico was second with 13%. Between 1996 and 2007, Chinese production of CFLs rose 30-fold, making it the world leader in production and exports. China's rapid expansion has led to questions about quality, with U.S. Agency for International Development working with China on product and safety quality controls such as more stringent oversight, heightened control of hazardous substances such as mercury, and better supervision of product distribution. Separately, there is a significant public-private partnership underway to encourage U.S. LED manufacturing (see " Next-Generation LEDs "). EISA was intended to both improve energy efficiency and rationalize manufacturing by setting uniform, national light bulb standards. The NEMA, which represents 95% of U.S. lighting manufacturers, in 2007 testimony to the Senate Energy and Natural Resources Committee, endorsed the light bulb proposals, saying that federal standards were needed to keep the industry competitive and to limit uncertainty as states and foreign governments moved to impose higher efficiency standards. The group pointed out that Connecticut, Rhode Island, California, and Nevada were among states that at that time were considering laws or regulations to impose more stringent, and possibly conflicting, lighting energy-efficiency standards. California in 2007 passed AB 1109, which requires a 50% increase in efficiency for residential general service lighting by 2018. In addition to state activity, Australia, the European Union, and Canada are among countries and regions that have upgraded lighting standards, another factor shifting world production toward more efficient products. NEMA reaffirmed its support for the federal law in March 2011 testimony to the Senate Natural Resources and Energy Committee. While some other industry officials voiced support for the light bulb standards at that hearing, a longtime lighting designer opposed the standards, saying the energy savings would not be as high as forecast, consumer costs could rise, and the law took away consumers' freedom of choice. DOE predicts that the lighting provisions of EISA will reduce energy use and provide cost savings to consumers. U.S. primary energy consumption could fall by 21 quadrillion British Thermal Units (BTU) and greenhouse gas emissions could decline by 330 million metric tons over the next 30 years. Those forecasts depend on factors including consumer choice of bulb, which in turn depends on variables like purchase price and product satisfaction. Other considerations in terms of total energy savings include whether more efficient bulbs are placed in high usage areas of a home, and whether the bulb actually meets forecasts for efficiency and longevity. Experience shows that it can be difficult to get consumers to embrace new lighting products. Significant energy savings can be realized only when there is widespread acceptance of energy-saving technology. That has been the case with CFLs, which have been on the U.S. market since the 1970s. States and utilities have promoted CFLs as part of programs to reduce energy use. Some utilities gave CFLs to customers at no cost, while others provided millions of dollars in subsidies for purchase of the products. American consumers increased purchases of CFLs, as shown by import and usage data ( Figure 1 and Figure 2 ), but still used incandescent bulbs for most of their lighting, citing factors including the higher price for the CFLs and concerns about light quality and mercury contained in the products. CFL sales declined in 2009 to 272 million units, from 397 million units in 2007. The recent decline may be due to a number of factors. Sales figures may have been affected by the recession, which made consumers less likely to switch to bulbs with a higher up-front cost. Shipments may also be affected by the fact that CFLs last longer, meaning consumers do not buy as many bulbs. Also, some subsidy and promotion programs ended. The lighting industry appears to have responded to consumer concerns by producing a range of replacement options for traditional incandescent bulbs. U.S. and foreign manufacturers have developed higher-efficiency halogen incandescent bulbs, available at many retailers, that meet the requirements for 25%-30% energy savings and may overcome some consumer reluctance to embrace energy-saving lighting technologies such as CFLs. Indeed, energy savings under EISA could be near the low end of DOE projections if halogen incandescent bulbs, which sell for a price near that of conventional incandescent bulbs, turn out to be consumers' main replacement choice. In addition, EISA exempts a number of commonly used incandescent bulbs from efficiency standards. Some of the exempted bulbs can also be used as replacements for standard incandescent products, which would negate some potential energy savings from more efficient technologies (see Appendix ). The lighting sector is going through another potentially historic transformation with advances in LED technology. LED efficiency depends both on the light source and the fixture in which it is placed. Depending on the package, some LEDs can be about 10 times as efficient as incandescent bulbs and as much as twice as efficient as CFLs. Solid-state lighting, a semiconductor-based technology that coverts electrical energy into light, is already the fastest-growing part of the global lighting industry and is expected by some analysts to make up one-third of the U.S. lighting market, on a unit basis, and three-fourths of the market, on a revenue basis, by 2015. Solid-state lighting has been adopted by industry, commercial businesses, and municipalities, with the main applications currently in electronics such as TVs, computers and smart phones, traffic lights and auto tail lights. LEDs are starting to move into the residential market. While 40-watt and 60-watt equivalent replacement bulbs appeared in the marketplace during 2013, products at higher 75-watt and 100-watt equivalent levels just began to appear during the spring and summer of 2014. Retail prices of LEDs are still much higher than for traditional incandescent bulbs, but are falling. Since the late 1960s, LED light output has increased by a factor of 20 each decade, while the cost per lumen has fallen by a factor of 10. The industry projects similar or faster cost reductions going forward. With technology advancing, some analysts project that general use LED bulbs could fall to a price of $5 within 10 years. However, because LED prices are still significantly more than for other replacements for incandescent lamps, consumer adoption initially could be limited. The development of LED technology and markets is a global pursuit. Major companies investing in the LED arena include Philips Lighting, GE, and Osram Sylvania. Among U.S. companies are Cree of North Carolina; the Lighting Science Group in Florida; Feit Electric of California; Switch of California; Vu 1 lighting in New York; and Bridgelux in California. The firms are competing with start-up companies and established manufacturers like Toshiba and other foreign firms. U.S.-based manufacturers Cree and Philips Lumileds together have about 11.5% of worldwide LED production. The North American LED bulb market is expected to grow from $3.6 billion in 2010 to more than $11 billion in 2015, partly due to stricter lighting efficiency standards that are being introduced in the United States, Canada, and Mexico, according to analysts. In 2010, global LED production had a projected value of $9.9 billion. Global value could reach $18 billion by 2015. Major LED manufacturing nations are shown in Figure 4 . LEDs magazine, which produces an annual guide to solid state lighting industry suppliers, lists hundreds of affiliated makers and suppliers in the United States. The companies run the gamut from semiconductor producers to specialty firms that make hospital and other lighting. Another lighting technology under development is organic light-emitting diodes, or OLEDs, where light is produced by a chemical reaction. The OLED technology is used in commercial electrical appliances such as color display screens. While the lighting market has been divided between companies producing light bulbs and companies producing fixtures, the two sectors will become more integrated if LED usage expands as forecast. According to DOE: The ultimate value of SSL [solid state lighting], including its energy efficiency potential, is not in the production of replacements for incandescents or CFLS, but in the development of integrated luminaires that serve a particular function. Fixtures and even replacement lamps must be specifically designed to accommodate light-emitting diode (LED) light sources properly; failure to do so will result in poorly performing, unreliable products. As with the introduction of CFLs, there are potential barriers to consumer acceptance of LEDs. Testing by DOE and others has found variations in product performance. For example, a recent article notes that China's manufacturing capacity—which now accounts for more than 30% of world LED production capacity—puts out products that often have problems with light quality and short lifetimes. The outlook for U.S. manufacturing is unclear. China and other countries are offering tax breaks and other incentives to lure existing companies. China is also expanding production of its domestic industry. The rapidly changing nature of products and technology is another factor affecting profitability. LED firm Cree in its 2011 Annual Report noted that the industry is "in the early stages of adoption and is characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving standards, short product life-cycles and fluctuations in product supply and demand." China has not only invested heavily in LED production, but is a chief supplier of rare earth minerals needed to produce LEDs. The cost and availability of materials used for fluorescent and LED bulbs, including phosphorus and gallium, is a potential issue going forward. DOE has been working with private industry to foster U.S. LED manufacturing. The Energy Policy Act of 2005 ( P.L. 109-58 ) created the Next Generation Lighting Initiative to support research, development, and commercial application of LED technology. DOE has used its authority under the 2005 law to develop a commercialization plan and is funding eight LED manufacturing projects designed to reduce costs and improve products. EISA directed DOE to have the National Academy of Sciences prepare a report on the status of advanced solid state lighting (SSL) technology. Published in 2013, the report made a wide range of technological and policy findings. The technology findings include: LED and organic LED (OLED) efficiency and performance are limited by materials issues; the development of robust OLEDs requires R&D on degradation resistance and materials to extend the operational lifetimes; and technological and manufacturing breakthroughs are needed to make LED-based luminaires and lamps with high efficacies with prices lower than those for fluorescent fixtures. The policy findings include: DOE's SSL program should be increased (if possible); DOE should seek 50% cost sharing for manufacturing projects; and DOE should lead a study that evaluates the effectiveness of lighting efficiency incentives. DOE also used funds from the American Recovery and Reinvestment Act of 2009 for LED manufacturing research and development, with the goals of improving domestic efficiency and avoiding "the loss of technological expertise, intellectual property and manufacturing jobs to other countries." Other efforts include improving the consistency and quality of LEDs through DOE's Commercially Available LED Product Evaluation and Reporting program, known as CALiPER. Another federal law that helped spur energy-efficient lighting was the Commercial Building Tax Deduction Program. It provided incentives through 2013 for energy-efficiency measures including lighting equipment. The program covered new construction and upgrades to existing buildings. So-called green building is the fastest-growing part of the construction industry, including Leadership in Energy and Environmental Design (LEED) building criteria that focus on site, water, energy, materials, and indoor environment. The lighting industry has spent billions of dollars to meet the requirements of EISA and to advance LED research and development. The rapid technological pace of change in an industry that largely relied on incandescent technology for more than 100 years has created some unease among businesses, lawmakers, and consumers about product availability and cost; possible job loss; and more broadly about the role of government in mandating consumer product choices. Congress has a long-established record in the energy-efficiency area. The recent lighting standards are one in a series of home appliance and commercial equipment standards mandated by Congress to reduce overall energy use. The EISA lighting provisions, in concert with tighter standards in other countries, are helping to spark increased demand for new, more efficient products worldwide. Industry analysts add, however, that many changes now underway in the U.S. lighting industry would have occurred without EISA because of existing requirements in other countries and the pace of LED technology developments. Early indications are that the lighting industry has developed a range of products, including halogen incandescent bulbs, that meet the EISA efficiency standards and are widely available at a price point close to that of conventional incandescent bulbs. Consumers will have more and possibly confusing choices about purchasing replacement light bulbs, some of which are likely to perform better than others. Going forward, one major question is how much LED manufacturing will stay in the United States. U.S. manufacturers have been moving operations overseas for decades to capture lower production costs and secure necessary materials. Long-term manufacturing trends are unclear given major efforts in China and other Asian countries to increase production (see Figure 4 ). Industry officials have called for an expanded federal-business effort to build LED fabrication facilities and increase domestic capacity and have warned that delaying the EISA implementation could reduce energy savings and delay the transition to next-generation lighting products. EISA exempts 22 types of traditional incandescent bulbs, or lamps, from the energy-efficiency standards. DOE will monitor sales of these exempted products as the legislation is implemented. If any one of the exempted lamp types doubles in sales, EISA requires DOE to establish an energy conservation standard for the particular bulb type. The provision is designed to ensure that none of the exempted products take market share from bulbs affected by the new efficiency standards. Appliance lamp Black light lamp Bug lamp Colored lamp Infrared lamp Left-hand thread lamp Marine lamp Marine's signal service lamp Mine service lamp Plant light lamp Reflector lamp Rough service lamp Shatter-resistant lamp (including shatter-proof & shatter-protected) Sign service lamp Silver bowl lamp Showcase lamp 3-way incandescent lamp Traffic signal lamp Vibration service lamp G shape lamp (as defined in ANSI C78.20-2003 and C79.1-2002) with a diameter of 5" or more T shape lamp (as defined in ANSI C78.20-2003 and C79.1-2002) and that uses no more than 40W or has a length of more than 10" B, BA, CA, F, G16-1/2, G-25, G-30, S, or M-14 lamp (as defined in ANSI C78.20-2003 and C79.1-2002) of 40W or less. | More than 4 billion incandescent light bulbs (sometimes referred to as "lamps") are in use in the United States. The basic technology in these bulbs has not changed substantially in the past 125 years, despite the fact that they convert less than 10% of their energy input into light. Improving light bulb performance can reduce overall U.S. energy use. About 20% of electricity consumed in the United States is used for lighting homes, offices, stores, factories, and outdoor spaces. Lighting represents about 14% of residential electricity use. The Energy Independence and Security Act of 2007 (EISA, P.L. 110-140) imposed higher efficiency standards for manufacturers and importers of general use, screw-base light bulbs commonly used in residential fixtures, that began January 1, 2012. EISA did not ban incandescent light bulbs. Instead, the law mandated that bulbs manufactured or imported after phase-in dates specified in the bill meet higher efficiency standards—about 25%-30% more efficient on average. The law allows industry to determine which products best meet those requirements. On December 23, 2011, President Barack H. Obama signed the Consolidated Appropriations Act, 2012 (P.L. 112-74). Title III of the law provided FY2012 appropriations for the Department of Energy (DOE), including language barring use of any DOE funds to enforce the lighting standards. That prohibition remains in effect. Lawmakers have cited several reasons for efforts to delay or repeal the law, including consumer concerns about lack of access to affordable incandescent light bulbs, and reports that companies have shut down incandescent bulb factories because they could not afford to retool to make more efficient products. While DOE predicts that energy-efficient alternatives such as compact fluorescent bulbs (CFLs) and light-emitting diodes (LEDs) will gain a larger U.S. market share after EISA is implemented, it also forecasts that incandescent bulbs will be widely available, and widely used, for years to come. U.S. and foreign manufacturers have developed higher-efficiency halogen incandescent bulbs, available at retailers, that meet the law's minimum standards for 25%-30% electricity savings (compared to 75%-80% savings from CFLs and LEDs) and are competitive in price. The Obama Administration and major lighting companies oppose efforts to repeal the 2007 law, noting that the industry has invested billions of dollars to prepare for the new standards and develop next-generation lighting. The new light bulb standards are taking effect at a time when the lighting industry, due to advances in LED products that often exceed EISA standards, is undergoing the most sweeping technological changes in decades. The LED industry is producing not just more efficient bulbs, but integrated fixtures that can be specially programmed to emit differing colors and types of light and have other potential applications. DOE has been funding solid state lighting research projects to bolster the LED industry, which is already the fastest-growing part of the global lighting market. Some analysts project that LEDs will make up at least half the global lighting market by 2020, driven by technical breakthroughs and enhanced demand from energy-efficiency laws in the United States and other nations. Some lighting executives argue that repealing EISA could undercut LED manufacturing efforts, where U.S. companies have a technological edge. The vast majority of the incandescent and CFL light bulbs Americans now use are imported from China and Mexico. China and other countries are investing heavily in LED production. |
The Senate may consider providing its advice and consent to U.S. ratification of the United Nations (U.N.) Convention on the Rights of Persons with Disabilities (CRPD, or the Convention) during the 114 th Congress. CRPD is the only multilateral treaty that specifically aims to protect the rights of those who are disabled. To date, 151 countries have ratified or acceded to the Convention. It has been signed by 159 countries, including the United States. President Barack Obama signed CRPD on behalf of the United States on July 30, 2009. He transmitted it to the Senate for advice and consent to ratification in May 2012, where it was received and referred to the Committee on Foreign Relations (SFRC). The committee reported the Convention favorably to the full Senate on July 31, 2012, by a vote of 13 in favor and 6 against, subject to three reservations, eight understandings and two declarations. On December 4, the full Senate voted against providing advice and consent to ratification of CRPD by a vote of 61 to 38. When the 112 th Congress adjourned, the treaty was automatically returned to SFRC. Most recently, on July 28, 2014, SFRC favorably reported CRPD to the full Senate by a vote of 12 in favor and 6 against, subject to three reservations, nine understandings and two declarations. The full Senate did not consider the treaty. CRPD was automatically returned to SFRC at the end of the 113 th Congress. Generally, issues related to disability rights have received bipartisan agreement in Congress, and there has been support for CRPD among some Senators from both parties. Many policy makers—including those in the Obama Administration—agree that existing U.S. laws are generally in line with CRPD's provisions, and that no U.S. laws or policies would change as a result of U.S. ratification of the Convention. At the same time, other policy makers contend that ratification of CRPD would adversely affect U.S. sovereignty and interests. During Senate debates on CRPD ratification, a number of issues were discussed and may continue to be points of contention during the 114 th Congress. For example, some policy makers have expressed concern regarding the Convention's possible impact on existing U.S. laws and policies, particularly the role and authority of CRPD's monitoring body, the Committee on the Rights of Persons with Disabilities. (The committee makes non-binding recommendations and has no authority over U.S. law.) Senators may also debate the potential benefits to U.S. ratification, such as the ability of the United States to advocate and share its experiences regarding the rights of disabled persons in global fora, and improved disability rights for U.S. citizens living and traveling abroad. Another key area of debate includes the impact of U.S. ratification, if any, on parental rights, particularly regarding decisions related to the education of disabled children. Some policy makers have also raised questions about CRPD's possible impact on healthcare—including the extent to which, if any, the Convention addresses existing laws and policies related to abortion. CRPD and its Optional Protocol were adopted by the U.N. General Assembly in December 2006. The treaty was opened for signature on March 30, 2007, and entered into force on May 3, 2008. Many experts view CRPD's adoption as the culmination of a gradual shift in international perceptions toward persons with disabilities from "objects" of charity, medical treatment, and social protection to "subjects" with fundamental rights who are able to make life decisions based on free and informed consent and as active members of society. The overall purpose of CRPD is to promote, protect, and ensure the full and equal enjoyment of all human rights and fundamental freedoms by all persons with disabilities. States Parties agree to "undertake to ensure and promote the full realization of all human rights and fundamental freedoms for all persons with disabilities without discrimination of any kind on the basis of disability." The Convention sets broad goals of autonomy, equality, acceptance, and accessibility for individuals with disabilities. It does not provide a definition of "disability." It acknowledges that the term is an "evolving concept" that results from "the interaction between persons with impairments and attitudinal and environmental barriers that hinders full and effective participation in society on an equal basis with others." (For example, a person in a wheelchair might fail to gain employment not because he or she uses a wheelchair, but because environmental barriers—such as stairs, lack of ramps, or insufficient transportation—impede access to the work place.) Parties to CRPD agree to take appropriate measures to carry out a range of policies, laws, and administrative measures. The Convention's provisions can grouped into five general themes: Equality and non-discrimination —CRPD prohibits discrimination and requires States Parties to recognize that "all persons are equal before and under the law and are entitled without any discrimination to the equal protection and equal benefit of the law." Accordingly, States Parties are required to take steps to ensure that reasonable accommodations are provided to persons with disabilities. Accessibility and personal mobility —States Parties must take measures to ensure that persons with disabilities have equal access to the physical environment, to transportation, to information and communications, and to other facilities open or provided to the public. States Parties also must ensure "liberty of movement" and freedom of disabled persons to choose their nationality and residence on an equal basis with others. Education —States Parties are required to "ensure an inclusive education system at all levels." Persons with disabilities must be offered the same opportunities for free primary and secondary education as others in their communities, and their individual requirements must be reasonably accommodated. Within the general education system, persons with disabilities shall receive the support required "to facilitate their effective education." Work and employment —CRPD recognizes the right of disabled persons to work on an equal basis with others in an environment that is "open, inclusive and accessible to persons with disabilities." Parties agree to prohibit employee discrimination against disabled persons and, if necessary, to adopt laws barring such discrimination in the employment process, including recruitment, hiring, retention, promotion, and termination. Health —The Convention calls on States Parties to ensure that persons with disabilities have equal access to the same range, quality, and standard of free or affordable health care and programs as provided to other persons—including in the areas of sexual and reproductive health. Under the Convention, health care professionals must provide equal care to persons with disabilities. CRPD offers other broad legal protections, such as ensuring that persons with disabilities are not deprived of liberty, either unlawfully or arbitrarily. In addition, States Parties are required to take measures to protect disabled persons from exploitation and violence and abuse, as well as in emergency situations such as armed conflict, humanitarian crises, and natural disasters. States Parties must also take steps to ensure that persons with disabilities are able to attain and maintain maximum independence through comprehensive habilitation and rehabilitation services. Parties must also guarantee equal political rights for disabled persons, including voting protection and political participation. The Optional Protocol to the CRPD establishes two procedures aimed at strengthening implementation and monitoring of the Convention. The first is an individual communications procedure that allows individuals or groups of individuals from States Parties to bring petitions to the committee claiming breaches of their rights. The second is an inquiry procedure that authorizes the committee to undertake inquiries of grave or systematic violations of the Convention. The Optional Protocol, which entered into force on May 3, 2008, has been signed by 92 countries and ratified or acceded to by 85 countries. The United States has not signed or ratified the Optional Protocol. Under Article 40 of CRPD, the Conference of States Parties—composed of States Parties to the Convention—has the authority to consider any matter with regard to implementation of the Convention. The Conference has met four times since CRPD entered into force in 2008. Participants have discussed issues ranging from accessibility and reasonable accommodation to CRPD's role in achieving the Millennium Development Goals. The Committee on the Rights of Persons with Disabilities, established under Article 34 of CRPD, is the monitoring body of the Convention. It is composed of 18 independent experts elected by the Conference of States Parties, taking into account geographic distribution. States Parties are required to submit periodic reports to the committee on their implementation of CRPD, including an initial report within the first two years of ratification or accession and regular reports every four years. The committee examines each report and makes suggestions and general recommendations to the concerned States Parties. Under the CRPD Optional Protocol, the committee may examine individual complaints regarding alleged violation of the Convention by States Parties to the Protocol. The committee meets about twice a year in Geneva, and to date has held 12 sessions. On July 30, 2009, President Obama signed the Convention. The Administration transmitted it to the Senate for advice and consent to ratification on May 17, 2012, where it was received, referred to the Committee on Foreign Relations (SFRC), and placed on the committee calendar. In his letter of transmittal, the President expressed his support for U.S. ratification of CRPD, stating that it would "position the United States to occupy the global leadership role to which our domestic record already attests." The Administration proposed three reservations, five understandings, and one declaration to accompany the treaty: a federalism reservation , which states that U.S. obligations under CRPD are limited to those measures appropriate to the federal system, such as the enforcement of the Americans with Disabilities Act; a private conduct reservation , which states that the United States does not accept CRPD provisions that address private conduct, except as mandated by U.S. law; a torture or cruel, inhuman, or degrading treatment reservation , which states that persons with disabilities are protected against torture and other degrading treatment consistent with U.S. obligations under the U.N. Convention Against Torture and Other Cruel, Inhuman, or Degrading Treatment or Punishment, and the International Covenant on Civil and Political Rights; a first amendment understanding , which says that the United States understands that CRPD does not authorize or require actions restricting speech, expression, or association that are protected by the Constitution; an economic, social, and cultural rights understanding , which says the United States understands that CRPD prevents disability discrimination with respect to economic, social and cultural rights, insofar as such rights are recognized and implemented under U.S. law; an equal employment opportunity understanding , which states that the United States understands that U.S. law protects disabled persons against unequal pay, and that CRPD does not require the adoption of a comparable framework for persons with disabilities; a uniformed military employee hiring understanding , which states that the United States does not recognize rights in the Convention that exceed those under U.S. law in regards to military hiring, promotion, and other employment-related issues; a definition of disability understanding , which states that CRPD does not define "disability" or "persons with disabilities," and that the United States understands the definitions of these terms to be consistent with U.S. law; and a non-self executing declaration , which states that no new laws would be required as a result of U.S. ratification of CRPD. The federalism reservation and non-self executing declaration are standard RUDs that have accompanied nearly every treaty transmitted to the Senate by the President in modern times. Policy makers have also proposed private conduct reservations for several human rights treaties because of the potential impact on the private lives of U.S. citizens. Other RUDs proposed by the Administration, including the understanding addressing the definition of disability, are tailored to specific CRPD provisions. The Obama Administration's support for the Convention is a marked departure from President George W. Bush's policy toward the Convention. During CRPD negotiations between 2003 and 2006, the Bush Administration indicated that because disability issues were in the purview of domestic policy and law, "the United States had no intention of becoming party to the treaty." The Bush Administration did, however join consensus on the General Assembly resolution that adopted the treaty and opened it for signature. Neither President Bush nor President Obama signed, or indicated intent to sign, the Convention's Optional Protocol. On July 31, 2012, the Senate Foreign Relations Committee (SFRC) reported CRPD favorably to the full Senate by a vote of 13 in favor and 6 against. To address the concerns of some opponents, the committee agreed to the following understandings and declarations (in addition to or modifying the aforementioned RUDs proposed by President Obama): On December 4, 2012, the Senate voted against providing advice and consent to ratification of CRPD by a vote of 61 to 38. With a few exceptions, the vote was split along party lines: 55 Democrats and 6 Republicans voted in favor of the treaty, and 38 Republicans voted against it. At the adjournment of the 112 th Congress, CRPD was returned to SFRC in accordance with Senate rules. Majority Leader Harry Reid stated that if the treaty were voted favorably out of SFRC during the 113 th Congress, he planned to bring CRPD "up for a vote" in the Senate. SFRC held hearings on the treaty on November 6 and November 21, 2013. During hearings and debates leading up to the votes in SFRC and the full Senate, Senators focused on the Convention's possible impact on U.S. sovereignty, particularly the impact of the recommendations of the Disabilities Committee on domestic laws and policies, as well as the potential effect U.S. ratification might have on existing U.S. abortion laws. Some Members also argued that treaties should not be considered during a lame duck session of Congress. Thirty-six Senators signed a letter to Majority Leader Reid and Minority Leader Mitch McConnell stating that Members of the 113 th Congress should be "afforded the opportunity to review and consider any international agreements that are outstanding at the time of their election." Opponents of this position noted that since the 1970s, the Senate has provided its advice and consent to ratification of treaties 19 times during lame duck sessions. On July 22, 2014, SFRC reported the treaty favorably by a vote of 12 in favor and 6 against, subject to three reservations, nine understandings, and two declarations. These RUDs were similar to those agreed to in 2012 and 2013, with one additional condition. Specifically, the committee agreed to a homeschooling understanding , which states, "Nothing in the Convention limits the rights of parents to homeschool their children." The full Senate did not consider providing its advice and consent to ratification. The treaty was automatically returned to SFRC at the end of the 113 th Congress. The U.N. Convention on the Rights of Persons with Disabilities requires States Parties to adopt "all appropriate legislative, administrative and other measures" to implement its provisions. As previously discussed, CRPD sets forth obligations for States Parties in a range of contexts, including accessibility, education, employment, equal rights, and health. The language of the Convention is broad and generally does not provide specific standards or requirements. State Parties must thus consider whether existing laws satisfy CRPD requirements or whether new measures may be required for compliance. Generally, many U.S. policy makers agree that existing U.S. laws and policies are compatible with the Convention. For example, in his letter of transmittal to the Senate, President Obama stated that existing U.S. law is "consistent with and sufficient to implement the Convention, including the Americans with Disabilities Act (ADA), the Rehabilitation Act, and the Individuals with Disabilities Education Act (IDEA)." In addition, SFRC adopted, by a vote of 14 in favor and 5 against, a declaration to accompany CRPD which states that "current United States law fulfills or exceeds the obligations of the convention for the United States." In its executive report, SFRC also noted that "[t]he United States has a comprehensive network of existing federal and state disability laws and enforcement mechanisms" and that "[i]n the large majority of cases, existing federal and state law meets or exceeds the requirements of the Convention." Indeed, the United States historically has recognized the rights of individuals with disabilities through various constitutional and statutory protections, including the Americans with Disabilities Act of 1990 (ADA). As such, many of the Convention's provisions addressing the protection of disability rights already exist in federal law. In fact, some CRPD requirements appear to be modeled after these U.S. disability laws. It is important to note that some of the obligations in the Convention address matters typically covered by U.S. state laws, such as guardianship, civil commitment, and education. As discussed earlier, to address concerns regarding constitutional principles of federalism, the Obama Administration proposed, and SFRC adopted, a federalism reservation to CRPD, stating, This Convention shall be implemented by the Federal Government of the United States of America to the extent that it exercises legislative and judicial jurisdiction over the matters covered therein, and otherwise by the state and local governments; to the extent that state and local governments exercise jurisdiction over such matters, the obligations of the United States of America under the Convention are limited to the Federal Government's taking measures appropriate to the Federal system, which may include enforcement action against state and local actions that are inconsistent with the Constitution, the Americans with Disabilities Act, or other Federal laws, with the ultimate objective of fully implementing the Convention. Thus, the authority of state and local governments would not be controlled by the terms of the treaty unless they are acting subject to federal law. For example, education is an issue that generally falls under state and local jurisdiction. However, the federal government has enacted legislation requiring schools that receive federal funding to implement certain federal standards. If the United States were to ratify the Convention, the federal legislation must comport with the obligations imposed by the Convention, but state and local policies on education that are not implicated by the federal legislation—for example, homeschooling—would not be governed by the Convention's provisions. The following sections discuss the most significant existing U.S. laws that might fulfill the requirements of the CRPD, if the Senate provides its advice and consent to ratification. A number of other disability laws are in effect that may likewise satisfy obligations required by the Convention. Many of these are discussed specifically in both the President's transmittal package and the SFRC Committee Report on the CRPD. Many of the rights required by CRPD are already guaranteed by the U.S. Constitution, particularly the CRPD provisions relating to equal rights and equal access to justice systems. For instance, the Equal Protection Clause of the Fourteenth Amendment prevents U.S. states from denying any person under its jurisdiction "the equal protection of the laws." This constitutional requirement for equal protection under the law is applicable to the federal government through the Due Process Clause of the Fifth Amendment, which provides that "[n]o person ... shall be deprived of life, liberty, or property without due process of the law." Courts therefore have construed laws that discriminate against people with disabilities as unconstitutional when there is no rational basis or legitimate purpose for those laws. In City of Cleburne v. Cleburne Living Center, Inc. , for example, the U.S. Supreme Court determined that a city ordinance requiring a special use permit for the operation of a group home for the mentally disabled was unconstitutional. The Court interpreted the Equal Protection Clause as a "direction that all persons similarly situated should be treated alike," ultimately concluding that "requiring the permit in this case appears to us to rest on an irrational prejudice against the mentally retarded." In sum, as the President observed in his transmittal package to the Senate, the Fifth and Fourteenth Amendments of the Constitution ensure that all individuals are equal before the law. In addition, the Eighth Amendment of the Constitution, which is applicable to the federal government and to states through the Due Process Clause of the Fourteenth Amendment, bars the use of "cruel and unusual punishment." In general, punishments violate this amendment when they are "grossly disproportionate" to the crime committed. The Supreme Court has held that deliberate indifference to prisoners' serious medical needs, including the requirements of disabled inmates, would constitute cruel and unusual punishment. Enacted in 1990, the Americans with Disabilities Act (ADA) provides broad non-discrimination protections for people with disabilities. As the most comprehensive disability rights law in the United States, the ADA might fulfill many of the CRPD obligations addressing accessibility, employment, transportation, health care, and equal participation in government and private programs. The ADA received bipartisan support, as did the ADA Amendments Act in 2008. Among other changes, the 2008 amendments broadened the definition of disability to expand coverage to a wider range of individuals with disabilities. Currently, the ADA defines disability 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." The act also contains rules of construction providing, among other things, that the definition of disability shall be construed in favor of broad coverage to the maximum extent permitted by the terms of the law. Although the Convention does not define disability, it does identify which individuals may qualify as persons with disabilities, including "those who have long-term physical, mental, intellectual or sensory impairments which in interaction with various barriers may hinder their full and effective participation in society on an equal basis with others." During negotiations for the Convention, an explicit definition for disability was intentionally omitted so that the term could be altered "depending on the prevailing environment from society to society." As previously discussed, to clarify the U.S. position on how disability would be defined under the Convention, the Administration proposed, and SFRC adopted, an understanding stating that the term will be defined coextensively with its definitions under domestic law. The ADA provides protections related to employment of individuals with disabilities. Employment discrimination protections under the ADA apply to employers with 15 or more employees and to state and local governments. The ADA generally prohibits discrimination in employment based on an individual's disability if the individual is otherwise qualified for the position. Discrimination based on a disability is prohibited across a range of employment decisions, including application procedures; hiring, retention, and promotion; compensation; training; and other terms of employment. The ADA requires that employers offer qualified individuals reasonable accommodation to perform the desired position if such an accommodation would not create an undue hardship on the employer's business. Under the ADA, reasonable accommodation may include making facilities readily accessible to individuals with disabilities; offering alternative work schedules; reassignment to a different position; modification of equipment; assistance with communications needs; or other similar accommodations. Undue hardship is defined as "an action requiring significant difficulty or expense." To determine whether an accommodation constitutes an undue hardship, an employer may consider its nature and cost; the financial resources involved and the accommodation's impact on expenses and resources; and the type of operation of the employer and its facilities. Title II of the ADA provides that no qualified individual with a disability shall be excluded from participation in or be denied the benefits of the services, programs, or activities of a public entity or be subjected to discrimination by any such entity. "Public entity" is defined as state and local governments, any department or other instrumentality of a state or local government, and certain transportation authorities. In Olmstead v. L.C. , the Supreme Court interpreted Title II of the ADA to find that individuals with mental disabilities have the right to live in the community rather than in institutions if "the State's treatment professionals have determined that community placement is appropriate, the transfer from institutional care to a less restrictive setting is not opposed by the affected individual, and the placement can be reasonably accommodated, taking into account the resources available to the State and the needs of others with mental disabilities." In other words, the ADA's prohibitions on discrimination by state and local governments may require the placement of persons with mental disabilities in community settings rather than institutions. The Court found that "[u]njustified isolation ... is properly regarded as discrimination based on disability." Title III of the ADA provides that no individual shall be discriminated against on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation by any person who owns, leases (or leases to), or operates a place of public accommodation. Entities that are covered by the term "public accommodation" are listed, and include, among others, hotels, restaurants, theaters, auditoriums, laundromats, travel services, museums, parks, zoos, private schools, day care centers, professional offices of health care providers, and gymnasiums. Religious institutions or entities controlled by religious institutions are not included on the list. There are some limitations on the non-discrimination requirements, and a failure to remove architectural barriers is not a violation unless such a removal is "readily achievable." "Readily achievable" is defined as meaning "easily accomplishable and able to be carried out without much difficulty or expense." Reasonable modifications in practices, policies, or procedures are required unless they would fundamentally alter the nature of the goods, services, facilities, or privileges or they would result in an undue burden. As previously discussed, an undue burden is defined as an action involving "significant difficulty or expense." While the ADA prohibits discrimination against individuals based on disability by state and local governments and certain private entities, Section 504 of the Rehabilitation Act of 1973 provides similar protection in the context of federal entities and federal programs. It provides that [n]o otherwise qualified individual with a disability in the United States ... shall, solely by reason of her or his disability, be excluded from the participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance or under any program or activity conducted by any Executive agency or by the United States Postal Service. Each federal agency is then required to promulgate regulations implementing the act. The standards for establishing a violation of Section 504 of the Rehabilitation Act and the ADA are essentially the same. Furthermore, the Rehabilitation Act explicitly adopts the same requirements and standards as the ADA in cases alleging employment discrimination based on disability (for example, reasonable accommodations required unless such accommodations would create an undue hardship). The Individuals with Disabilities Education Act (IDEA) is the major federal statute for the education of children with disabilities. As a result, it might satisfy the education provisions in the CRPD. IDEA authorizes federal funding for special education and related services and, for states that accept these funds, it sets out principles under which special education and related services are to be provided. It requires that states and school districts make available a "free appropriate public education" (FAPE) to all children with disabilities, generally between the ages of three and 21. FAPE is defined to include "special education and related services that—(A) have been provided at public expense, under public supervision and direction, and without charge; (B) meet the standards of the State educational agency; (C) include an appropriate preschool, elementary school, or secondary school education in the State involved; and (D) are provided in conformity with the individual education program required [under the statute]." Students receiving special education services under IDEA must have an individual education plan (IEP), which specifies the particular services that will be provided to meet the student's educational needs. After a child has been identified as a child with a disability under IDEA, an individualized education team is formed to write an individualized education program for the child. The IEP must indicate the child's current levels of academic achievement and functional performance; measurable annual goals; the special education and related services to be provided; and the extent to which the child is to be educated with children without disabilities. Additionally, when developing a child's IEP, the IEP team must consider the child's language and communication needs, including whether Braille, sign language, or other assistance would be appropriate. One of the stated purposes of IDEA is that special education students should be educated with students without disabilities "to the maximum extent possible." IDEA requires that separate schooling or special classes occur "only when the nature or severity of the disability of a child is such that education in regular classes with the use of supplementary aids and services cannot be achieved satisfactorily." The question of U.S. ratification of CRPD has generated debate among U.S. policy makers and members of the public. A significant issue underlying almost all aspects of these discussions is the treaty's possible impact on national sovereignty. Opponents of the Convention argue that treaties are the "supreme Law of the Land" under the Constitution, and that U.S. ratification of CRPD could supersede federal, state, and local laws. Specifically, critics are concerned that ratification could lead to the United Nations, the international community, or the Disabilities Committee having authority over existing U.S. laws and policies related to disability rights, as well as the private lives of U.S. citizens in areas such as education, health care, and parental rights. Supporters of ratification emphasize that CRPD is a non-discrimination treaty that does not create new obligations. They contend that U.S. laws such as the ADA meet, and in some cases exceed, the requirements of the Convention, thereby having little or no impact on U.S. sovereignty. Proponents also note that the RUDs that may accompany the treaty—particularly the non-self executing declaration which states that no new laws would be created as a result of U.S. ratification—address any concerns that the CRPD may undermine national sovereignty. More broadly, supporters point out that many of CRPD's provisions call on States Parties to take "all appropriate measures" [emphasis added], thereby leaving it to governments to determine what actions are appropriate based on their domestic laws and policies. Supporters also emphasize that CRPD brings increased global attention to rights of disabled persons, and that ratification has led some countries to adopt laws and policies to improve disability rights. These and other selected issues are discussed in more detail in the following sections. Opponents of CRPD ratification are concerned about the role of the Disabilities Committee in monitoring States Parties' compliance with CRPD. Specifically, critics are concerned that committee recommendations and decisions could supersede U.S. laws and presume authority affecting the lives, freedoms, and decisions of private citizens. Opponents highlight decisions made by other human rights treaty committees that in their view advocate abortion, undermine parental rights, or make recommendations that extend beyond the scope of the treaty. They worry that such decisions or recommendations could be used in U.S. courts to challenge existing laws and policies. Proponents of the CRPD ratification, including the Obama Administration, emphasize that any decisions or recommendations made by the committee are "advisory only" and non-binding under international and domestic law. Supporters also note that there are no established rules in CRPD for enforcing the committee's decisions or addressing treaty non-compliance. Moreover, several human rights treaties ratified by the United States have monitoring committees similar to CRPD, and there appears to be no instance where a U.S. federal court or the executive branch has construed a committee's recommendations or decisions as having the force of law. To address concerns related to the committee's role and authority, the Senate Foreign Relations Committee (SFRC) adopted an understanding to accompany CRPD, which stated that the committee has no authority to compel action by States Parties, and that the United States does not consider conclusions, recommendations, or general comments issued by the committee as constituting customary international law or to be legally binding on the United States in any manner. Supporters of CRPD contend that U.S. ratification would enhance the United States' credibility as it advocates the rights of persons with disabilities globally. For example, Obama Administration officials state that ratification will put the United States in the best possible position to influence the international community on disability rights, and that non-ratification would make it "difficult" to advance such interests. Supporters also emphasize that as a leader in disability rights, the United States could work within the framework of CRPD, such as in the Conference of States Parties, to provide expertise, guidance, and technical assistance to countries that seek to improve the well-being of disabled persons, particularly in the areas of education, employment, and accessibility. Moreover, many supporters suggest that, as a State Party, the United States could engage with the Disabilities Committee to nominate and vote for committee experts—including, perhaps, a U.S. citizen—to leverage U.S. expertise and influence the work of the committee. On the other side, opponents argue that the United States does not need to ratify CRPD to demonstrate its credibility and leadership in disability rights. They suggest that U.S. laws and policies, such as the ADA, are robust examples of U.S. commitment to the issue. Critics also express concern regarding CRPD provisions that would obligate the United States to report to the treaty's monitoring body, the Disabilities Committee. Specifically, they worry that instead of providing a forum to share U.S. expertise or advocate disability rights, the committee might be used as a platform for political criticism of the United States, particularly by countries with lesser human rights standards. Opponents also emphasize that U.S. ratification itself may not enhance the rights of disabled persons in countries with poor human rights records. Any such improvements, they argue, can only be made by the governments of these countries. When advocating for U.S. ratification of CRPD, many supporters highlight two key benefits for the United States. First, proponents contend that U.S. ratification, as well as the United States' overall support for the treaty, may improve the lives of U.S. citizens with disabilities living, working, or traveling abroad—including students, retirees, veterans, and members of the U.S. Armed Forces. Currently, many developed countries do not have comparable disability services or infrastructure. This makes it difficult for U.S. citizens to be employed, move freely, and have the same rights and access to disability-related services in other countries as they would in the United States. Supporters suggest that as more countries ratify the Convention and implement its provisions, disability rights and services in other countries may improve. Second, some CRPD supporters maintain that U.S. ratification would help U.S. companies that already comply with higher disability standards. Since the ADA was enacted in 1990, U.S. businesses have been required to make reasonable accommodations for their employees and customers, while businesses in countries with less stringent laws and policies have not been required to do so. Proponents suggest that CRPD ratification by the United States and other countries may lead foreign companies to institute such standards and thus help "level the playing field" for U.S. businesses. In addition, some maintain that increased global standards for and awareness of disabilities rights through CRPD ratification may provide new economic opportunities for U.S. companies. Supporters note that if international disabilities standards were to improve, new markets could emerge for U.S. companies that develop, manufacture, and sell disability-related products and technologies. The extent to which U.S. ratification of CRPD may positively affect U.S. businesses or disabled U.S. citizens living or traveling abroad is not entirely clear. States Parties to CRPD are responsible for implementing its provisions, and U.S. ratification of the treaty does not guarantee that all countries will fulfill their obligations under the Convention. Ultimately, CRPD's impact on disability rights and on the scope of the global market for disability-related services, expertise, and products will become more apparent as individual countries begin to implement the Convention's provisions. Some opponents of CRPD contend that the treaty undermines the rights of parents of disabled children. Specifically, many take issue with Article 7(2), which states, "In all actions concerning children with disabilities, the best interests of the child shall be a primary consideration." Critics believe that this provision may give governments, and not U.S. parents, the right to make educational and treatment-related decisions for their disabled children. Additionally, opponents are concerned that the Disabilities Committee could have the authority to make decisions regarding the "best interests" of disabled children in the United States. For example, homeschooling advocates worry that the committee could declare homeschooling inconsistent with the best interest of the child, thereby undermining the right of parents to educate their children as they see fit. To address these concerns, in July 2014 the committee agreed to a homeschooling understanding, which states, "Nothing in the Convention limits the rights of parents to homeschool their children." Supporters of the Convention, including the Obama Administration, maintain that CRPD would not undermine the rights of U.S. parents. They contend that existing federal, state, and local laws provide adequate protection for parents to do what they believe is in the best interests of their children. These protections, they emphasize, would be ensured through proposed reservations, understandings, and declarations (RUDs) to CRPD that include a non-self executing declaration and private conduct and federalism reservations. To further alleviate concerns about parental rights, SFRC adopted an understanding that states that the use of "best interests of the child" in Article 7(2) will be applied and interpreted as it is under U.S. law, and that nothing in Article 7 requires a change to existing U.S. law. More broadly, some supporters emphasize that concerns about CRPD's potential impact on parental rights should be viewed in the context of other provisions that appear to support the role of parents and families in the lives of disabled children. The debate over U.S. ratification of CRPD reflects concern as to whether, and to what extent, the treaty might address abortion. In particular, some critics have raised questions about CRPD Article 25, which states that States Parties shall a) Provide persons with disabilities with the same range, quality and standard of free or affordable health care and programmes as provided to other persons, including in the area of sexual and reproductive health and population-based public health programmes; [and] b) Provide those health services needed by persons with disabilities specifically because of their disabilities, including early identification and intervention as appropriate, and services designed to minimize and prevent further disabilities, including among children and older persons…. Many CRPD opponents maintain that abortion is an issue that should be handled at a state or local level, and not by an international body. They are concerned that the term "sexual and reproductive health" could be interpreted to be a euphemism for abortion. They also worry that U.S. ratification could obligate the United States to provide persons with disabilities access to free or affordable abortions or to overturn parental notification laws, thereby undermining current laws that ban federal funding for abortion. When advocating these views, critics note that after CRPD was adopted by the General Assembly, a Bush Administration official remarked that the United States understood that the phrase "reproductive health" in Article 25(a) did not include abortion. They further emphasize that Poland, Malta, and Monaco included reservations or declarations to CRPD that stated that nothing in Article 25 shall be interpreted to include abortion. Some opponents also suggest that the Disabilities Committee could interpret Article 25 to include abortion. CRPD advocates note that the word "abortion" is never mentioned in the treaty and contend that no U.S laws related to abortion would be created as a result of U.S. ratification. They maintain that references to sexual and reproductive health and health services are non-discrimination requirements that would not obligate the United States to modify its existing abortion laws or other health services. The Obama Administration emphasizes that Article 25, and the treaty as a whole, already complies with obligations under the ADA; specifically, any health care programs and benefits provided under domestic law, including those related to "sexual and reproductive health," should also be provided to disabled persons. Supporters also point out that any recommendations made by the Disabilities Committee related to abortion are not legally binding. As discussed earlier, CRPD has no established mechanisms for treaty non-compliance; it relies primarily on States Parties to fulfill their treaty obligations. To address ongoing concerns about CRPD's potential impact on existing abortion laws, SFRC approved an understanding stating that nothing in the Convention, including Article 25, addresses "the provision of any particular health program or procedure." The understanding amended a previous proposal by Senator Marco Rubio that stated that Article 25(a) does not include abortion or create any abortion rights, nor could it be interpreted to constitute the support, endorsement, or promotion of abortion (including as a method of family planning). Although the amended measure was adopted by SFRC, several Senators have expressed dismay that the word "abortion" was not specifically mentioned in the understanding. As U.S. policy makers continue to debate U.S. ratification of CRPD and States Parties take steps toward implementing the Convention, Members may wish to monitor several potential issues: Evaluating effectiveness —CRPD has been in force for nearly five years. As a result, there is minimal evidence demonstrating its effectiveness or potential areas for improvement. Evaluating the country-specific or global impact of the treaty may be particularly difficult because there is a lack of consistent or comparable data on persons with disabilities worldwide and often within countries and regions. Challenges to implementation —As States Parties take steps toward implementing the treaty's provisions, Senators may wish to monitor any challenges these countries face and how, if at all, CRPD mechanisms such as the Conference of States Parties or Disabilities Committee may assist with such issues. The United States may also consider ways that it can contribute to these bodies and share its expertise in disability rights as a CRPD observer. Role of civil society —Civil society, including human rights and disability rights groups, play a particularly important role not only in raising awareness of disability issues, but also in holding governments accountable to their CRPD commitments. As such, the United States may wish to monitor and encourage the full participation of civil society in CRPD mechanisms, particularly the Disabilities Committee, which is charged with evaluating reports from States Parties—some of which have weak disability rights standards. Appendix A. States Parties to CRPD Appendix B. Key CRPD Legislative Actions May 17, 2012 : CRPD was received in the Senate and referred to the Committee on Foreign Relations (SFRC) by unanimous consent. July 12, 2012 : SFRC held a hearing, "Convention on the Rights of Persons with Disabilities, Treaty Doc. 112-7." July 26, 2012 : SFRC ordered CRPD to be reported favorably. (See Senate Exec. Rept. 112-6.) July 31, 2012 : CRPD was reported favorably by Senator Kerry, Chairperson of SFRC, with minority views. A resolution of advice and consent to ratification was filed with three reservations, eight understandings, and two declarations. November 27, 2012 : Senators approved a motion to proceed to executive session to consider the treaty in the full Senate by a vote of 61 in favor and 35 against. (See record vote number 205.) November 30, 2012 : The Senate agreed, by unanimous consent, to debate and vote on CRPD on December 4, 2012. December 4, 2012 : The resolution of advice and consent to ratification was not agreed to in the Senate by a vote of 61 in favor and 38 against. (See record vote number 219.) January 3, 2013 : At the adjournment of the 112 th Congress, CRPD was automatically returned to SFRC under Rule XXX, Section 2, of the Standing Rules of the Senate. November 5 and November 21, 2013 : SFRC held hearings on the Convention. July 22, 2014 : SFRC ordered CRPD to be reported with amendments favorably. (See Senate Exec. Rept. 113-12.) July 28, 2014 : Reported by Senator Menendez, Chairperson of SFRC, with minority views. A resolution of advice and consent to ratification was filed with three reservations, nine understandings, and two declarations. | During the 114th Congress, the Senate might consider providing its advice and consent to ratification of the U.N. Convention on the Rights of Persons with Disabilities (CRPD, or the Convention). CRPD, which has been ratified or acceded to by 151 countries, is a multilateral agreement that addresses the rights of disabled persons. Its purpose is to promote, protect, and ensure the full and equal enjoyment of all human rights and fundamental freedoms by persons with disabilities. Administration and Senate Actions Many U.S. policy makers, including President Obama and some Members of Congress, agree that existing U.S. laws and policies are compatible with CRPD. In fact, some CRPD provisions appear to be modeled after U.S. disability laws. The United States has historically recognized the rights of individuals with disabilities through various laws and policies, including the Americans with Disabilities Act. In July 2009, President Obama signed CRPD. The Administration transmitted it to the Senate for advice and consent to ratification in May 2012. Since then, Members of the Senate have taken several actions related to CRPD: The Senate Committee on Foreign Relations (SFRC) held a hearing on the Convention in July 2012 and later that month reported the treaty favorably to the full Senate by a vote of 13 in favor and 6 against, subject to certain conditions. In December 2012, the Senate voted against providing advice and consent to ratification of CRPD by a vote of 61 to 38. The treaty was automatically returned to SFRC at the end of the 112th Congress. In July 2014, SFRC reported the treaty favorably by a vote of 12 in favor and 6 against, subject to certain conditions. The full Senate did not consider providing its advice and consent to ratification. The treaty was automatically returned to SFRC at the end of the 113th Congress. Key Issues in the Ratification Debate In debates regarding U.S. ratification of CRPD, the treaty's possible impact on U.S. sovereignty has been a key area of concern. Critics of the Convention maintain that treaties are the "supreme Law of the Land" under the Constitution, and that U.S. ratification of CRPD could supersede federal, state, and local laws. Supporters assert that CRPD is a non-discrimination treaty that does not create new obligations. They contend that U.S. laws meet, and in some cases exceed, CRPD requirements. Debate may also center on the following issues: Role of the CPRD committee. Critics are concerned that recommendations of the Committee on the Rights of Persons with Disabilities, the Convention's monitoring body, could deem U.S. laws to be in violation of CRPD and presume authority over the private lives of U.S. citizens. Supporters, including the Obama Administration, emphasize that committee decisions are non-binding under international and domestic law. Possible impact on U.S. citizens and businesses abroad. Some CRPD proponents contend that U.S. ratification may (1) improve the lives of U.S. citizens with disabilities living, working, or traveling abroad, and (2) "level the playing field" for U.S. companies that, unlike many of their foreign counterparts, already comply with higher disability standards. The extent to which U.S. ratification of CRPD may positively affect U.S. businesses or disabled U.S. citizens living or traveling abroad remains unclear. Role in U.S. foreign policy. Supporters contend that U.S. ratification may enhance U.S. credibility as it advocates the rights of persons with disabilities globally. Opponents argue that existing U.S. laws and policies are robust enough examples of U.S. commitment to the issue. Abortion. Some critics worry that the term "sexual and reproductive health" in CRPD could be a euphemism for abortion. Supporters note that the word "abortion" is never mentioned in the Convention and contend that no U.S laws related to abortion would be created as a result of U.S. ratification. Parental rights. Some are concerned that the U.S. ratification may give governments, and not U.S. parents, the right to make educational and treatment-related decisions for their disabled children. Others, including the Obama Administration, hold that existing federal, state, and local laws protect parental rights. Other issues that Senators may wish to consider include challenges to evaluating CRPD's effectiveness, obstacles to CRPD implementation, and the role and participation of civil society in CRPD mechanisms. For information on U.S. efforts to address the rights of persons with disabilities domestically, see CRS Report 98-921, The Americans with Disabilities Act (ADA): Statutory Language and Recent Issues, by [author name scrubbed]. An overview of treaty process is available in CRS Report 98-384, Senate Consideration of Treaties, by [author name scrubbed]. This report will be updated as events warrant. |
This report examines Congress' legislative authority with respect to the Judicial Branch. While Congress has broad power to regulate the structure, administration and jurisdiction of the courts, its powers are limited by precepts of due process, equal protection and separation of powers. Usually congressional regulation of the judicial branch is noncontroversial, but when Congress proposes to use its powers in a manner designed to affect the outcome of pending or previously decided cases, constitutional issues can be raised. For instance, Congress has in recent years considered using or has exercised its authority in an attempt to affect the results in cases concerning a number of issues, including abortion, gay marriage, freedom of religion, "right to die" and prisoners' rights. This report addresses the constitutional foundation of the federal courts, and the explicit and general authorities of Congress to regulate the courts. It then addresses Congress' ability to limit the jurisdiction of the courts over particular constitutional issues, sometime referred to as "court-stripping." The report then analyzes Congress' authority to limit the availability of certain judicial processes and remedies for constitutional litigants. Congressional power to legislate regarding specific judicial decisions is also discussed. Much of the material in the section on congressional power over court jurisdiction is also included in CRS Report RL32171, Limiting Court Jurisdiction Over Federal Constitutional Issues: " Court-Stripping " , by [author name scrubbed]. If one reads the first three Articles of the Constitution carefully, a striking observation immediately emerges. Article I (the legislative branch) is quite detailed and specific with respect to the authority of and limits on Congress, especially when compared with Article II (the executive branch) and Article III (the judicial branch). One reason for this detail is that Article I deals not only with the nature of the legislature but also with the overall powers of the federal government. But this contrast also makes it clear that Congress possesses the authority to fill out the powers conferred on the Executive and Judiciary. This is revealed in several specific provisions but most notably in the final provision of the Article, the "necessary and proper clause." That clause not only empowers Congress to enact all "necessary and proper" laws in order to execute the powers conferred on Congress, but also allows Congress to make laws to execute "all other powers vested by this Constitution in the Government of the United States or in any department or officer thereof." The Constitution contains few requirements regarding the structure of the federal courts. Article III, Section 1, of the Constitution provides that The judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish. The Judges, both of the supreme and inferior Courts, shall hold their Offices during good Behaviour, and shall, at stated Times, receive for their Services, a Compensation, which shall not be diminished during their Continuance in Office. Although Article III provides for a Supreme Court headed by the Chief Justice of the United States, nothing else about its structure and its operation is specified, so the size and composition of the Court is left to Congress. The lack of a constitutionally prescribed number has provided opportunities to manipulate, or to attempt to manipulate, the Court. As Congress also determines the time and place of the Supreme Court's meeting, it has also used this power to influence the make-up of the judiciary. Utilizing its power to establish inferior courts, Congress has created the United States district courts, the courts of appeals for the thirteen circuits, and other federal courts, identified their location, the places in which they sit, and the number of justices or judges for each court. Congress, has also addressed a range of aspects of the administration of the courts. For example, Congress, through its exercise of Spending Clause power, provides funding for the operation of the courts, including judicial salaries, subject to the limitation on diminution of compensation of judges during their terms of office. The Administrative Office of the United States Courts is established by statute, as are the judicial councils of the circuits, the judicial conferences of the circuits, and the Judicial Conference of the United States. On the other hand, Congress has delegated much of its court rule-making authority to the federal courts. For example, in the Judiciary Act of 1789, Congress gave the federal courts power "to make and establish all necessary rules for the orderly conducting of business in said courts, provided such rules are not repugnant to the laws of the United States." Pursuant to these statutory authorities, the United States Supreme Court has promulgated rules of civil procedure (including supplemental rules for admiralty and maritime cases), habeas corpus , criminal procedure, evidence, appellate procedure, and bankruptcy. Where Congress has deemed it appropriate, it has by statute rejected or amended proposed rules, delayed the effective dates of proposed rules, or drafted and enacted court rules itself. The remainder of Section 1 of Article III contains two critical provisions regarding federal judges. First is "good behavior" tenure, which effectively has come to mean lifetime tenure for Article III judges subject to removal only through conviction on impeachment. The second provision relates to security of compensation, meaning that a federal judge's compensation may "not be diminished during their continuance in office," although, as controversies over the years have shown, the compensation need not be sufficient within the judges' understanding. Impeachment, which is addressed in Article II of the Constitution, applies to all civil officers of the United States in both the executive and judicial branches. However, a majority of the fifteen officials who have been impeached in the House of Representatives and tried in the Senate, and all of the seven convicted and removed from office, have been judges. The imposition of punishment for judicial misconduct by the federal judiciary has also been addressed by statute, but these provisions do not provide for the removal of a judge or Justice from office. That Congress "may from time to time ordain and establish inferior courts" may be thought to imply that Congress may expand and contract the units of the system. But what happens to the judges who occupy posts on the courts that are abolished or reduced in the number of judges? This was the question that occurred with the repeal of the Judiciary Act of 1801, but no resolution of the issue was achieved at that time. Congress did not exercise this power again until 1913, when it abolished the special Commerce Court, which had proved disappointing to its sponsors. In 1913, Congress provided for the redistribution of the judges of the Commerce Court among the circuit courts. Since then, as Congress has rearranged some courts, it has always provided for the same kind of redistribution, usually assigning judges to those courts that received the jurisdiction of the abolished courts. On its face, there is no limit on the power of Congress to make exceptions to and regulate the Supreme Court's appellate jurisdiction, to create inferior federal courts and to specify their jurisdiction. However, that is true of the Constitution's other grants of legislative authority in Article I and elsewhere, but this does not prevent the application of other constitutional principles to those powers. "[T]he Constitution is filled with provisions that grant Congress or the States specific power to legislate in certain areas," Justice Black wrote for the Court in a different context, but "these granted powers are always subject to the limitations that they may not be exercised in a way that violates other specific provisions of the Constitution." The elder Justice Harlan seems to have had the same thought in mind when he said that, with respect to Congress' power over jurisdiction of the federal courts, "what such exceptions and regulations should be it is for Congress, in its wisdom, to establish, having of course due regard to all the Constitution." Thus, it is clear that while Congress has significant authority over administration of the judicial system, it may not exercise its authority over the courts in a way that violates the Fifth Amendment due process clause or that violates precepts of equal protection. For instance, Congress could not limit access to the judicial system based on race or ethnicity. Nor, without amendment of the Constitution, could Congress provide that the courts may take property while denying a right to compensation under the takings clause. In general, the mere fact Congress is exercising its authority over the courts does not serve to insulate such legislation from constitutional scrutiny. It is also clear that Congress may not exercise its authority over the courts in a way that violates precepts of separation of powers. The doctrine of separation of powers is not found in the text of the Constitution, but has been discerned by courts, scholars and others in the allocation of power in the first three Articles, i.e., the "legislative power" is vested in Congress, the "executive power" is vested in the President, and the "judicial power" is vested in the Supreme Court and the inferior federal courts. That interpretation is also consistent with the speeches and writings of the framers. But while the rhetoric of the Supreme Court points to a strict separation of the three powers, its actual holdings are far less decisive. Nevertheless, beginning with Buckley v. Valeo , the Supreme Court has reemphasized separation of powers as a vital element in American federal government. The two approaches that the Court has used in its separation of powers cases have been characterized as a formalist or strict approach and as a functionalist approach. A formalist or strict approach examines the text of the Constitution to determine the degree to which branch powers and functions may be intermingled, emphasizing that powers committed by the Constitution to a particular branch are to be exercised exclusively by that branch. Such an approach looks to a textual analysis to determine whether and the extent to which the actions of one branch aggrandize the power of that branch or encroach upon that of another branch. In contrast to such a textual analysis, the more flexible functionalist approach to separation of powers focuses upon the preservation of the core functions of the three branches, looking in a given case to whether the exercise of power by one branch impinges upon a core function of a coordinate branch. In articulating its functionalist approach in Nixon v. Administrator of General Services , the Court stated that, where a question arose as to whether an act of Congress ... disrupts the proper balance between coordinate branches, the proper inquiry focuses upon the extent to which it prevents the Executive Branch from accomplishing its constitutionally assigned functions.... Only where the potential for disruption is present must we then determine whether that impact is justified by an overriding need to promote objectives within the constitutional authority of Congress. The federal courts have long held that Congress may not act to denigrate the authority of the judicial branch. In the 1782 decision in Hayburn ' s Case , several Justices objected to a congressional enactment that authorized the federal courts to hear claims for disability pensions for veterans. The courts were to certify their decisions to the Secretary of War, who was authorized either to award each pension or to refuse it if he determined the award was an "imposition or mistaken." The Justices on circuit contended that the law was unconstitutional because the judicial power was committed to a separate department and because the subjecting of a court's opinion to revision or control by an officer of the executive or the legislative branch was not authorized by the Constitution. Congress thereupon repealed the objectionable features of the statute. More recently, the doctrine of separation of powers has been applied to prevent Congress from vesting jurisdiction over common-law bankruptcy claims in non-Article III courts. Allocation of court jurisdiction by Congress is complicated by the presence of state court systems that can and in some cases do hold concurrent jurisdiction over cases involving questions of federal statutory and constitutional law. Thus, the power of Congress over the federal courts is really the power to determine how federal cases are to be allocated among state courts, federal inferior courts, and the United States Supreme Court. Congress has significant authority to determine which of these various courts will adjudicate such cases, and the method by which this will occur. For most purposes, the exercise of this power is relatively noncontroversial. Over the years, however, various proposals have been made to limit the jurisdiction of federal courts to hear cases in particular areas of law such as busing, abortion, prayer in school, and most recently, reciting the Pledge of Allegiance. Generally, proponents of these proposals are critical of specific decisions made by the federal courts in that particular substantive area, and the proposals are usually intended to express disagreement with decisions in those areas and/or to influence the results or applications of such cases. Several such proposals passed the House in the 108 th Congress. For instance, in July 2003, an amendment was passed by the House to limit the use of funds to enforce a federal court decision regarding the Pledge of Allegiance. Then, in July 2004, the House passed H.R. 3313 , the Marriage Protection Act, which would have limited Federal court jurisdiction over questions regarding the Defense of Marriage Act. Finally, in September 2004, the House passed H.R. 2028 , the Pledge Protection Act, which was intended to limit the jurisdiction of the federal courts to hear cases regarding the Pledge of Allegiance. These proposals are often referred to as "court-stripping" proposals, and some of these proposals may raise significant constitutional questions. As noted, Article III provides that "[t]he judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as Congress may from time to time ordain and establish." Article III also identifies the cases covered by this judicial power by two separate criteria—the subject matter of particular cases or the identity of the litigants or persons affected. The subject matter of the federal judicial power is quite broad, as it includes the power to consider "all" cases arising under either the Constitution, federal law or treaty, or arising from the admiralty or maritime jurisdiction. As noted, Article III also extends the federal judicial power to cases based on the types of parties affected or involved. These latter cases can be divided into two different groups. The first group includes "all" cases which affect an Ambassador or other public Ministers or Consuls, or which involve a controversy between two or more States. The second group includes cases involving disputes between the United States and another party; a state and citizens of another State; citizens of different States; citizens of the same state claiming land under grants of different states; and between a State, or the Citizens thereof, and foreign states, citizens or subjects. The cases in the first group, and any other cases where a State is a party, are to be heard directly by the Supreme Court under the Court's original jurisdiction. The remaining cases in the second group, along with the Court's previously noted substantive authority, are heard under the Court's appellate jurisdiction. It is important to note that the Court's appellate jurisdiction (unlike its original jurisdiction) is subject to "Exceptions, and under such Regulations" as Congress shall make. It should also be noted, however, that the Constitution provides for jurisdiction in "all" cases under its substantive jurisdiction or under the first group of cases based on parties. As will be discussed later, this has led some commentators to suggest that while Congress has the power to limit the Supreme Court's appellate jurisdiction, that at least some cases must be considered by some federal court, whether it be the Supreme Court or an inferior court. The Supremacy Clause, found in Article VI, provides that the judges in every state are bound to follow the United States Constitution and applicable federal law. Congress does not appear to have the authority to establish state courts of competent jurisdiction. However, once such state courts exist, Congress can endow them with concurrent power to consider certain cases concerning federal law. When a state court has rendered a decision on an issue of federal law, and a final determination has been made by the highest court in that state, then that case may generally be appealed to the Supreme Court. Thus, state court cases can also fall under the Supreme Court's appellate jurisdiction. The question arises, however, precisely how the "judicial power" should be allocated between the various courts, and what sort of limitations can be implemented on the combined court systems by Congress. While there have been many proposals to vary federal court jurisdiction in order to affect a particular judicial result, few have become law, and even fewer have been subjected to scrutiny by the courts. Further, those laws that did pass varied from modern proposals. Thus, the answer to these complex questions must be ascertained by reference to constitutional text, historical practice, a limited set of case law, and scholarly commentary. Federal district courts and courts of appeal (the inferior federal courts) are authorized to consider most questions of federal statutory and constitutional law, with appeal to the Supreme Court. In general, most modern "court-stripping" proposals appear to be intended to increase state court involvement in constitutional cases by decreasing federal court involvement. There are at least three possible variations to these proposals. First, there are proposals which, by limiting inferior federal court jurisdiction, would, in effect, cause a particular class of constitutional decisions to be heard in state courts, with appeal to the Supreme Court. Second, there have been proposals to vest exclusive jurisdiction to hear such constitutional cases in the state courts without appeal to the Supreme Court. Third, proposals may exclude any judicial review over a particular class of constitutional cases from any court, whether state or federal. It should be noted that at least one court-stripping proposal does not limit the court's jurisdiction, but rather limits the remedy available. To the extent that these remedy limitations actually prevent the vindication of established constitutional injury, they would appear to fall under the same category as proposals that limit the jurisdiction of particular courts. Thus, for instance, the amendment noted above which would prohibit the use of funds for enforcement of a particular district court decision, would seem likely to be analyzed similarly to an amendment limiting lower court jurisdiction over constitutional cases. As will be discussed later, however, in situations where some sufficient remedies remain, a court might determine that the constitutional right could be effectuated despite such limits. Under the doctrine of judicial review, federal and state courts review the constitutionality of legislation passed by Congress and state legislatures. There are few examples of Congress attempting to use its power over federal court jurisdiction to limit judicial review of substantive constitutional law, and no examples of Congress successfully precluding federal courts from an entire area of constitutional concern. Most commentators agree that the constitutional problems with "court-stripping" provisions do not just arise from an analysis of the extent of Congress' Article III powers, but must also address an examination of constitutional limitations on this authority. The Court has struck down attempts by Congress to pass legislation intended to directly overturn constitutional decisions of the Supreme Court. It would seem unlikely that the Supreme Court would allow Congress to achieve the same results using Congress' power over jurisdiction and procedure. As noted previously, legislation that has the effect of encroaching upon the Judicial Branch or aggrandizing Congress's authority may be limited by the doctrine of separation of powers. In particular, significant issues of separation of powers issue might arise if Congress attempted to prevent the Supreme Court from reviewing the constitutionality of legislation that Congress had passed. In United States v. Klein , Congress passed a law designed to frustrate a finding of the Supreme Court as to the effect of a presidential pardon. The Court struck down the law, essentially holding that Congress had an illegitimate purpose in passage of the law. "[T]he language of the proviso shows plainly that it does not intend to withhold appellate jurisdiction except as a means to an end. Its great and controlling purpose is to deny to pardons granted by the President the effect which this court had adjudged them to have.... It seems to us that this is not an exercise of the acknowledged power of Congress to make exceptions and prescribe regulations to the appellate power." Similarly, a law which was specifically intended to limit the ability of a court to adjudicate or remedy a constitutional violation could violate the doctrine of separation of powers, as providing relief from unconstitutional acts is a judicial branch function. When specific constitutional rights are singled out by Congress for disparate treatment, a question also arises as to whether that class of litigants is being treated in a manner inconsistent with the Equal Protection Clause. As noted earlier, it is generally agreed that a law that limited a federal court's power for an illegitimate purpose, such as to deny access to the courts based on race, would run afoul of provisions of the Constitution apart from Article III. But, what if members of a group being excluded from the courts were not defined by membership in a suspect class, but instead by their status as plaintiffs in a particular type of constitutional case? In general, Article III allows Congress to provide different legal procedural rules for different types of cases if there is a rational reason to do so. However, even a rational basis analysis of such disparate treatment might not be met if the Court finds the argument put forward for burdening a particular class of cases is illegitimate. As mere disagreement with the results reached by the federal courts in prior cases regarding the Constitution may not be viewed as a legitimate legislative justification, alternative justifications for such laws would need to be established before such a rational basis test would be met. It should be noted, however, that not all variations of the courts' jurisdiction absolutely limit the rights of litigants to have constitutional issues reviewed by some court. Thus, an evaluation of a particular piece of "court-stripping" legislation may vary depending on what jurisdiction, remedies or procedures are affected, and what ultimate impact this is likely to have on the specified constitutional rights. Thus, the question may well turn on how such legislation burdened a particular group or impaired a fundamental right. For instance, requiring litigants in particular federal constitutional cases to pursue their cases in state courts may not represent a significant burden, and thus might require less legislative justification. However, more serious attempts to impair either the burden of litigation or the remedies available might well require the establishment of a more significant governmental interest before such a law could be enforced. Various proposals have been made that would eliminate lower federal court review over certain constitutional issues, leaving such decisions to state courts, with Supreme Court review. The argument has been made that because Congress has the authority to decide whether or not to create inferior federal courts, it also has authority to determine which issues these courts may consider. There appears to be significant historical support for this position. While the establishment of a federal Supreme Court was agreed upon early in the Constitutional Convention, the establishment of inferior federal courts was not a foregone conclusion. At one point, it was proposed that the Convention eliminate a provision establishing such inferior courts. This proposal would have had state tribunals consider most federal cases, while providing Supreme Court review in order to enforce national rights and ensure uniformity of judgments. James Madison opposed the motion to eliminate lower federal courts, arguing that such a decentralized system would result in an oppressive number of appeals, and would subject federal law to the local biases of state judges. A compromise resolution, proposed by Madison and others, was agreed to, whereby Congress would be allowed, but not compelled, to create courts inferior to the Supreme Court. The new plan, referred to as the "Madisonian Compromise," was ultimately adopted. Thus, Article III provides that Congress has the power to create courts inferior to the Supreme Court. Once Congress has agreed to the creation of inferior courts, however, the question then arises as to whether it must grant these courts the full extent of the jurisdiction contemplated by Article III. Some commentators have argued that the very nature of the Madisonian Compromise described above plainly allowed the establishment of federal courts with something less than the full judicial power available under Article III. A 1816 decision by Justice Story, Martin v. Hunter ' s Lessee , however, suggests that the Constitution requires that if inferior courts are established, there are some aspects of the judicial power which Congress may not abrogate. For instance, Justice Story argued that Congress would need to vest inferior courts with jurisdiction to hear cases that are not amenable to state court jurisdiction. Thus, arguably, a constitutional issue which arose under a law within the exclusive federal jurisdiction would need to be decided by a federal court. There is significant historical precedent, however, for the proposition that there is no requirement that all jurisdiction that could be vested in the federal courts must be so vested. For instance, the First Judiciary Act implemented under the Constitution, the Judiciary Act of 1789, is considered to be an indicator of the original understanding of the Article III powers. That act, however, falls short of having implemented all of the "judicial powers" which were specified under Article III. For instance, the act did not provide jurisdiction for the inferior federal courts to consider cases arising under federal law or the Constitution. Although the Supreme Court's appellate jurisdiction did extend to such cases when they originated in state courts, its review was limited to where a claimed statutory or constitutional right had been denied by the court below. There is also Supreme Court precedent that holds that Congress need not vest the lower courts with all jurisdiction authorized by Article III. In Sheldon v. Sill , the Court was asked to evaluate whether Congress need grant a federal circuit court jurisdiction in a case where diversity (jurisdiction based on parties being from different states) had been manufactured by assignment of a mortgage to a person in another state. The Court held that "Congress, having the power to establish the courts, must define their respective jurisdictions." The Court further indicated that "Congress may withhold from any court of its creation jurisdiction of any of the enumerated controversies" so that "a statute which does prescribe the limits of their jurisdiction, cannot be in conflict with the Constitution, unless it confers powers not enumerated therein." As noted earlier, the Supremacy Clause provides that state courts are bound to follow the United States Constitution, so that state courts which have cases within their jurisdiction are required to consider and decide such constitutional issues as they arise. Congress does not have the authority to establish the jurisdiction of state courts, and consequently those "court stripping" proposals that relate to the inferior federal courts do not generally specify that state courts will become the primary courts for vindication of specified constitutional rights. To the extent, however, that state courts provide a forum for the complete vindication of constitutional rights, then concerns about removal of such issues from a federal court are diminished. However, as noted earlier, such "court stripping" proposals would still need to meet requirements of equal protection, due process, or separation of powers. Other proposals noted above would eliminate all federal court review of certain constitutional issues, leaving these decision to be finally decided by various state courts. Elimination by Congress of all federal question review over a particular constitutional question by the Supreme Court appears to be unprecedented. While there was a time when inferior federal courts did not have general federal jurisdiction, constitutional challenges against a state's actions could still be brought in the state courts, with appellate review in the Supreme Court. Initially, the Supreme Court's appellate review was limited to only certain procedural postures. Under § 25 of the Judiciary Act of 1789, there were three categories of appellate jurisdiction to the Supreme Court available: 1. Where the validity of a treaty, statute, or authority of the United States is drawn into question and the state court's decision is against their validity. 2. Where the validity of a state statute or authority is challenged on the basis of federal law and the state court's decision is in favor of their validity. 3. Where a state court construes a United States constitution, treaty, statute, or commission and decides against a title, privilege, or exemption under any of them. The first category of appellate jurisdiction was clearly intended to promote a national, uniform resolution of questions of the validity of federal laws or treaties by providing Supreme Court review where a federal law or treaty was invalidated. Thus, if a federal law was found to violate the Constitution, the case could be reviewed by the Supreme Court. Similarly, if a federal law and a state law conflicted, and the state law was upheld, the litigant could appeal to the Supreme Court, thus providing for review of state laws upheld despite constitutional challenge. Finally, where a state court decided against a title, privilege, or exemption of a litigant based on federal law, the Court could hear the case. Only if a state court upheld a federal law or treaty, or struck a state law as inconsistent with federal law did the Supreme Court lack jurisdiction. Thus, in those procedural postures where the federal interest was not being challenged, § 25 would have the effect of insulating a federal law from a constitutional attack. Thus, while a constitutional challenge might be postponed because of the procedural posture of a case, state and federal laws were not protected from appellate review from the Supreme Court. For instance, if a state law was invalidated by a state court as being in conflict with a federal law, precluding the losing party from appealing that decision, no principle of res judicata or collateral estoppel would prevent a challenge to such state laws being brought in other States. If another state court upheld such a state law, this decision could be appealed, and the precedent would apply to the state where the first challenge was brought. Thus, there was no general bar on such issues coming before the Supreme Court. Whether a complete bar of federal court review of a constitutional issue could be implemented by Congress first requires evaluation of two aspects of Article III: the power of Congress to allocate federal judicial power and the power of Congress to create exceptions to the Supreme Court's appellate jurisdiction under the Exceptions Clause. As to the former, the question arises as to whether Congress need allocate any of the authorities delineated in Article III to the federal courts beyond cases decided under the "Original Jurisdiction" of the Supreme Court. In Martin v. Hunter ' s Lessee , Justice Story noted that the Constitution provides that the judicial power "shall" be vested in the Supreme Court, or in the such inferior courts as are created. His opinion thus asserted that it is the duty of Congress to vest the "whole" judicial power where it is so directed, either in the Supreme Court or in the inferior courts. Justice Story did, however, note that the text of the Constitution suggests some limits to the requirement that the "whole" judicial power shall vest. This limit arises from the previously noted fact that some types of federal "judicial power" are extended by the text of the Constitution to "all" such cases, i.e., cases arising under either the Constitution, federal law, treaty, admiralty or maritime jurisdiction, or cases affecting an Ambassador or other public Ministers or Consuls. The vesting of other types of cases cited in Article III (such as cases between citizens of different States) is not so characterized, and thus arguably Congress would have discretion whether or not to establish these powers in the federal courts. Under this textual analysis, the power to consider cases concerning the Constitution must be vested in some federal court. Thus, according to Justice Story, a statute limiting consideration of specific constitutional issues to state courts with no Supreme Court review would be unconstitutional. This analysis, however, has attracted large amounts of scholarly attention, and there is significant dispute over Justice Story's conclusion. On one hand, at least one commentator asserts that not only is the theory that some federal powers must be vested in the Supreme Court supported by analysis of the text of the Constitution, but that it is also consistent with jurisdictional limitations found in the Judiciary Act of 1789 and subsequent case law. Other commentators, however, have taken issue with this analysis. Absent additional court precedent on this point, a resolution of this scholarly debate would be largely speculative. The second issue, whether Supreme Court review over a category of cases can be limited by legislation under the Exceptions Clause, has been addressed to some extent by the Supreme Court in Ex Parte McCardle. In Ex Parte McCardle , Congress had authorized federal judges to issue writs of habeas corpus. McCardle, the editor of the Vicksburg Times, was arrested by federal military authorities on the basis of various editorials published in his newspaper, and charged with disturbing the peace, libel, incitement and impeding Reconstruction. Claiming constitutional infirmities with his case, McCardle sought and was denied a writ of habeas corpus in an inferior federal court, a decision which he then appealed to the Supreme Court. During the pendency of that appeal, however, in an apparent attempt to prevent the Supreme Court from hearing the appeal, Congress repealed the jurisdiction of the Supreme Court to hear appeals from habeas corpus decisions. In McCardle , Congress purported to be acting under its authority under Article III to make exceptions to the appellate jurisdiction of the Court. In reviewing the statute repealing the Supreme Court's jurisdiction, the Court noted that it was "not at liberty to inquire into the motives of the legislature. We can only examine its power under the Constitution: and the power to make exceptions to the appellate jurisdiction of this court is given by express words." Consequently, the Supreme Court accepted the withdrawal of jurisdiction over the defendant's case, and dismissed the appeal. The case of Ex Parte McCardle , while it made clear the authority of Congress to make exceptions to the appellate jurisdiction of the Supreme Court, does not appear to answer the question as to whether all Supreme Court review of a constitutional issue can be eliminated. The Court specifically noted that McCardle had other avenues of review to challenge the constitutionality of his arrest apart from appellate review, namely the invocation of habeas corpus directly by the Supreme Court. Consequently, unlike what would be provided for in some of the court-stripping proposals noted previously, the Supreme Court in McCardle maintained the ability to otherwise consider the underlying constitutional issues being raised. As noted previously, it would also be the case that court-stripping proposals in this category would raise significant questions of separation of powers. For instance, if Congress were to provide that the Supreme Court were unable to consider constitutional challenges to federal law, this would clearly raise the question of whether Congress was moving to aggrandize Congressional power at the expense of the judicial branch. As noted in section II(B) of this report, under a textual analysis, such aggrandizement or encroachment can be the basis for a finding that such legislation is unconstitutional. Even under a more flexible functionalist approach to separation of powers, the question would arise as to whether such legislation impinges upon a core function of a coordinate branch. In sum, there is no direct court precedent on the issue of whether Congress can eliminate all federal court jurisdiction over a constitutional issue, and little or no consensus among scholars. The practical consequences of enacting such proposals is also unclear. While it is presently the case that Supreme Court precedent binds state courts, it is not clear if this would continue to be the effect if the states became the court of final resort on a particular issue. Even if existing precedent was adhered to, over time it could become the case that divergent constitutional doctrine would arise in each of the fifty states on any issue where Supreme Court review was precluded. Arguments have been made that such a result would undercut the intention of the Founding Fathers to establish a uniform federal constitutional scheme. A series of lower federal court decisions seems to indicate that in most cases, some forum must be provided for the vindication of constitutional rights, whether in federal or state courts. For instance, in 1946, a series of Supreme Court decisions under the Fair Labor Standards Act of 1938 exposed employers to five billion dollars in damages, and the United States itself was threatened with liability for over 1.5 billion dollars. Subsequently, Congress enacted the Portal to Portal Act of 1947, which limited the jurisdiction of any court, state or federal, to impose liability or impose punishment with respect to such liabilities. Although the act was upheld by a series of federal district courts and courts of appeals, most of the courts disregarded the purported jurisdictional limits, and decided the cases on the merits. As one court noted, "while Congress has the undoubted power to give, withhold, or restrict the jurisdiction of courts other than the Supreme Court, it must not exercise that power as to deprive any person of life, liberty, or property without due process or just compensation...." The Court has also construed other similar statutes narrowly so as to avoid "serious constitutional questions" that would arise if no judicial forum for a constitutional claim existed. The Supreme Court has not directly addressed whether there needs to be a judicial forum to vindicate all constitutional rights. Justice Scalia has pointed out that there are particular cases, such as political questions cases, where all constitutional review is in effect precluded. Other commentators point to sovereign immunity and the ability of the government to limit the remedies available to plaintiffs. However, the Court has, in cases involving particular rights, generally found a requirement that effective judicial remedies be present. Thus, for instance, the Court has held that the Constitution mandates the availability of effective remedies for takings. These cases would seem to indicate a basis for the Court to find that parties seeking to vindicate other particular rights must have a judicial forum for such challenges. Congress has occasionally sought to vest the "judicial power of the United States" in tribunals whose judges do not have the attributes of Article III judges, that is, good-behavior tenure and security of compensation. How is it possible to vest the "judicial power of the United States" in Article I or Article IV tribunals or in tribunals that are located in the executive branch? The Court's explanations have varied over time, and it has vacillated over the permissibility of some such vesting. The doctrine is far from settled. The importance of this doctrinal area for purposes of this report concerns the power that Congress can exercise over legislative tribunals. Because the officeholders of these tribunals lack Article III security, designed to maintain judicial independence, Congress may limit tenure to a term of years, as it has done in acts creating territorial and local District of Columbia courts and in such tribunals as the Tax Court and others; and it may subject the judges of such courts to removal by the President, and reduce their salaries during their terms. Similarly, Congress can vest nonjudicial functions in these courts that it may not vest in Article III courts. It is obvious that if there is congressional power to create non-Article III tribunals and vest in them jurisdiction over "public rights" and other matters that are traditionally the subject of Article III cases, then Congress has potential leverage vis-a-vis federal courts that can alter federal separation of powers. Regulation of the procedures and remedies available to a litigant are clearly within Congress' authority. However, just as an exception or a regulation of jurisdiction can constrain the courts in the performance of their duties, so restrictions on judicial processes, such as the ability to afford injunctive relief, can equally constrain the courts. While major interpretive differences have arisen between Congress and the courts regarding the construction of these legislative enactments, the Supreme Court has never expressed any doubt that Congress has the power to enact them. The Court has, however, always left open the possibility that Congress might go too far. For instance, in 1793, for reasons lost to history, Congress enacted a statute to prohibit the issuance of injunctions by federal courts to stay state court proceedings. While construction of this statute has varied over the years, it remains as an indication that Congress has the power to regulate such judicial process and remedies. During this century, the propensity of the federal courts to issue injunctions to limit labor unions in disputes with management, led Congress to adopt the Norris-LaGuardia Act, forbidding the issuance of injunctions in labor disputes except after compliance with a lengthy hearing and fact-finding process. Although earlier case law appeared to recognize a due process objection to such a restraint, the Supreme Court had no difficulty sustaining the constitutionality of the law in Lauf v. E. G. Shinner & Co . Congress' power to confer, withhold, and restrict both jurisdiction and equity authority was also powerfully revealed in the cases arising from the Emergency Price Control Act of 1942. Fearful that the price control program might be nullified by injunctions, Congress provided for a special court in which persons could challenge the validity of price regulations issued by the Government from which appeals from the court to the Supreme Court could be taken. The constitutionality of the act was sustained in Lockerty v. Phillips , although those skeptical of the breadth of the law note that the Court itself referred to the fact that it arose in "the exigencies of war." One modern example of congressional control over the processes of the federal courts is the Prison Litigation Reform Act (PLRA) of 1996. For the last 20 - 30 years, many prisons and jails in this country have been enjoined to make certain changes based on findings that the conditions of these institutions violated the constitutional rights of inmates. Many of these injunctions came as a result of consent decrees entered into between inmates and prison officials and endorsed by federal courts, so that relief was not necessarily tied to violations found. Many state officials and Members of Congress have complained of the breadth of relief granted by federal judges, as these injunctions often required expensive remedial actions. The PLRA was designed to curb the discretion of the federal courts in these types of actions. Thus, the central requirement of the act was a provision that a court "shall not grant or approve any prospective relief unless the court finds that such relief is narrowly drawn, extends no further than necessary to correct the violation of the Federal right, and is the least intrusive means necessary to correct the violation of the Federal right." The most pointed provision of the PLRA in this context is the so-called "automatic stay" section, which states that a motion to terminate prospective relief "shall operate as a stay" of that relief during the period beginning 30 days after the filing of the motion (extendable to up to 90 days for "good cause") and ending when the court rules on the motion. In Miller v. French , inmates attacked the constitutionality of the "automatic stay" provision, as a violation of separation of powers. By a 5-to-4 vote, the Supreme Court reversed. The Court held that the PLRA did not set aside a final judgment of a federal court, but rather it operated to change the underlying law and thus required the altering of the prospective relief issued under the old law. Secondly, the Court noted that separation of powers did not prevent Congress from changing applicable law and then imposing the consequences of the court's application of the new legal standard. Finally, the Court held that the stay provision did not interfere with core judicial functions as it could not be determined whether the time limitations interfered with judicial functions through its relative brevity. As the federal courts are the prescribed authorities to interpret the Constitution and to establish precedents, Congress is relatively limited in its ability to change constitutional holdings. The primary route by which Congress can implement such changes is also a difficult one: proposing an amendment to the Constitution and working to secure ratification. The Eleventh Amendment, the first sentence of Section 1 of the Fourteenth Amendment, the Sixteenth Amendment, the Twenty-fourth Amendment, and the Twenty-sixth Amendment were all directed to overturning the results of court decisions. The alternative method of amendment set out in Article V, the congressional calling of a constitutional convention upon petition by two-thirds of the states, has never been successfully used, although an effort to call a convention to propose an amendment to override the "one person, one vote" decision of Reynolds v. Sims fell just one state short. Congress has, of course, passed legislation which was intended to change the results or effects of judicial decisions. Although the Supreme Court considers itself bound by stare decisis , it is in effect loosely bound, and thus is in a position to consider the positions of its coordinate branches on constitutional issues. Nonetheless, this qualification has not appeared to have concerned the Court in most cases, as the Court has generally invalidated statutes that Congress has enacted to set aside constitutional decisions by the Supreme Court. Congress has significantly more authority to affect decisions by the federal courts interpreting either statutes or common law than it does regarding constitutional decisions. However, even here Congress is limited to affecting pending or future court decision, not final ones. Thus, in Plaut v. Spendthrift Farm, Inc. , the Court had rendered a final decision determining the limitation period applicable to the filing of securities litigation, finding a much shorter period than had been thought to apply, so that many pending suits had to be dismissed for lack of timely filing. Congress passed a new law, establishing the longer limitations period that had been thought to be applicable, and it authorized refiling of the dismissed suits and adjudication of them. The Court in Plaut held that the federal courts had the authority to render a judgment conclusively resolving a case, and Congress violates the separation of powers when it purports to alter final judgments of Article III courts. The Court was careful to delineate the difference between attempting to alter a final judgment (one rendered by a court and either not appealed or affirmed on appeal), and legislatively amending a statute so as to change the law as it existed at the time a court issued a decision that was on appeal or otherwise still alive at the time a federal court reviewed the determination below. A court must apply the law as revised when it considers the prior interpretation, even in a pending case. Thus, in Pennsylvania v. Wheeling & Belmont Bridge Co. , the Court had held that a bridge was an obstruction of navigable waters and ordered an injunction issued to abate it. Congress passed a statute pronouncing the bridge not an obstruction of navigable waters, and the Court required the withdrawal of the injunction, inasmuch as it was within Congress' power to regulate commerce and navigable waters. Similarly, in Robertson v. Seattle Audubon Society , a federal district court had held that the environmental impact statement prepared to support the issuance of logging permits that endangered the spotted owl was inadequate and must be done over. Congress passed a rider to an appropriation act excusing the necessity for the statement, and the Court upheld the new law and its effect on future actions as a permissible change in law. Clearly, however, the difference between Plaut and Robertson is a matter of degree and Congress walks close to the line when it legislates against the background of a decided case. On occasion, Congress has attempted to legislate regarding a specific court case or cases, such as a recent attempt by Congress to intervene in the case of Theresa Marie Schiavo despite court findings that she had previously expressed her desires to not receive medical treatment under certain circumstance. An argument could be made that congressional legislation that applies to a specific court case may be construed as imposing additional burdens on the litigants involved. Legislation that identifies specified individuals to bear additional legal burdens raises issues of due process and equal protection. For instance, in News America Publishing, Inc. v. FCC , the United States Court of Appeals for the District of Columbia applied heightened scrutiny to an act of Congress that singled out "with the precision of a laser beam," a corporation controlled by Rupert Murdoch. Murdoch's corporation had applied for, and received, temporary waivers from the FCC's cross-ownership rules, so that the corporation could acquire two TV licenses, one in Boston, and the other in New York. Subsequently, Congress passed a law that prevented the FCC from extending any existing temporary waivers; at the time, Murdoch's corporation was the only current beneficiary of any such temporary waivers. The corporation sued, arguing a violation of Equal Protection in the context of the First Amendment. Based on this argument, the court evaluated the law under a heightened scrutiny standard, and struck it down. If Congress does legislate regarding a particular court case, this may also raise the issue of the prohibition on Bills of Attainder. Under this provision, Congress is prohibited from passing legislation which "appl[ies] either to a named individual or to easily ascertainable members of a group in such a way as to inflict punishment on them without a judicial trial." Generally, the prohibition on Bills of Attainder is intended to prevent Congress from assuming judicial functions and conducting trials. The two main criteria which the courts will look to in order to determine whether legislation is a Bill of Attainder are 1) whether specific individuals are affected by the statute, and 2) whether the legislation inflicts a punishment on those individuals. The Supreme Court has held that legislation meets the criteria of specificity if it applies to a person or group of people who are described by past conduct, which would seem to include participation in a court case. The mere fact that focused legislation imposes burdensome consequences, however, does not require that a court find such legislation to be an unconstitutional of Bill of Attainder. Rather, the Court has identified three types of "punitive" legislation which are barred by the ban on Bills of Attainder: 1) where the burden is such as has traditionally been found to be punitive; 2) where the type and severity of burdens imposed cannot reasonably be said to further non-punitive legislative purposes; and 3) where the legislative record evinces a congressional intent to punish. An opinion by the United States Court of Appeals for the District of Columbia specifically addressed the issue of whether a congressional bill addressing a pending court case was a Bill of Attainder. In Foretich v. United States , the court considered a legislative rider to the 1997 Department of Transportation Appropriations Act that provided for specific procedures to be followed in resolving child custody cases in the District of Columbia Superior Court, but was written so narrowly as to apply to just one case. This case involved a protracted custody battle, where allegations of sexual abuse by the husband had been made. Because the child in the case was no longer a minor, the issue of removal of custodianship was declared by the court to be moot. However, the court found that act imposed "punishment" under the functional test because it harmed the father's reputation, and because it could not be said to further non-punitive purpose. Congress has a wide range of tools available to it to exercise its legislative authorities with respect to the Judicial Branch, and these powers may be used to alter almost all aspects of how the federal courts are organized and administered. However, as with other constitutional authorities, these powers are subject to some constitutional limitations. Although the exact parameters of these limitations have not been established, it is likely the Supreme Court would impose limitations on congressional legislation that did not comply with dictates of due process, equal protection, and separation of powers. | This report examines Congress' legislative authority with respect to the Judicial Branch. While Congress has broad power to regulate the structure, administration and jurisdiction of the courts, its powers are limited by precepts of due process, equal protection and separation of powers. Usually congressional oversight of the judicial branch is noncontroversial, but when Congress proposes to use its oversight and regulatory powers in a manner designed to affect the outcome of pending or previously decided cases, constitutional issues can be raised. In recent years, Congress has considered using or has exercised its authority in an effort to affect the results in cases concerning a number of issues, including abortion, gay marriage, freedom of religion, "right to die" and prisoners' rights. This report addresses the constitutional foundation of the federal courts, and the explicit and general authorities of Congress to regulate the courts. It then addresses Congress' ability to limit the jurisdiction of the courts over particular issues, sometimes referred to as "court-stripping." The report then analyzes Congress' authority to regulate the availability of certain judicial processes and remedies for litigants. Congressional power to legislate regarding specific judicial decisions is also discussed. Recent laws which are relevant to this discussion include the Prison Litigation Reform Act Legislation and a law "For the relief of the parents of Theresa Marie Schiavo." Various proposals were also passed by the House, but not the Senate, in the 108th Congress. For instance, starting in July 2003, an amendment was passed by the House to limit the use of funds to enforce a federal court decision regarding the Pledge of Allegiance. Then, in July 2004, the House passed H.R. 3313, the Marriage Protection Act, which would have limited Federal court jurisdiction over questions regarding the Defense of Marriage Act. Finally, in September 2004, the House passed H.R. 2028, the Pledge Protection Act, which was intended to limit the jurisdiction of the federal courts to hear cases regarding the Pledge of Allegiance. Much of the material in the section on congressional power over court jurisdiction is also included in CRS Report RL32171, Limiting Court Jurisdiction Over Federal Constitutional Issues: "Court-Stripping", by [author name scrubbed]. |
China eagerly awaits the commencement of the Games of the XXIX Olympiad on August 8, 2008 in Beijing. After seven years of preparations, China will host the preeminent sporting event of the year. In the words of Premier Wen Jiabao, the 2008 Olympic Summer Games provide an opportunity to demonstrate to the world how "democratic, open, civilized, friendly, and harmonious" China is. In addition, much like the two previous Asian hosts for Olympic Summer Games—Japan in 1964 and Korea in 1988—China views the 2008 Olympics as a showcase for its modern economy and a springboard for future economic growth. To the Chinese government, hosting the Olympics also signifies a turning point in its economic development. It provides an opportunity to begin the shift from an economy based on being the assembly platform for global manufacturing to one geared to providing goods and services for China's growing and prosperous middle class. The 2010 World Expo in Shanghai will be a similar opportunity to highlight China's economic progress. In an effort to ensure the success of the 2008 Olympics, the Chinese government has invested billions of dollars in sports facilities, housing, roads, mass transit systems, and other infrastructure. China hopes that its investments, when combined with the goodwill generated by the successful completion of the Olympics, will attract more tourists, businesses, and investors to China—and foster future economic growth in its wake. In addition, to counteract possible negative publicity about labor and environmental conditions in China, the government passed new labor laws and is promoting the 2008 Beijing Olympics as the "Green Olympics." If the post-Olympic economic records of past host cities and nations are any indication, however, it is uncertain that Beijing and China will see substantial economic benefits from this summer's games. Academic research on "mega-events"—such as the Olympics—has found that their economic benefits generally fail to meet pre-event expectations, and sometimes fall short of the costs of staging the event. Certain aspects of China's current economic circumstances make it more likely that the economic gains from the 2008 Beijing Olympics could be smaller than some pre-event expectations. There is a vigorous scholarly debate over the correct method of evaluating the economic impact of "mega-events," such as the Olympics. It is difficult to disentangle changes in economic growth, employment, inflation, tourism, and other possible effects caused by the mega-event from changes caused by other factors (currency appreciation, fiscal and monetary policy changes, etc.). In addition, certain types of investments related to mega-events, such as the construction of new stadiums, often fail to generate significant economic benefits after the mega-event is over. Plus, it is uncertain if economic activities undertaken as part of the preparation for the mega-event (for example, the construction of new mass transit lines) might not have taken place even if the mega-event had not occurred. Also, impact assessments of mega-events frequently ignore the "opportunity costs" associated with investments made before the event. For example, assessments often do not consider the possibility that the money spent on the new Olympic stadium might have generated greater economic benefits if spent on hospitals or schools. Finally, while the economic gains associated with the construction of new infrastructure are generally calculated, the economic costs associated with the displacement of people and business (for example, in the demolition and construction of new housing for the mega-events) often are not. Besides the methodological questions associated with assessing the economic effects of mega-events, there are also serious problems in methodological application. In many cases, the companies or individuals conducting the economic impact assessment prior to the mega-event have an incentive to overstate the potential gains and understate the potential costs. In some cases, the assessors present the costs of the mega-event (for example, the construction cost of new sports facilities) as benefits. In other cases, the assessors overstate the certainty and size of the "investment multiplier," the secondary benefits (for example, increased future tourism) associated with the mega-event. Few studies have been done comparing the pre-event projections of the economic impact of the Olympics to their post-event reality. A study of the 1994 Winter Olympics held in Lillehammer, Norway, determined that the pre-event economic impact studies systematically overstated the potential economic benefits of hosting the event, and that actual economic gains were comparatively small and short in duration. Another study of the Lillehammer Olympics concluded, "the long-term impacts are marginal and out of proportion compared to the high costs of hosting the [Olympic] Games." A Bank of China (BoC) study of 12 host countries for Olympic Games over the last 60 years reportedly concluded that nine of the economies—including Japan and South Korea—experienced declines in their average GDP growth rates in the eight years after the Olympics when compared to the eight years prior to the Olympics. The Chinese press has run several stories pondering the question, "Will [China] succumb to the so-called Post-Olympics Effect (POE)?" When China originally bid on hosting the 2008 Summer Olympics, it estimated the cost at $1.625 billion. Since then, several revised budgets have been released, raising the official cost to over $2 billion. Included in this figure is the expense of building or renovating 76 stadiums and sport facilities in the seven venues—Beijing, Hong Kong, Qingdao, Qinhuangdao, Shanghai, Shenyang, and Tianjin—at which events will take place. However, these figures only include the direct costs of construction of the Olympic sports facilities and related venues. According to one estimate, the actual total construction cost—including the capital spent on non-sport infrastructure—is expected to exceed $40 billion. By comparison, Greece spent an estimated $16 billion on the 2004 Olympic Summer Games. At a recent press briefing, The Beijing Organizing Committee for the Games of the XXIX Olympiad (BOCOG) criticized estimates of this sort, indicating that investments on transportation ($26.2 billion), energy ($10.0 billion), water resources ($2.4 billion), and the urban environment ($2.5 billion) are to be considered part of the budget of the city in which the capital outlay took place and not part of the cost of the Olympics. The $41.1 billion on non-sport capital investment went to a variety of projects. For example, in Beijing, 200 miles of roads were refurbished, two additional ring roads completed, and more than 90 miles of subway and light rail lines were added to the city's transportation system. A 9,000 room Olympic Village was also built in Beijing to house 16,000 athletes; it is to be converted into a modern apartment complex after the Olympics are over. Similar projects were also completed in the other six Olympic venues. In 2007, two Chinese economists, Zhang Yaxiong and Zhao Kun, published a study of the projected impact of the Beijing Olympics on the economic development of Beijing, its surrounding areas, and the rest of China. According to the authors, "Apart from its significance as a grand societal gathering, hosting the Olympic Games will greatly promote investment and consumption." Their model estimated that Olympics-related investments in Beijing increased the city's economic growth by 2.02% between 2002 and 2007, raised the surrounding area's growth by 0.23%, and advanced the rest of the nation's growth by 0.09%. The paper recounts other studies of the projected impact of the Beijing Olympics on China's economy. The authors report that a study by Gu et al. published in Chinese in 2003 predicted that the Olympics will increase Beijing's economic growth by 5% between 2003 and 2009. A 2005 study by Wei and Yan (also in Chinese) concluded that the Olympics would increase Beijing's economic growth by 0.8% from 2005 to 2008. All of these studies appear to suffer from one or more of the methodological problems frequently associated with impact analysis of mega-events. In their input-output analysis, Zhang and Zhao include both sport and non-sport facility investments as part of the Olympics-related investments—contrary to the stance of the BOCOG—coming up with a total investment for the 2008 Olympics of 282.53 billion yuan, or $41.3 billion. According to some analysts, the $41.3 billion in "investments" should be properly classified as a cost—not a benefit—of the Olympics. The paper also implicitly assumes that all the investment made would not have been made if China was not hosting the Olympics. Nor do Zhang and Zhao consider the "opportunity cost" of the Olympics-related capital outlay. For example, could the money spent on the new "Bird's Nest"(National Stadium) or the "Water Cube"(the National Aquatic Center) have been instead spent in Beijing on housing, medical facilities, or schools? In addition, the paper does not attempt to estimate the losses of the people displaced from their homes or places of employment so that the new Olympic facilities could be built. Another significant drawback of the paper is its apparent lack of consideration of China's current economic circumstance, particularly its twin problems of overinvestment and inflation. At a time when the Chinese government is concerned that its economy is overheated, and the rate of inflation is rising (7.1% in June 2008), the expenditures associated with the 2008 Summer Olympics may be exacerbating the nation's economic problems in two ways. First, the direct demand for raw materials, equipment, and labor to construct the Olympic facilities may be increasing upward pressure on prices. Second, materials and resources used in constructing Olympic facilities might have been used on arguably more productive and urgent construction projects. Given the experiences of past hosts of Olympic Summer Games and the current economic situation in China, many analysts believe the 2008 Olympics are unlikely to provide much of a stimulus—or much of a deterrent—for economic growth in Beijing or the rest of China. Although the Olympics-related capital outlay is seemingly large, it is small when compared to the annual value of construction in China and the overall size of China's economy. During the first half of 2008, the gross value of construction in China was 2.27 trillion yuan, or $388 billion. In addition, China's economy—25 trillion yuan ($3.6 trillion) in 2007—is already growing at over 10% per year. By comparison, the potential economic impact of the Olympics is small. It is also unclear if the Olympics will foster greater tourism in China. There are reports that a stricter visa policy was implemented in the run-up for the Olympics, and that foreign business travelers have had a difficult time obtaining visas or have had their multiple entries visa converted into single entry visas. As a result, China's trade shows that historically have been crowded with buyers have seen a decline in attendance. While the visa situation may return to normal after the Olympics have ended, the short-term effect on China's exporters has been considerable. According to China's National Tourism Administration, China received nearly 132 million "inbound tourists"—including over 26 million "foreigners" in 2007. China's domestic tourism has grown over the last decade from 644 million domestic tourists in 1997 to 1.610 billion in 2007. For Beijing, it is unlikely that the new Olympic facilities—including the Bird's Nest and the Water Cube—will dramatically increase tourism to China's capital city. Beijing's tourism bureau reportedly reduced its projection for August's foreign visitors from 500,000 to between 400,000 and 450,000—or about the same level as last year. Just like the case of Lillehammer, Beijing hotels built in anticipation of a surge in tourism are experiencing unexpectedly high vacancy rates. There are some possible unexpected economic benefits that might be attributable to the 2008 Olympics. U.S. companies operating in China report that the new labor laws are being enforced. Such changes in labor conditions are unlikely to be reversed after the Olympics are over. Similarly, while the factories around Beijing that were closed down to help reduce air pollution during the Olympics will more than likely reopen, the increased awareness of the sources of pollution may keep China from reverting to its pre-Olympics status. It would appear that the potential gains that China may hope to acquire from hosting the Olympics will be mostly in its public image, prestige, and soft power. In the week prior to the opening ceremonies, there were some indications that obtaining these gains may prove problematic. Despite repeated government assurances, the air quality in Beijing has remained an issue of concern for the athletes. There has also been controversy over open access to the Internet for journalists covering the Olympics. In addition, there is a "risk" that protests or demonstrations on human rights in China may detract from the image the Chinese government wishes to portray in its motto for the 2008 Summer Games—"One World, One Dream." If, once the closing ceremonies are over and the 2008 Beijing Olympics are done, China has obtained neither the economic nor political gains it sought, it can look ahead to the 2010 World Expo in Shanghai as another opportunity to showcase its achievements. Alternatively, the 2010 World Expo could also be a chance to build on the successful 2008 Beijing Olympics. In either case, China will most likely use the next three years to bolster its global image as an economic and political power. | China will host the 2008 Olympic Summer Games from August 8 to 24, 2008. Most of the events will be held in the vicinity of Beijing, with selected competitions held in Hong Kong, Qingdao, Qinhuangdao, Shanghai, Shenyang, and Tianjin. Since the International Olympic Committee's decision in July 2001 to select Beijing as the host for the 2008 Olympics, China has spent billions of dollars for facilities and basic infrastructure in preparation for the international event. China anticipates that the 2008 Olympics will provide both short-term and long-term direct and indirect benefits to its economy, as well as enhance the nation's global image. However, the experience of past host cities and China's current economic conditions cast serious doubt that the Games of the XXIX Olympiad will provide the level of economic growth being anticipated. This report will not be updated. |
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